<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FOCAL, INC.
(Exact name of Registrant as specified in its charter)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3841 94-3142791
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
4 MAGUIRE ROAD
LEXINGTON, MA 02173
(781) 280-7800
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
DAVID CLAPPER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FOCAL, INC.
4 MAGUIRE ROAD
LEXINGTON, MA 02173
(781) 280-7800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
MARIO M. ROSATI, ESQ. KENNETH J. NOVACK, ESQ.
CHRISTOPHER D. MITCHELL, ESQ. PETER S. LAWRENCE, ESQ.
WILSON SONSINI GOODRICH & ROSATI MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO,
PROFESSIONAL CORPORATION P.C.
650 PAGE MILL ROAD ONE FINANCIAL CENTER
PALO ALTO, CALIFORNIA 94304 BOSTON, MASSACHUSETTS 02111
(650) 493-9300 (617) 542-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
--------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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 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 PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PRICE PER SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value..................... 2,875,000 shares $13.00 $37,375,000 $11,326
</TABLE>
(1) Includes 375,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act of
1933, as amended.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 21, 1997
PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
2,500,000 SHARES
[LOGO]
COMMON STOCK
------------------
All of the shares of Common Stock offered hereby are being sold by Focal,
Inc. ("Focal" or the "Company"). Prior to this offering, there has been no
public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $11.00 and $13.00 per
share. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market, subject to notice of
issuance, under the symbol "FOCL."
------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share................................... $ $ $
Total (3)................................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $600,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
375,000 additional shares of Common Stock on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of certificates
representing the shares of Common Stock will be made at the offices of Lehman
Brothers Inc., New York, New York, on or about , 1997.
------------------------
LEHMAN BROTHERS
PIPER JAFFRAY INC.
PACIFIC GROWTH EQUITIES, INC.
, 1997.
<PAGE>
Diagram of the human body showing the internal anatomy. Emanating from
different parts of the anatomy are four balloons containing pictures of various
organs undergoing different stages in the FOCALSEAL sealing process. The first
balloon emanates from the bowel area and depicts FOCALSEAL primer being applied
to a bowel anastomosis over the caption "FOCALSEAL for Gastrointestinal
Surgery." The second balloon emanates from the head area and depicts FOCALSEAL
sealant being applied to a suture line in the dural membrane over the caption
"FOCALSEAL for Neurosurgery." The third balloon emanates from the chest area and
depicts the illumination of the FOCALSEAL sealant covering a bypass graft
anastomosis on the heart to initiate photopolymerization over the caption
"FOCALSEAL for Vascular Surgery." The fourth balloon emanates from the chest
area and depicts a lung sealed with FOCALSEAL during an underwater test over the
caption "FOCALSEAL for Lung Surgery."
Series of five pictures depicting each step in the use of FOCALSEAL-L in the
simulated sealing of a lung during surgery. The first picture shows a lung
sealed only with staples being tested underwater for air leaks. The second
picture shows the lung being brushed with the FOCALSEAL primer. The third
picture in the series depicts the lung being brushed with the FOCALSEAL sealant.
The fourth picture depicts the illumination of the primer and sealant in order
to initiate photopolymerization. The final picture in the series shows the
sealed lung being tested underwater for air leaks.
Except for FOCALSEAL-L for lung surgery indications in the European market,
all of the Company's products are in the development stage, and none of such
products, including FOCALSEAL-L FOR LUNG SURGERY, HAVE BEEN APPROVED BY THE
UNITED STATES FOOD AND DRUG ADMINISTRATION ("FDA") OR ANY FOREIGN REGULATORY
AUTHORITY FOR MARKETING IN ANY COUNTRY. THE PROCESS OF OBTAINING SUCH APPROVALS
MAY BE LENGTHY, AND THERE CAN BE NO ASSURANCE THAT SUCH APPROVALS WILL BE
OBTAINED.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING EFFECTING SYNDICATE COVERING TRANSACTIONS, INITIATING
BIDS OR EFFECTING PURCHASES ON THE NASDAQ NATIONAL MARKET FOR THE PURPOSE OF
PREVENTING OR RETARDING A DECLINE IN THE MARKET PRICE OF THE COMMON STOCK, OR
IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
Focal-Registered Trademark-, FocalSeal-Registered Trademark-,
FocalSeal-L-TM-, FocalSeal-S-TM- and the Focal logo are trademarks of the
Company. Trade names and trademarks of other companies appearing in this
Prospectus are the property of their respective holders.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE NOTED,
THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION AND GIVES EFFECT TO (I) THE EXERCISE OF
CERTAIN OUTSTANDING WARRANTS TO PURCHASE 19,496 SHARES OF COMMON STOCK UPON THE
COMPLETION OF THIS OFFERING, (II) THE CONVERSION OF ALL OUTSTANDING SHARES OF
PREFERRED STOCK OF THE COMPANY INTO COMMON STOCK, WHICH WILL OCCUR AUTOMATICALLY
UPON THE COMPLETION OF THIS OFFERING AND (III) A 1 FOR 3.25 REVERSE STOCK SPLIT
OF ALL ISSUED AND OUTSTANDING COMMON STOCK THAT WILL BE EFFECTED PRIOR TO THE
COMPLETION OF THIS OFFERING. SEE "CAPITALIZATION," "DESCRIPTION OF CAPITAL
STOCK" AND "UNDERWRITING."
THE COMPANY
Focal, Inc. ("Focal" or the "Company") develops, manufactures and
commercializes synthetic, absorbable, liquid surgical sealants based on the
Company's proprietary polymer technology. The Company's family of FOCALSEAL
surgical sealant products is currently being developed for use inside the body
with or without sutures and staples to seal leaks resulting from lung, neuro,
cardiovascular and gastrointestinal surgery. FOCALSEAL-L, the Company's first
surgical sealant product, will initially be used to seal air leaks following
lung surgery. The Company has entered into an exclusive marketing and
distribution agreement for its surgical sealant products outside North America
with Ethicon, Inc., a division of Johnson & Johnson ("Ethicon"), a worldwide
leader in surgical wound closure products. The Company anticipates commercial
launch of FOCALSEAL-L for lung surgery indications in Europe through Ethicon in
the first half of 1998.
There are more than 4 million open and minimally invasive lung, neuro,
cardiovascular and gastrointestinal surgical procedures performed annually
worldwide in which air or fluid leaks may arise. Patients with persistent air or
fluid leaks may require prolonged hospitalization, have more complications and
higher levels of post-operative pain, and a higher risk of mortality. Sutures
and staples, the principal products comprising the $2.0 billion wound closure
market, do not have inherent sealing capabilities, and therefore cannot
consistently eliminate air and fluid leakage at the wound site. Focal's liquid
surgical sealants adhere rapidly to underlying tissue, expand and contract with
tissue, withstand air and fluid pressure, and are designed to provide an
effective seal to reduce the incidence of air and fluid leaks following surgery.
FOCALSEAL surgical sealants, which are biocompatible, remain intact through the
critical wound healing period and are then absorbed and eliminated by the body.
The Company believes the use of its FOCALSEAL liquid surgical sealants could
potentially shorten patient recovery times and hospital stays and reduce
post-surgical complications.
Focal is currently developing two principal surgical sealant formulations,
FOCALSEAL-L and FOCALSEAL-S, for a broad range of applications inside the body.
The Company has completed a 60-patient, multicenter, randomized, controlled
clinical trial in Europe involving use of FOCALSEAL-L in sealing air leaks
following lung surgery. In the study, FOCALSEAL-L was shown to be 100% effective
in sealing intraoperative air leaks in the 30 patients who were randomized into
the treated group. In the untreated group of patients who received sutures and
staples alone, only 27% were free of intraoperative air leaks. In September
1997, the Company initiated a pivotal, 180-patient, multicenter clinical trial
in the United States under a conditional investigational device exemption
("IDE") to evaluate FOCALSEAL-L in sealing intraoperative and postoperative air
leaks following lung surgery. The Company expects to submit a PMA application to
the FDA for lung surgery indications by the end of 1998.
FOCALSEAL-S, the Company's second surgical sealant formulation, is absorbed
by the body more quickly than FOCALSEAL-L and is designed for applications in
which shorter sealing duration is desired. FOCALSEAL-S will initially be used to
seal fluid leaks following neurosurgery. The Company expects to commence a
clinical trial in Europe for this indication in mid-1998. The Company believes
that its FOCALSEAL-L and FOCALSEAL-S formulations, which are designed to have
absorption times that parallel long- and short-term
2
<PAGE>
synthetic, absorbable polymer sutures, respectively, will also be widely
applicable to cardiovascular surgery, gastrointestinal surgery and other
surgical applications.
Focal is also developing other applications for its liquid polymer
technology, including local drug delivery systems and tissue coatings. In local
drug delivery applications, the Company believes that its polymers can deliver
high concentrations of drugs at local disease sites, thereby potentially
enhancing efficacy and reducing toxicity associated with systemic delivery of
drugs. The Company is initially pursuing local delivery of drugs with the
objective of reducing the incidence of restenosis following coronary angioplasty
procedures. The Company has entered into a collaboration with Novartis
Corporation ("Novartis") and Chiron Corporation ("Chiron") under which these
companies are funding development of a polymer-based local drug delivery system
for anti-restenosis agents being developed by them. In connection with the
collaboration, Novartis and Chiron received worldwide marketing and distribution
rights for this indication. In addition, the Company is developing tissue
coatings to prevent the formation of post-surgical adhesions, excessive scar
tissue which attaches to surrounding tissue and can cause serious complications,
particularly in abdominal and gynecological surgeries. The Company intends to
enter into other collaborations with pharmaceutical companies for additional
drug delivery indications.
Focal's family of surgical sealants and its other products under development
are based on the Company's proprietary synthetic, absorbable, liquid polymer
technology. The Company's polymers are comprised of polyethylene glycol ("PEG"),
other synthetic compounds and water. PEG and other synthetic compounds comprise
approximately 10-20% of the Company's polymer formulations and are widely used
in other medical products approved for use inside the body, such as
IV-administered pharmaceuticals, synthetic absorbable sutures, bone and dental
cements, cough syrups and eye drops. Water comprises the other 80-90% of Focal's
polymers. The Company combines PEG and other synthetic compounds in various
proprietary polymer formulations in order to control characteristics such as
viscosity, setting time, strength, absorption, flexibility and elasticity. This
enables the Company to tailor polymers for particular applications. A key
distinguishing characteristic of the Company's polymers is that they are applied
as liquids and polymerize into solid gels inside the body. The polymerized
biomaterial is highly flexible, elastic and transparent and strongly adheres to
moist or dry tissue.
The Company believes it has built a strong patent portfolio related to its
photopolymerizable polymer technology. The Company has received, licensed or
believes it has the right to license 21 issued United States patents and six
foreign patents corresponding to certain of the issued United States patents,
has 10 additional United States patent applications that have been allowed and
has 22 patent applications pending in the United States, as well as foreign
counterparts of certain of these applications.
The Company's objective is to become a leader in the market for surgical
sealants and in other markets where the Company's novel polymer technology could
address large unmet clinical needs. The Company intends to achieve its goals by
(i) marketing its FOCALSEAL surgical sealant products through Ethicon
internationally and by building a direct sales force in North America; (ii)
leveraging its proprietary polymer technology to develop new products; (iii)
commercializing FOCALSEAL surgical sealants to parallel the existing products in
the market for synthetic absorbable sutures; (iv) funding new research and
development initiatives through corporate collaborations; and (v) retaining
proprietary, and outsourcing non-proprietary, manufacturing processes.
Focal was incorporated in Delaware in June 1991. The Company's principal
executive offices are located at 4 Maguire Road, Lexington, Massachusetts 02173.
Its telephone number is (781) 280-7800.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered......................... 2,500,000 shares
Common Stock to be outstanding after the
offering................................... 12,865,337 shares (1)
Use of proceeds.............................. For research and development, clinical
trials, expansion of manufacturing
capabilities and sales and marketing
activities, capital expenditures, working
capital and general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol....... FOCL
</TABLE>
SUMMARY FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------------------------------------ --------
1992 1993 1994 1995 1996 1996
-------- -------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Collaborative research revenue.............................. $ -- $ -- $ 50 $ 968 $ 3,098 $ 2,349
Operating expenses:
Research and development.................................. 1,793 7,405 11,890 9,665 11,680 8,735
General and administrative................................ 466 1,925 2,034 2,098 2,076 1,440
-------- -------- --------- --------- -------- --------
Total operating expenses.................................... 2,259 9,330 13,924 11,763 13,756 10,175
-------- -------- --------- --------- -------- --------
Loss from operations........................................ (2,259) (9,330) (13,874) (10,795) (10,658) (7,826)
Interest income............................................. 6 357 668 443 691 515
Interest expense............................................ 13 44 79 107 92 71
-------- -------- --------- --------- -------- --------
Net income (loss)........................................... $ (2,266) $ (9,017) $ (13,285) $ (10,459) $(10,059) $ (7,382)
-------- -------- --------- --------- -------- --------
-------- -------- --------- --------- -------- --------
Pro forma net income (loss) per share (2)................... $ (1.22) $ (.92)
-------- --------
-------- --------
Shares used in computing pro forma
net income (loss) per share (2)........................... 8,271 8,001
-------- --------
-------- --------
<CAPTION>
1997
-------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Collaborative research revenue.............................. $12,831
Operating expenses:
Research and development.................................. 10,929
General and administrative................................ 1,969
-------
Total operating expenses.................................... 12,898
-------
Loss from operations........................................ (67)
Interest income............................................. 731
Interest expense............................................ 81
-------
Net income (loss)........................................... $ 583
-------
-------
Pro forma net income (loss) per share (2)................... $ .06
-------
-------
Shares used in computing pro forma
net income (loss) per share (2)........................... 10,551
-------
-------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------
ACTUAL AS ADJUSTED (3)
--------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities...................................... $ 13,215 $ 40,538
Working capital....................................................................... 9,254 36,577
Total assets.......................................................................... 18,179 45,502
Capital lease obligations, long-term portion.......................................... 1,207 1,207
Total stockholders' equity............................................................ 12,476 39,799
</TABLE>
- ------------------------
(1) Excludes (i) 297,921 shares of Common Stock issuable upon the exercise of
stock options outstanding under the Company's 1992 Incentive Stock Plan at
September 30, 1997, and (ii) 179,586 shares issuable upon the exercise of
warrants that will remain outstanding following the completion of this
offering. See "Management--Incentive Stock Plans," "Certain Transactions,"
"Description of Capital Stock" and Note 5 of Notes to Financial Statements.
(2) See Note 1 of Notes to Financial Statements for information concerning
calculation of pro forma net income (loss) per share.
(3) As adjusted to reflect the sale of the 2,500,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $12.00 per
share and the receipt of the estimated net proceeds therefrom. See "Use of
Proceeds."
------------------------------
THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK FACTORS" AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS PROSPECTUS.
4
<PAGE>
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING THE COMMON
STOCK OFFERED HEREBY.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY. The Company has incurred net losses in each year since its
inception, including a net loss of approximately $10.1 million during 1996. At
September 30, 1997, the Company had an accumulated deficit of $44.8 million. The
Company's operating losses have resulted primarily from expenses incurred in
connection with the Company's research and development activities, including
preclinical and clinical trials, development of manufacturing processes and
general and administrative expenses. The Company expects to incur net losses
into 1999 and may incur net losses in subsequent periods, although the amount of
future net losses and time required by the Company to reach profitability are
highly uncertain. The Company is dependent upon corporate partners for funding
of a significant portion of its research and development expenses. If the
Company does not continue to receive funding from its current corporate
partners, or is unable to otherwise obtain third-party funding, operating losses
will increase. Focal does not expect to generate revenues from the sale of
products, if any, until the first half of 1998. The Company's ability to achieve
and sustain profitability will be dependent upon obtaining regulatory approval
for and successfully commercializing its FOCALSEAL surgical sealants, and
developing the manufacturing capacity and sales and marketing capability for its
products. There can be no assurance that Focal will obtain required regulatory
approvals, or successfully develop, manufacture, commercialize and market
products or that the Company will ever record product revenues or achieve
profitability. Profitability, if achieved, may not be sustained. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNCERTAINTIES RELATED TO EARLY STAGE OF COMMERCIALIZATION AND
DEVELOPMENT. Except for the FOCALSEAL-L surgical sealant for lung surgery
indications, which the Company expects to begin marketing in Europe in 1998
through Ethicon, all of the Company's products are in early stages of
development or research. To date the Company has not received marketing approval
for its FOCALSEAL-L lung surgical sealant or any other product from the FDA or
any other international regulatory body. The Company's initial product,
FOCALSEAL-L, is not expected to be commercially available in Europe until the
first half of 1998 and in the United States until the end of 1999, at the
earliest. In addition, FOCALSEAL-L and FOCALSEAL-S will require significant
additional research and development efforts before either is suitable for other
indications. The development and commercialization of new bioabsorbable
synthetic polymer products are highly uncertain and subject to a number of
significant risks. Potential products that appear to be promising at early
stages of development may not reach the market for a number of reasons. Such
reasons include the possibilities that the potential products will be found
ineffective or cause harmful side effects during preclinical testing or clinical
trials, fail to receive necessary regulatory approvals, be difficult to
manufacture on a commercial scale, be uneconomical, fail to achieve market
acceptance or be precluded from commercialization by proprietary rights of third
parties. No assurance can be given that any of the Company's development
programs will be successfully completed, that clinical trials will generate
anticipated results or will commence or be completed as planned, that any
premarket approval ("PMA") application will be accepted or ultimately approved
by the FDA, that required regulatory approvals will be obtained on a timely
basis, if at all, or that any products for which approval is obtained will be
commercially successful. If any of the Company's development programs are not
successfully completed, required regulatory approvals are not obtained, or
products for which approvals are obtained are not commercially successful, the
Company's business, financial condition and results of operations would be
materially adversely affected. See "Business--Products and Product Development
Programs."
EARLY STAGE OF CLINICAL TESTING AND LACK OF EXTENSIVE CLINICAL DATA. The
FOCALSEAL-L product for lung surgery is in the early stages of clinical testing
in the United States, and clinical data obtained to date is insufficient to
demonstrate the safety and efficacy of this product under applicable FDA
regulatory guidelines. The Company has completed a 60-patient controlled,
randomized human clinical trial in
5
<PAGE>
Europe involving use of FOCALSEAL-L in lung surgery. Although the Company
believes that the results of this trial are sufficient to obtain marketing
approval in Europe, significant additional clinical data will be required prior
to submission of a PMA in the United States. The Company has only recently
commenced United States clinical trials of FOCALSEAL-L pursuant to a
conditionally approved investigational device exemption ("IDE") issued by the
FDA. Based on communications to date, the FDA may require the Company to pursue
certain clinical endpoints that were not the subject of the European clinical
trial. In the event that the Company is required to pursue these endpoints, it
may be more difficult for the Company to demonstrate the efficacy of FOCALSEAL-L
in the United States trial than in the European trial, which could result in
delays or adversely affect the success of the clinical trial. There can be no
assurance that FOCALSEAL-L will receive marketing approval from the FDA or that
any of the Company's other products will prove to be safe and effective in
United States or international clinical trials under applicable regulatory
guidelines. In addition, clinical trials may identify significant technical or
other obstacles to be overcome prior to obtaining necessary regulatory or
international approvals. In particular, during the Company's European clinical
trial of FOCALSEAL-L in lung surgery, a higher than anticipated incidence of
insufficient wound healing at the bronchial stump was observed in patients in
the treated group. The bronchial stump typically heals through tissue overgrowth
from surrounding areas. Based upon its review and analysis of the clinical data,
the Company believes that in those cases in which FOCALSEAL-L was applied
directly to the bronchial stump it may have acted as a barrier to such tissue
overgrowth, thereby slowing natural healing of the bronchial stump. As a result
of this observed clinical event, the labelling for FOCALSEAL-L in the United
States clinical trial indicates that the product may be applied to all lung
tissues other than the bronchial stump. Other unforeseen circumstances may
arise, or adverse events related to the use of the product may occur, during
clinical trials and any such events may require suspension or termination of
clinical trials as well as reporting to the FDA or other regulatory authorities.
If the FOCALSEAL product and the Company's other products under development do
not prove to be safe and effective in clinical trials or if the Company is
otherwise unable to commercialize these products successfully, the Company's
business, financial condition and results of operations will be materially and
adversely affected. See "Business--Products and Product Development
Programs--FOCALSEAL Surgical Sealant Products."
DEPENDENCE UPON FOCALSEAL SURGICAL SEALANTS. The Company expects to
introduce its first commercial product, FOCALSEAL-L for lung surgery
indications, in Europe in the first half of 1998 through its strategic marketing
alliance with Ethicon. The Company anticipates that revenues derived from
European sales of FOCALSEAL-L will account for a substantial majority of the
Company's near term product revenues. Before FOCALSEAL-L can be sold in Europe,
the Company must first obtain a CE mark for marketing in the member countries of
the European Union. Any delays or other difficulties encountered by the Company
in obtaining such CE mark would have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company's future success will depend, in significant part, on its ability to
complete successfully additional clinical trials and to obtain regulatory
approval and market acceptance of FOCALSEAL-L in the United States. Although the
Company recently commenced a 180-patient, pivotal, multicenter trial of
FOCALSEAL-L for lung surgery indications in the United States and anticipates
submitting a PMA application to the FDA based on the results of the trial, there
can be no assurance that the FDA will accept the PMA for filing, that the
Company will be able to demonstrate to the FDA's satisfaction that FOCALSEAL-L
is safe and effective, or, if marketing approval were granted by the FDA, that
the Company will commercialize successfully FOCALSEAL-L in the United States.
Failure by the Company to gain marketing approval from the FDA for FOCALSEAL-L
or to be able to commercialize successfully FOCALSEAL-L in the United States
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "--Uncertainties Related to Early Stage
of Commercialization and Development," "--Early Stage of Clinical Testing and
Lack of Extensive Clinical Data," and "--Uncertainty of Market Acceptance."
UNCERTAINTY OF MARKET ACCEPTANCE. The Company's FOCALSEAL surgical sealants
represent a new method of sealing air and fluid leaks that arise in connection
with surgery, and there can be no assurance
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that these products will gain commercial acceptance among physicians, patients
and health care payors, even if necessary international and United States
marketing approvals can be obtained. The Company believes that recommendations
and endorsements by physicians will be essential for market acceptance of
FOCALSEAL, and there can be no assurance that any such recommendations or
endorsements will be obtained. Physicians will not use the FOCALSEAL surgical
sealants unless they determine, based on clinical data and other factors, that
these systems are an effective means of sealing air and fluid leaks and that the
clinical benefits to the patient and cost savings achieved through use of these
systems outweigh their cost. Such determinations will depend, in part, on the
ability of the Company's FOCALSEAL-L surgical sealant to reduce the time a lung
surgery patient must be connected to a chest tube and the length of hospital
stays associated with lung surgery. Acceptance among physicians may also depend
upon the Company's ability to train thoracic surgeons and other potential users
of the Company's products in the application of liquid surgical sealants, which
such physicians typically have not performed, and the willingness of such users
to learn these new techniques. Failure of the Company's products to achieve
significant market acceptance would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Products and Product Development Programs--FOCALSEAL Surgical Sealant
Products."
DEPENDENCE ON STRATEGIC ALLIANCES. The Company has established strategic
alliances and collaborations with the Ethicon division of Johnson & Johnson in
the field of surgical sealants for all territories outside of North America and
with Novartis Corporation ("Novartis") and Chiron Corporation ("Chiron") in the
field of local drug delivery for restenosis prevention worldwide. The Company is
dependent upon these corporate partners to provide certain research and
development funding for these programs. Under the agreement with Ethicon, the
Company is dependent upon Ethicon for marketing and sale of surgical sealants
outside North America and for obtaining international regulatory approvals other
than the CE mark, which is the responsibility of the Company to obtain. Under
the agreement with Novartis and Chiron, the Company is dependent on these
companies to collaborate in the development of polymer-based drug delivery
products to be used for local, time-release delivery of cardiovascular drugs, to
conduct preclinical testing and clinical trials and obtain required regulatory
approvals for such drug candidates, and to manufacture and commercialize any
resulting drugs. Failure of these partners to continue to collaborate with the
Company for subsequent development of products, seek required regulatory
approvals or commercialize products would have a material adverse effect on the
Company's business, financial condition and results of operations. The Company's
strategy for development and commercialization of certain of its future products
may depend upon the Company entering into additional arrangements with research
collaborators, corporate partners and others, and upon the subsequent success of
these third parties in performing their obligations. There can be no assurance
that the Company will be able to enter into additional strategic alliances on
terms favorable to the Company, or at all. The Company's inability to enter into
additional strategic alliances could have an adverse effect on the Company's
business, financial condition and results of operations.
The Company cannot control the amount and timing of resources which its
corporate partners devote to the Company's programs or potential products. If
any of the Company's corporate partners breach their agreements with the Company
or otherwise fail to conduct their collaborative activities in a timely manner,
the clinical development and/or commercialization of products will be delayed,
and the Company will be required to devote additional resources to product
development and commercialization, or terminate certain development programs.
The Company's strategic alliance with Novartis and Chiron is subject to
termination upon 90 days notice. There can be no assurance that Novartis and
Chiron will not elect to terminate their strategic alliance with the Company. In
addition, if the Company's corporate partners effect a merger with a third
party, there can be no assurance that the strategic alliances will not be
terminated or otherwise materially adversely affected. The termination of any
current or future strategic alliances could have a material adverse effect on
the Company's business, financial condition and results of operations.
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In addition, Focal's strategic partners may develop, either alone or with
others, products that compete directly with the development and marketing of the
Company's products. Competing products, either developed by the corporate
partners or to which the corporate partners have rights, may result in their
withdrawal of support with respect to all or a portion of the Company's
technology, marketing and development efforts, which would have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that disputes will not arise in the future
with respect to the ownership of rights to any products or technology developed
with corporate partners. These and other possible disagreements between
corporate partners and the Company could lead to delays in or termination of the
collaborative research, development or commercialization of certain products or
could require or result in litigation or arbitration, which would be
time-consuming and expensive, and would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Strategic Alliances."
INTENSE COMPETITION; UNCERTAINTY OF TECHNOLOGICAL CHANGE. The Company
competes with many domestic and foreign medical device, pharmaceutical and
biopharmaceutical companies. In the surgical sealant area, the Company will
compete with existing methodologies for sealing air and fluid leaks resulting
from surgery, including some traditional wound closure products such as sutures
and staples, marketed by companies such as Johnson & Johnson, United States
Surgical Corporation, American Home Products Corporation and others. Other
products currently being marketed include fibrin glue, sold in Europe and the
Pacific Rim countries by Immuno AG, Cention, Fujisawa and others, and under
development by Baxter Healthcare Corporation, Bristol-Myers Squibb Company,
Vitex and others. Other competitors in the surgical sealant market include
Closure Medical Corporation, B. Braun GmBH and Cryolife. Competitive products
may also be under development by other large medical device, pharmaceutical and
biopharmaceutical companies. The other areas in which Focal is developing
products, such as post-surgical adhesion prevention and restenosis drug
delivery, are intensely competitive markets and the Company will encounter
competition from major medical device, pharmaceutical and biopharmaceutical
companies in such markets. Many of the Company's current and potential
competitors have substantially greater financial, technological, research and
development, regulatory and clinical, marketing and sales, and personnel
resources than the Company. These competitors may also have greater experience
in developing products, conducting clinical trials, obtaining regulatory
approvals, and manufacturing and marketing such products. Certain of these
competitors may obtain patent protection, approval or clearance by the FDA or
foreign countries or product commercialization earlier than the Company, any of
which could materially adversely affect the Company. Furthermore, if the Company
commences significant commercial sales of its products, it will also be
competing with respect to manufacturing efficiency and marketing capabilities,
areas in which it currently has limited experience. Finally, there can be no
assurance that the Company's marketing partners will not pursue parallel
development of other technologies or products, which may result in a marketing
partner developing additional products that would compete with the Company's
products.
Other recently developed technologies or procedures are, or may in the
future be, the basis of competitive products. There can be no assurance that the
Company's current competitors or other parties will not succeed in developing
alternative technologies and products that are more effective, easier to use or
more economical than those which have or are being developed by the Company or
that would render the Company's technology and products obsolete and
non-competitive in these fields. In such event, the Company's business,
financial condition and results of operations could be materially adversely
affected. See "Business--Competition and Technological Change."
UNCERTAINTIES RELATED TO PATENTS AND PROPRIETARY TECHNOLOGY. The Company's
success will depend on its ability to obtain patent protection for its products,
preserve its trade secrets, prevent third parties from infringing upon its
proprietary rights, and operate without infringing upon the proprietary rights
of others, both in the United States and internationally. There can be no
assurance that the Company's pending or future patent applications will issue,
or that the claims of the Company's issued patents, or any patents that
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may issue in the future, will provide any competitive advantages for the
Company's products or that they will not be successfully challenged, narrowed,
invalidated or circumvented in the future. Moreover, litigation and interference
or opposition proceedings associated with obtaining, enforcing or defending
patents or trade secrets is expensive and can divert the efforts of technical
and management personnel. The Company has filed patent applications in certain
foreign countries corresponding to certain patent applications that it has filed
in the United States and may file additional patent applications inside and
outside the United States. The Company believes that obtaining foreign patents
may be more difficult than obtaining domestic patents because of differences in
patent laws and believes the protection afforded by foreign patents or any other
foreign intellectual property protection, if obtained, may be more limited than
that provided domestically. In addition, there can be no assurance that
competitors will not seek to apply for and obtain patents that will prevent,
limit or interfere with the Company's ability to make, use, offer for sale, sell
and import its products. The Company is aware that certain medical device,
pharmaceutical and other companies, universities and research institutions have
filed patent applications or have issued patents relating to compositions and
methods for wound closure and adhesion prevention. In addition, the medical
device and pharmaceutical industries have been characterized by litigation
regarding patents and other intellectual property rights, and many companies in
the medical device industry have employed intellectual property litigation to
gain a competitive advantage. There can be no assurance that litigation will not
be brought against the Company by third parties in the future challenging the
Company's patent rights or claiming infringement by the Company of patents held
by the third parties.
Because of the substantial length of time and expense associated with
bringing new products through the development and regulatory approval processes
in order to reach the marketplace, the medical products industry places
considerable importance on obtaining patent and trade secret protection for new
technologies, products and processes. Accordingly, the Company intends to seek
patent protection for its proprietary technology, products and processes. There
can be no assurance as to the success or timeliness in obtaining any such
patents, that the breadth of claims obtained, if any, will provide adequate
protection of the Company's proprietary technologies, products and processes, or
that the Company will be able to adequately enforce any such claims to protect
its proprietary technology, products and processes. Because patent applications
in the United States are confidential until the patents issue, and publication
of discoveries in the scientific and patent literature tends to lag behind
actual discoveries by several months, the Company cannot be certain that Company
inventors or licensors were the first to conceive of inventions covered by
pending patent applications or that the Company was the first to file patent
applications for such inventions.
The Company may desire to or may be required to obtain licenses to patents
or proprietary rights of others. No assurance can be given that any licenses
required under any patents or proprietary rights of third parties would be made
available on terms acceptable to the Company, or at all. If the Company does not
obtain such licenses, it could encounter delays in product introductions while
it attempts to design around or otherwise avoid such patents, or it could find
that the development, manufacture or sale of products requiring such licenses is
foreclosed. Litigation may be necessary to defend against or assert claims of
patent infringement or invalidity, to enforce or defend patents issued to the
Company, to protect trade secrets or know-how owned by the Company, or to
determine the scope and validity of the proprietary rights of others. In
addition, interference proceedings in the United States Patent and Trademark
Office, or opposition proceedings in a foreign patent office, may be necessary
to determine the priority of inventions with respect to patent applications of
the Company or its licensors. Litigation, interference or opposition proceedings
could result in substantial costs to and diversion of effort by the Company, and
adverse determinations in any such proceedings could prevent the Company from
manufacturing, marketing or selling its products and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company also relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to develop and
maintain its competitive position, which it seeks to
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protect, in part, by confidentiality agreements with its commercial partners,
collaborators, employees and consultants. The Company also has invention or
patent assignment agreements with its employees and certain, but not all,
commercial partners and consultants. There can be no assurance that relevant
inventions will not be developed by a person not bound by an invention
assignment agreement. There can be no assurance that binding agreements will not
be breached, that the Company would have adequate remedies for any breach, or
that the Company's trade secrets will not otherwise become known or be
independently discovered by competitors. See "Business--Patents and Proprietary
Rights."
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVALS. Clinical
testing, manufacture, promotion and sale of the Company's products are subject
to extensive regulation by numerous governmental authorities in the United
States, principally the FDA, and corresponding foreign regulatory agencies. The
Federal Food, Drug, Cosmetic Act ("FDC Act"), and other federal and state
statutes and regulations govern or influence the testing, manufacture, labeling,
advertising, distribution and promotion of drugs and devices. Noncompliance with
applicable requirements can result in fines, injunctions, civil penalties,
recall or seizure of products, total or partial suspension of production,
refusal to authorize the marketing of new products or to allow the Company to
enter into supply contracts, and criminal prosecution.
The Company's FOCALSEAL surgical sealant product will be regulated as a
class III medical device for which FDA approval of a premarket approval ("PMA")
application must be obtained prior to United States Commercial Sales. A PMA
application must be supported by extensive information, including preclinical
and clinical trial data. The PMA process is expensive, lengthy and uncertain,
and a number of products for which PMA applications have been submitted have
never been approved for marketing.
If granted, the approval of the PMA application may include significant
limitations on the indicated uses for which a product may be marketed. There can
be no assurance that the Company will be able to obtain necessary PMA
application approvals to market the FOCALSEAL surgical sealant, or any other
products, on a timely basis, if at all. Failure to obtain or delays in receipt
of such approvals, the loss of previously received approvals, or failure to
comply with existing or future regulatory requirements could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Although the Company has received a conditional IDE from the FDA permitting
the Company to conduct clinical trials of FOCALSEAL for lung surgery in the
United States, and such clinical study has recently commenced, there can be no
assurance that data from such studies will demonstrate the safety and
effectiveness of the FOCALSEAL product or will adequately support a PMA
application for the product. In addition, the Company will be required to obtain
additional IDEs for other applications of FOCALSEAL and for other products that
the Company develops that are regulated by the FDA as medical devices. There can
be no assurance that data, typically the results of animal and laboratory
testing, that may be provided by the Company in support of future IDE
submissions will be deemed adequate for the purposes of obtaining IDE approval
or that the Company will obtain approval to conduct clinical studies of any such
future product. Furthermore, even if IDE approval is obtained and clinical
studies are conducted, there can be no assurance that data from such studies
will demonstrate the safety and effectiveness of any such product or will
adequately support a PMA application for any such product. See "--Early Stage of
Clinical Testing and Lack of Extensive Clinical Data."
The drug delivery products that the Company is developing, including
products under development with collaborative partners for restenosis drug
delivery, are likely to be regulated as drugs requiring FDA approval of an
investigational new drug ("IND") prior to clinical testing and of a new drug
application ("NDA") prior to commercialization in the United States. The new
drug approval process is generally considered more onerous, costly and lengthy
than the PMA process, requiring more extensive preclinical and clinical testing,
and many products for which NDAs have been submitted have never been approved
for marketing. There can be no assurance that the Company will be able to obtain
necessary or timely IND or NDA approval for any product for which it is
required. Failure to obtain or delays in the receipt of NDA
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approval, when required, could have a material adverse effect on the Company's
business, financial condition, and results of operations.
The FDA and other regulatory agency requirements for manufacturing, product
testing and marketing vary depending upon whether the product is a medical
device or drug. Manufacturers of medical devices and drugs are also required to
comply with the applicable FDA good manufacturing practice ("GMP") regulations,
which include requirements relating to product testing and quality assurance as
well as the corresponding maintenance of records and documentation. There is no
assurance that the Company will be able to comply with the applicable GMP
requirements.
The Company is required to provide information to the FDA on death or
serious injuries alleged to have been associated with the use of its medical
devices, as well as product malfunctions that would likely cause or contribute
to death or serious injury if the malfunction were to recur. In addition, the
FDA prohibits a cleared or approved device from being marketed for uncleared or
unapproved applications. If the FDA believes that a company is not in compliance
with law, it can institute proceedings to detain or seize products, issue a
recall, enjoin future violations and assess civil and criminal penalties against
the Company, its officers and its employees. Failure to comply with the
regulatory requirements could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition,
regulations regarding the manufacture and sale of the Company's products are
subject to change. The Company cannot predict the effect, if any, that such
changes might have on its business, financial condition or results of
operations.
International sales of the Company's products are subject to the regulatory
agency product registration requirements of each country. The regulatory review
process varies from country to country. In order to market the FOCALSEAL
surgical sealant and other products being developed by the Company in the member
countries of the European Union, the Company will be required to obtain CE mark
certification. CE mark certification is an international symbol of adherence to
quality assurance standards and compliance with applicable European medical
device directives. The Company will be required to obtain the right to affix the
CE mark to its products in order to sell such products in member countries of
the European Union. In September 1997, the Company completed a CE mark and ISO
9001 standards audit for FOCALSEAL-L, which is one of the principal steps in the
CE mark approval process. The remainder of the CE mark approval process consists
primarily of review by the approving body of additional documentation to be
submitted by the Company in response to observations made during the CE mark
audit. Although the CE mark and ISO 9001 standards audit has been completed,
there can be no assurance that the Company will be successful in completing the
remainder of the CE mark certification process or obtaining CE mark
certification in a timely manner. See "Business--Government Regulation."
NEED FOR ADDITIONAL FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL. Focal will
require substantial additional funding in order to continue its research and
product development programs, including for preclinical testing and clinical
trials of its product candidates, for operating expenses, for the pursuit of
regulatory approvals for its product candidates, and may require additional
funding for establishing manufacturing and marketing capabilities in the future.
The Company believes that its existing capital resources, together with the net
proceeds of this offering, interest income and future payments due under
strategic alliances, will be sufficient to satisfy its current and projected
funding requirements for at least 18 months. However, no assurance can be given
that such net proceeds will be sufficient to conduct its research and
development programs as planned. The Company's future capital requirements will
depend on many factors, including continued scientific progress in its research
and development programs, the magnitude of these programs, progress with
preclinical testing and clinical trials, the time and costs involved in
obtaining regulatory approvals, if any, the costs involved in filing and
prosecuting patent applications and enforcing patent claims, competing
technological and market developments, the establishment of additional strategic
alliances, the cost of manufacturing facilities and of commercialization
activities, and the cost of product in-licensing and any possible acquisitions.
There can be no assurance that the Company's cash, cash equivalents and
marketable securities, including the net proceeds of this offering, and interest
income
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earned thereon, together with funding that may be received under the Company's
strategic alliances, will be adequate to satisfy its capital and operating
requirements.
Focal intends to seek additional funding through strategic alliances, and
may seek additional funding through public or private sales of the Company's
securities, including equity securities. In addition, the Company has obtained
equipment lease financing and other forms of debt financing and may continue to
pursue opportunities to obtain additional lease or debt financing in the future.
There can be no assurance, however, that additional equity or debt financing
will be available on reasonable terms, if at all. Any additional equity
financings would be dilutive to the Company's stockholders. If adequate funds
are not available, Focal may be required to curtail significantly one or more of
its research and development programs and/or obtain funds through arrangements
with corporate partners or others that may require Focal to relinquish rights to
certain of its technologies or product candidates. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
LIMITED MANUFACTURING EXPERIENCE. The Company has only limited
manufacturing facilities for clinical and early commercial production of its
products and has limited experience in manufacturing its FOCALSEAL surgical
sealants. There can be no assurance that the Company will be able to attract,
train and retain the required personnel or will be able to increase its
manufacturing capability to manufacture commercial quantities of surgical
sealants in a timely manner, or at all. Manufacturers often encounter
difficulties in scaling up production of their products, including problems
involving production yields, quality control and assurance, component supply and
shortages of qualified personnel. The Company anticipates that it will need to
increase significantly its current manufacturing capacity to meet commercial
needs over the next several years and that it may need to establish off-site
manufacturing capacity to meet these anticipated needs. In addition, the Company
expects that it will need to identity and qualify additional sources for
materials and outsourced manufacturing processes. There can be no assurance that
the Company's manufacturing scale-up efforts will be successful or that
reliable, commercial manufacturing can be established or maintained at
commercially reasonable costs on a timely basis, or at all. The Company would
experience supply interruptions in the event it is unable to establish or
maintain commercial levels of polymer synthesis, as the Company's polymer
formulations are proprietary and are not available from third parties. In
addition, there can be no assurance that the Company will not encounter
unanticipated problems and delays in connection with its contract manufacturers
and suppliers. Delays associated with or difficulties encountered in
establishing commercial manufacturing, or problems encountered with contract
manufacturers and suppliers, would result in disruptions of product supply to
the Company's marketing partners and for use in clinical trials. In such event,
Ethicon could, under its agreement with the Company, commence manufacturing of
surgical sealants for sales in all territories outside North America. Any of the
foregoing would have a material adverse affect on the Company's business,
financial condition and results of operations.
The Company purchases raw materials used in its products from various
suppliers. Certain materials and components are currently purchased by the
Company from single sources. These materials have generally been readily
available in the marketplace and have not been the subject of shortages. There
can, however, be no assurance that the Company or its suppliers or contract
manufacturers will not experience materials shortages in the future. Any such
future shortages of materials or components could have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company is also required to register as a medical device manufacturer
with the FDA and to list its products with the FDA. As such, the Company is
subject to inspections by the FDA for compliance with the FDA's GMP and other
applicable regulations. In addition, prior to international commercialization,
the Company will be required to attain and maintain compliance with GMP
requirements and ISO 9001 standards. Failure to either attain or maintain
compliance with the applicable regulatory requirements of various regulatory
agencies would have a material adverse effect on the Company's business
financial condition and results of operations. These regulations require that
the Company maintain its documents in a prescribed manner with respect to
manufacturing, testing and control activities. Further, the Company
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and the third party manufacturers of its products are required to comply with
various FDA requirements for design, safety, advertising and labeling. The
Company has not yet undergone an FDA GMP inspection and does not anticipate that
it will undergo such an inspection until after submission of its initial PMA
application for FOCALSEAL surgical sealants. See "Business--Manufacturing."
Complex medical devices, such as the Company's products, can experience
performance problems in the field that require review and possible corrective
action by the manufacturer. There can be no assurance that component failures,
manufacturing errors or design defects that could result in an unsafe condition
or injury to the patient will not occur. If any such failures or defects were
deemed serious, the Company could be required to withdraw or recall products,
which could result in significant costs to the Company. However, there can be no
assurance that market withdrawals or product recalls will not occur in the
future. Any future product problems could result in market withdrawals or
recalls of products, which could have a material adverse affect on the Company's
business, financial condition or results of operations.
LACK OF MARKETING AND SALES CAPABILITIES. The Company currently has no
experience in marketing or selling its products under development and does not
have a marketing and sales staff. In order to achieve commercial success for any
product approved by the FDA, Focal must either develop a marketing and sales
force or enter into arrangements with third parties to market and sell its
products. Although Focal has international marketing arrangements in place for
its surgical sealant products, there can be no assurance that Focal will
successfully develop such marketing capabilities or experience for United States
marketing efforts. If the Company develops its own marketing and sales
capabilities, it will compete with other companies that currently have
experienced and well funded marketing and sales operations. To the extent that
the Company enters into co-promotion or other marketing and sales arrangements
with other companies, any revenues to be received by Focal will be dependent on
the efforts of others, and there can be no assurance that such efforts will be
successful. See "Business--Sales and Marketing."
REIMBURSEMENT AND PRODUCT PRICING. Reimbursement and health care payment
systems in international markets vary significantly by country. In connection
with international product introductions, the Company and its strategic
marketing partners may be required to seek international reimbursement
approvals, although there can be no assurance that any such approvals will be
obtained in a timely manner, or at all, and failure to receive such
international reimbursement approvals could have an adverse effect on market
acceptance of the Company's products in the international markets in which such
approvals are sought. In the United States, health care providers, such as
hospitals and physicians, that purchase medical devices such as the Company's
products, generally rely on third-party payors, principally federal Medicare,
state Medicaid and private health insurance plans, to reimburse all or part of
the cost of surgical procedures. The Company anticipates that in a prospective
payment system, such as the DRG system utilized by Medicare, and in many managed
care systems used by private health care payors, there will be no separate,
additional reimbursement for the Company's products. Accordingly, the Company
believes that there will be no product or procedure reimbursement codes for the
Company's products. There can be no assurance that reimbursement for the
Company's products will be available in the United States or in international
markets under either governmental or private reimbursement systems. Furthermore,
the Company could be adversely affected by changes in reimbursement policies of
governmental or private health care payors. Failure by physicians, hospitals and
other users of the Company's products to obtain sufficient reimbursement from
health care payors for procedures in which the Company's products are used or
adverse changes in governmental and private third party payors' policies toward
reimbursement for such procedures would have a material adverse effect on the
Company's business, financial condition and results of operations. The Company's
business may be also materially adversely affected by the continuing efforts of
government and third-party payors to contain or reduce the costs of health care
through various means. See "Business--Third Party Reimbursement."
UNCERTAINTY OF ABILITY TO ATTRACT AND RETAIN KEY MANAGEMENT, EMPLOYEES AND
CONSULTANTS. The Company is highly dependent on the principal members of its
management and scientific staff. The loss of
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services of any of these personnel could impede the achievement of the Company's
development objectives. Furthermore, recruiting and retaining qualified
scientific personnel to perform research and development work in the future will
also be critical to the Company's success. There can be no assurance that the
Company will be able to attract and retain personnel on acceptable terms given
the competition among biotechnology, pharmaceutical and healthcare companies,
universities and non-profit research institutions for experienced scientists. In
addition, the Company relies on members of its Scientific Advisory Board and a
significant number of consultants to assist the Company in formulating its
research and development strategy. All of Focal's consultants and the members of
the Company's Scientific Advisory Board are employed by employers other than the
Company, and may have commitments to, or advisory or consulting agreements with,
other entities that may limit their availability to the Company. See
"Business--Scientific Advisors" and "Management."
POTENTIAL PRODUCT LIABILITY EXPOSURE; LIMITED INSURANCE COVERAGE. The use
of any of the Company's potential products in clinical trials, and the sale of
any approved products, may expose the Company to liability claims resulting from
the use of its products. These claims might be made directly by consumers,
health care providers or by pharmaceutical companies or others selling such
products. Focal has obtained limited product liability insurance coverage for
its clinical trials. The Company intends to expand its insurance coverage to
include the sale of commercial products if marketing approval is obtained for
products in development. However, insurance coverage is becoming increasingly
expensive, and no assurance can be given that the Company will be able to
maintain insurance coverage at a reasonable cost or in sufficient amounts to
protect the Company against losses due to liability. There can also be no
assurance that the Company will be able to obtain commercially reasonable
product liability insurance for any products approved for marketing. A
successful product liability claim or series of claims brought against the
Company could have a material adverse effect on its business, financial
condition and results of operations.
HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS. The Company's research and
development processes involve the controlled use of hazardous materials. The
Company is subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of such materials and
certain waste products. Although the Company believes that its safety procedures
for handling and disposing of such materials comply with the standards
prescribed by such laws and regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, the Company could be held liable for any damages that result
and any such liability could exceed the resources of the Company. The Company
believes that it is in compliance in all material respects with applicable
environmental laws and regulations. Accordingly, it does not expect to make
material capital expenditures for environmental control facilities in the
near-term. However, there can be no assurance that it will not be required to
incur significant costs to comply with environmental laws and regulations in the
future, or that the operations, business or assets of the Company will not be
materially adversely affected by the costs of compliance with current or future
environmental laws or regulations.
BROAD MANAGEMENT DISCRETION OVER USE OF PROCEEDS. The Company expects to
use a majority of the net proceeds to fund research and development activities,
clinical trials, expansion of marketing and sales activities, expansion of
manufacturing capabilities and capital expenditures. The Company is not
currently able to estimate precisely the allocation of the proceeds among such
uses, and a significant portion of the net proceeds have not been designated for
specific uses. In addition, the timing and amount of expenditures will vary
depending upon numerous factors. Accordingly, management of the Company will
have broad discretion with respect to the use of these funds and the
determination of the timing of expenditures. See "Use of Proceeds."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK. Prior to this offering, there has
been no public market for the Company's Common Stock, and there can be no
assurance that a regular trading market will develop and continue after this
offering or that the market price of the Common Stock will not decline below the
initial public offering price. The initial public offering price will be
determined through negotiations between the Company and the representatives of
the Underwriters and may not be indicative of the
14
<PAGE>
market price of the Common Stock following this offering. Among the factors
considered in such negotiations are prevailing market conditions, certain
financial information of the Company, market valuations of other companies that
the Company and the representatives of the Underwriters believe to be comparable
to the Company, estimates of the business potential of the Company, the present
state of the Company's development and other factors deemed relevant. See
"Underwriting."
VOLATILITY OF COMMON STOCK PRICE. The market prices for securities of
biotechnology and pharmaceutical companies have historically been highly
volatile, and the market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. Factors such as fluctuations in the Company's operating
results, announcements of technological innovations or new therapeutic products
by the Company or others, clinical trial results, developments concerning
strategic alliance agreements, government regulation, developments in patent or
other proprietary rights, public concern as to the safety of products developed
by the Company or others, future sales of substantial amounts of Common Stock by
existing stockholders, comments by securities analysts and general market
conditions can have an adverse effect on the market price of the Common Stock.
In addition, the realization of any of the risks described in these "Risk
Factors" could have a dramatic and material adverse impact on market price of
the Company's Common Stock.
CONTROL BY EXISTING STOCKHOLDERS. After the completion of this offering,
current stockholders, including certain executive officers and directors of the
Company and their affiliates, will own approximately 81% of the outstanding
Common Stock. As a result, these stockholders will, to the extent they act
together, continue to have the ability to exert significant influence and
control over matters requiring the approval of the Company's stockholders,
including the election of a majority of the Company's Board of Directors. See
"Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of Common Stock (including shares
issued upon the exercise of outstanding options) in the public market after this
offering could materially adversely affect the market price of the Common Stock.
Such sales also might make it more difficult for the Company to sell equity
securities or equity-related securities in the future. Based on the number of
shares of Common Stock outstanding at September 30, 1997 and assuming no
exercise of outstanding options or certain warrants after September 30, 1997,
upon the completion of this offering, the Company will have 12,865,337 shares of
Common Stock outstanding, of which the 2,500,000 shares offered hereby will be
freely tradable (unless held by affiliates of the Company) and the remaining
10,365,337 shares will be restricted securities within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). These shares may be
sold in the public market only if registered, or pursuant to an exemption from
registration, including pursuant to Rules 144, 144(k) or 701 under the
Securities Act. All of the executive officers, directors, all stockholders and
optionholders of the Company are subject to lock-up agreements with the
Representatives or are otherwise subject to agreements with the Company
providing that, pursuant to the terms of such lock-up agreements (each a
"Lock-Up Agreement"), during the 180-day period beginning on the date of this
Prospectus, they will not sell or otherwise dispose of any shares of Common
Stock of the Company. Upon expiration of the Lock-Up Agreements, all of such
10,365,337 shares of Common Stock will become eligible for immediate public
resale, subject in some cases to volume limitations pursuant to Rule 144 at
various times over a period of less than one year following the completion of
this offering, subject in some cases to volume limitations. See "Shares Eligible
for Future Sale" and "Underwriting."
ADVERSE IMPACT OF EXPIRATION OR RELEASE OF SHARES FROM LOCK-UP
AGREEMENTS. The executive officers and directors of the Company and all
stockholders and optionholders of the Company have each agreed that, or are
otherwise subject to an agreement providing that, pursuant to the terms of a
lock-up agreement (the "Lock-Up Agreement"), during the 180-day period beginning
on the date of this Prospectus (the "Lock-Up Period") they will not, without the
prior written consent of Lehman Brothers Inc., directly or indirectly, offer,
sell, contract to sell, hypothecate or otherwise dispose (or enter into any
transaction which is designed to, or could be expected to, result in the
disposition by any person) of any shares of Common Stock of the Company, or any
security convertible into or exercisable for Common Stock of the Company, or any
rights to purchase or acquire, Common Stock of the Company (other than pursuant
to bona fide
15
<PAGE>
gifts to persons who agree in writing to be bound by the provisions of the
Lock-up Agreement). Lehman Brothers Inc. may in its sole discretion and at any
time without notice, release all or any portion of the securities subject to the
Lock-Up Agreement. In addition, upon expiration of the Lock-up Agreement,
substantially all of the shares subject to the Lock-up Agreement will be
eligible for immediate sale, other than shares held by officers, directors and
other affiliates of the Company which will be eligible for sale subject in some
cases to volume limitations. Furthermore, holders of 8,297,389 shares and
certain warrants outstanding immediately following the completion of this
offering will be entitled to registration rights with respect to such shares
upon termination of the Lock-Up Agreement. Sales of shares of Common Stock as a
result of the expiration of the Lock-up Agreement, the exercise of registration
rights or the early release of shares from the Lock-Up Agreement could have a
material adverse affect on the market price of the Company's Common Stock. See
"Shares Eligible for Future Sale," "Underwriting" and "Description of Capital
Stock."
POTENTIAL ADVERSE EFFECT OF ANTI-TAKEOVER PROVISIONS. The Company's
Certificate of Incorporation provides for staggered terms for the members of the
Board of Directors and does not provide for cumulative voting in the election of
directors. In addition, the Board of Directors of the Company may issue shares
of Preferred Stock without stockholder approval on such terms as the Board may
determine. The Company's Bylaws require advance notice of matters of business to
be brought before meetings of stockholders. The Company's Certificate of
Incorporation prohibits stockholders from acting by written consent. The rights
of the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. Further, the Company is subject to Section 203 of the Delaware General
Corporation Law which, subject to certain exceptions, restricts certain
transactions and business combinations between a corporation and a stockholder
owning 15% of more of the corporation's outstanding voting stock (an "interested
stockholder") for a period of three years from the date the stockholder becomes
an interested stockholder. The staggered board terms, lack of cumulative voting,
Preferred Stock provision and other provisions of the Company's charter and
Delaware corporate law may discourage certain types of transactions involving an
actual or potential change in control of the Company.
In addition, the Company's Board of Directors has approved a Stockholders
Rights Plan under which a dividend of one right (a "Right") to purchase one
one-thousandth share of the Company's Series A Participating Preferred Stock
("Series A Preferred") for each outstanding share of Common Stock ("Common
Shares") of the Company has been declared and will be distributed to
stockholders of record as of , 1997. The Rights may have the effect of
rendering it more difficult or discouraging an acquisition of the Company deemed
undesirable by the Company's board of directors. The Rights may cause
substantial dilution to a person or group that attempts to acquire the Company
on terms or in a manner not approved by the Company's Board of Directors, except
pursuant to an offer conditioned upon the negation, purchase or redemption of
the Rights, and may therefore discourage or prevent certain transactions
involving an actual or potential change in control of the Company. See
"Description of Capital Stock."
DILUTION. Upon purchase of Common Stock, investors will experience an
immediate and substantial dilution of $8.91 per share in the net tangible book
value of the Common Stock they acquire in this offering. Additional dilution is
likely to occur upon the exercise of options, warrants and conversion rights
granted by the Company. See "Dilution."
ABSENCE OF CASH DIVIDENDS. The Company has never paid any cash dividends
and does not anticipate paying cash dividends in the foreseeable future. See
"Dividend Policy."
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$12.00 per share are estimated to be $27,300,000 ($31,485,000 if the
over-allotment option is exercised in full) after deducting underwriting
discounts and commissions and estimated offering expenses.
The Company expects to use the majority of the net proceeds to fund research
and development activities, clinical trials, expansion of manufacturing
capabilities and sales and marketing activities, and capital expenditures. The
Company anticipates using $2,500,000 of the net proceeds for the expansion of
its manufacturing facility for its surgical sealant products. The balance of the
net proceeds will be used for working capital and general corporate purposes.
Although the Company may use a portion of the net proceeds for the licensing or
acquisition of new products or technologies from others, the Company currently
has no specific commitments in this regard. The amounts actually expended for
each purpose and the timing of such expenditures may vary significantly
depending upon numerous factors, including the timing of regulatory actions
regarding the Company's potential future products, the costs and timing of
expansion of marketing, sales and manufacturing activities, results of clinical
trials and competition. In addition, there can be no assurance that any product
developed or introduced by the Company will be successfully commercialized or
that the Company will not exceed its current spending expectations. Pending the
foregoing uses, the Company intends to invest the net proceeds of this offering
in short-term, interest-bearing, investment grade securities. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid any dividends on its capital stock.
The Company does not anticipate declaring or paying any cash dividends in the
foreseeable future.
17
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1997 (i) the actual
capitalization of the Company, and (ii) the capitalization of the Company on an
adjusted basis to reflect the sale of the 2,500,000 shares of Common Stock
offered by the Company hereby (at an assumed initial public offering price of
$12.00 per share) and receipt of the proceeds therefrom, after deducting
underwriting discounts and commissions and estimated expenses payable by the
Company, and the conversion of all outstanding shares of the Preferred Stock
into 8,117,803 shares of Common Stock and the exercise of warrants to purchase
19,496 shares of Common Stock upon consummation of this offering. This table
should be read in conjunction with "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's financial statements, including the notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1997
-----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
Capital lease obligations, long-term portion............................................. $ 1,207 $ 1,207
---------- -----------
Stockholders' equity:
Preferred Stock, par value $.01 per share;
31,681,540 shares authorized; 24,345,247 shares issued and outstanding on an actual
basis; 5,000,000 shares authorized, none issued and outstanding
as adjusted.......................................................................... 243 --
Common Stock, par value $.01 per share;
50,000,000 shares authorized; 2,228,038 shares issued and outstanding on an actual
basis, and 12,865,337 shares issued and outstanding as adjusted(1)................... 22 129
Additional paid-in capital............................................................. 57,257 84,716
Unrealized loss on marketable securities............................................... (11) (11)
Deferred compensation.................................................................. (238) (238)
Accumulated deficit.................................................................... (44,797) (44,797)
---------- -----------
Total stockholders' equity........................................................... 12,476 39,799
---------- -----------
Total capitalization................................................................. $ 13,683 $ 41,006
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Excludes (i) 297,921 shares of Common Stock reserved for issuance upon the
exercise of stock options outstanding under the Company's 1992 Incentive
Stock Plan at September 30, 1997, (ii) an additional 1,062,048 shares of
Common Stock reserved for issuance under the Company's 1992 Incentive Stock
Plan, 1997 Employee Stock Purchase Plan and 1997 Director Option Plan and
(iii) 179,586 shares issuable upon the exercise of warrants that will remain
outstanding following the completion of this offering. See
"Management--Incentive Stock Plans," "Certain Transactions," "Description of
Capital Stock" and Note 5 of Notes to Financial Statements.
18
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock as of September
30, 1997 was $12,499,800 or approximately $1.21 per share. "Net tangible book
value" per share represents the amount of the Company's total tangible assets,
reduced by the amount of its total liabilities, divided by the number of shares
of Common Stock outstanding after giving effect to the conversion of all
outstanding shares of Preferred Stock into Common Stock and the exercise of
certain outstanding warrants upon completion of this offering. After giving
effect to the sale of the 2,500,000 shares of Common Stock offered hereby
(assuming an initial public offering price of $12.00 per share), after deducting
underwriting discounts and commissions and estimated offering expenses, the
Company's net tangible book value at September 30, 1997 would have been
$39,799,800, or $3.09 per share. This represents an immediate increase in net
tangible book value of $1.88 per share to existing stockholders and an immediate
dilution in net tangible book value of $8.91 per share to new investors
purchasing Common Stock in the offering. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C>
Assumed price to public........................................... $ 12.00
Net tangible book value per share at September 30, 1997......... $ 1.21
Increase per share attributable to new investors................ 1.88
---------
Net tangible book value after offering............................ 3.09
---------
Dilution to new investors......................................... $ 8.91
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1997, the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share by
existing stockholders and by investors purchasing shares in the offering (at an
assumed initial public offering price of $12.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------------- --------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders....................... 10,365,337 81% $ 58,480,384 66% $ 5.64
New investors............................... 2,500,000 19% 30,000,000 34% 12.00
------------ --- ------------- ---
Total..................................... 12,865,337 100% $ 88,480,384 100%
------------ --- ------------- ---
------------ --- ------------- ---
</TABLE>
The foregoing computations assume no exercise of stock options or warrants
outstanding at September 30, 1997. At September 30, 1997, there were outstanding
stock options to purchase an aggregate of 297,921 shares of Common Stock at a
weighted average exercise price of $2.17 per share and warrants which are not
required to be exercised upon the completion of this offering to purchase an
aggregate of 179,586 shares of Common Stock at a weighted average exercise price
of $10.40 per share. To the extent these stock options and warrants are
exercised, there will be further dilution to purchasers in this offering. See
"Management--Incentive Stock Plans" and Note 5 of Notes to Financial Statements.
19
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for each year in the five year
period ended December 31, 1996 are derived from the financial statements of
Focal, Inc. which have been audited by Ernst & Young LLP, independent auditors.
The financial data for the nine month periods ended September 30, 1997 and 1996
are derived from unaudited financial statements. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
which Focal considers necessary for a fair presentation of the financial
position and the results of operations for these periods. Operating results for
the nine months ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 1997. This
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's financial
statements, related notes and other financial information included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
-------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1996
--------- --------- ---------- ---------- ---------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Collaborative research revenue......................... $ -- $ -- $ 50 $ 968 $ 3,098 $ 2,349
Operating expenses:
Research and development........................... 1,793 7,405 11,890 9,665 11,680 8,735
General and administrative......................... 466 1,925 2,034 2,098 2,076 1,440
--------- --------- ---------- ---------- ---------- ---------
Total operating expenses............................... 2,259 9,330 13,924 11,763 13,756 10,175
--------- --------- ---------- ---------- ---------- ---------
Loss from operations................................... (2,259) (9,330) (13,874) (10,795) (10,658) (7,826)
Interest income........................................ 6 357 668 443 691 515
Interest expense....................................... 13 44 79 107 92 71
--------- --------- ---------- ---------- ---------- ---------
Net income (loss)...................................... $ (2,266) $ (9,017) $ (13,285) $ (10,459) $ (10,059) $ (7,382)
--------- --------- ---------- ---------- ---------- ---------
--------- --------- ---------- ---------- ---------- ---------
Pro forma net income (loss) per
share (1)............................................ $ (1.22) $ (.92)
---------- ---------
---------- ---------
Shares used in computing pro forma net income (loss)
per share (1)........................................ 8,271 8,001
---------- ---------
---------- ---------
<CAPTION>
SEPTEMBER
30, 1997
---------
DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996 ACTUAL
--------- --------- ---------- ---------- ---------- ---------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Cash, cash equivalents and marketable securities....... $ 6,945 $ 19,027 $ 12,240 $ 6,948 $ 12,208 $ 13,215
Working capital........................................ 6,320 17,776 10,159 4,401 9,003 9,254
Total assets........................................... 7,173 20,936 15,331 9,306 14,089 18,179
Capital lease obligations, long-term portion........... -- 602 934 462 315 1,207
Total stockholders' equity............................. 6,471 18,556 11,626 5,995 10,099 12,476
<CAPTION>
<S> <C>
1997
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Collaborative research revenue......................... $ 12,831
Operating expenses:
Research and development........................... 10,929
General and administrative......................... 1,969
-----------
Total operating expenses............................... 12,898
-----------
Loss from operations................................... (67)
Interest income........................................ 731
Interest expense....................................... 81
-----------
Net income (loss)...................................... $ 583
-----------
-----------
Pro forma net income (loss) per
share (1)............................................ $ .06
-----------
-----------
Shares used in computing pro forma net income (loss)
per share (1)........................................ 10,551
-----------
-----------
AS
ADJUSTED
(2)
-----------
BALANCE SHEET DATA:
<S> <C>
Cash, cash equivalents and marketable securities....... $ 40,538
Working capital........................................ 36,577
Total assets........................................... 45,502
Capital lease obligations, long-term portion........... 1,207
Total stockholders' equity............................. 39,799
</TABLE>
- ------------------------
(1) See Note 1 of Notes to Financial Statements for information concerning the
calculation of pro forma net income (loss) per share.
(2) As adjusted to reflect the sale of the 2,500,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $12.00 per
share and the receipt of the estimated net proceeds therefrom. See "Use of
Proceeds."
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus.
OVERVIEW
The Company was founded in 1991 and is focused on the development,
manufacture and commercialization of synthetic, absorbable, liquid surgical
sealants based on the Company's proprietary polymer technology. Since inception,
the Company has funded its operations primarily through the private placement of
equity securities. In addition, the Company has entered into strategic alliances
with corporate partners and has recorded revenues totaling $16.9 million through
September 30, 1997 in connection with these alliances.
The Company has incurred net losses in each year since its inception,
including net losses of approximately $10.1 million during 1996. At September
30, 1997, the Company had an accumulated deficit of $44.8 million. The Company's
profitability during the nine months ended September 30, 1997 resulted primarily
from the receipt of a one-time non-refundable payment of $7.0 million as well as
receipt of quarterly research and development funding under the Company's
strategic alliance with Ethicon, Inc., a division of Johnson and Johnson
("Ethicon"), for FOCALSEAL surgical sealants. The Company's operating losses
have resulted primarily from expenses incurred in connection with the Company's
research and development activities, including preclinical and clinical trials,
development of manufacturing processes and general and administrative expenses.
The Company expects to incur net losses into 1999 and may incur net losses in
subsequent periods although the amount of future net losses and time required by
the Company to reach profitability are highly uncertain. The Company is
dependent upon corporate partners for funding of a significant portion of
research and development expenses. If the Company does not continue to receive
funding from its current corporate partners, or is unable to otherwise obtain
third-party funding, net losses will continue to increase. Focal does not expect
to generate revenues from the sale of products until the first half of 1998. The
Company's ability to achieve and sustain profitability will be dependent upon
obtaining regulatory approval for and successfully commercializing its FOCALSEAL
surgical sealants, and developing the manufacturing capacity and sales and
marketing capability for its products. There can be no assurance that Focal will
obtain required regulatory approvals, or successfully develop, manufacture,
commercialize and market products or that the Company will ever record product
revenues or achieve profitability.
To date, the Company has not recorded any product revenues. The Company
expects to introduce its first commercial product, FOCALSEAL-L for lung surgery
indications, in Europe in the first half of 1998 through its strategic marketing
alliance with Ethicon. The Company anticipates that revenues derived from
European sales of the Company's FOCALSEAL surgical sealants will account for a
substantial majority of the Company's near term product revenues. The Company
must obtain a CE mark before Ethicon can market FOCALSEAL in the member
countries of the European Union. Any delays or other difficulties encountered by
the Company in obtaining such CE mark would have a material adverse effect on
the Company's business, financial condition and results of operations.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Revenues for the nine months ended September 30, 1997 increased to $12.8
million from $2.3 million for the nine months ended September 30, 1996, due to
higher collaborative research and development funding, which comprised all of
the Company's revenues during both periods. The increase in the 1997 period was
due primarily to a strategic alliance entered into with Ethicon in January 1997.
Revenues recorded in connection with this strategic alliance for the nine months
ended September 30, 1997 included
21
<PAGE>
a one-time non-refundable payment of $7.0 million, as well as funding of $1.25
million per quarter for research and development activities.
Research and development expenses increased to $10.9 million for the nine
months ended September 30, 1997 from $8.7 million for the nine months ended
September 30, 1996. This increase resulted from the hiring of additional
research and development personnel in 1997, as well as increased clinical trials
and manufacturing start-up costs.
General and administrative expenses increased to $2.0 million for the nine
months ended September 30, 1997 from $1.4 million for the nine months ended
September 30, 1996. General and administrative expenses during these periods
consisted primarily of personnel costs, which increased due to the hiring of
additional administrative personnel.
Interest income increased to $731,000 for the nine months ended September
30, 1997 from $515,000 for the nine months ended September 30, 1996 as a result
of higher average cash balances.
The Company recorded net income of approximately $583,000 for the nine
months ended September 30, 1997. The Company's profitability was primarily the
result of a one-time payment and quarterly funding of research and development
by Ethicon. The Company does not expect profitability to continue in the near
term and anticipates that it will incur net operating losses into 1999.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues for 1996 increased to $3.1 million from $1.0 million in 1995.
Revenues during both years consisted of research and development funding from
corporate partners. The increase was due to a strategic alliance signed in April
1996 with Novartis Corporation and Chiron Corporation. Revenues recorded in
connection with corporate alliances in 1996 include one-time payments, milestone
payments and funding for research and development activities.
Research and development expenses increased to $11.7 million in 1996 from
$9.7 million in 1995, due to the hiring of research personnel and increased
clinical trial expenses.
General and administrative expenses were approximately $2.1 million for each
of 1995 and 1996, and consisted primarily of personnel costs.
Interest income increased to $691,000 in 1996 from $443,000 in 1995 due to
higher cash balances as a result of a $19.7 million private placement completed
in April 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues for 1995 increased to $968,000 from $50,000 for 1994 due to an
increase in collaborative research and development funding. This increase was
due to receipt of funding for a local drug delivery program. Revenues recorded
in connection with this funding arrangement in 1995 included up-front payments
and funding for research and development activities.
Research and development expenses decreased to $9.7 million for 1995 from
$11.9 million for 1994 due to a reduction in personnel in the first quarter of
1995. In addition, the Company incurred significant costs in 1994 in connection
with a clinical trial conducted in Europe. There were no clinical trials
conducted in 1995.
General and administrative expenses were $2.1 million for 1995 and $2.0
million for 1994 and consisted primarily of personnel costs. Increases in
general consulting costs were offset by decreases in certain other
administrative expenses.
Interest income decreased to $443,000 for 1995 from $668,000 for 1994. Cash
balances were higher in 1994 as compared to 1995 due to the completion of a
private placement in 1994.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed operations primarily from the
sale of preferred stock in private placements. Through September 30, 1997, the
Company has raised approximately $58.5 million from equity financings and has
received $5.3 million in equipment lease financing. In addition, the Company has
received funding from Novartis, Chiron and Ethicon totaling approximately $17.1
million through September 30, 1997.
Cash provided by operations totaled $2.1 million for the nine months ended
September 30, 1997 as compared to the use of $5.9 million for the same period of
1996. The change in cash from operations was due to the achievement of net
income for the nine months ended September 30, 1997 as compared to a net loss of
$7.4 million for the same period of 1996. Cash used in operations is equal to
the net loss incurred for each period, less non-cash charges such as
depreciation and amortization of property and equipment in addition to any
changes in working capital.
Capital expenditures from inception through September 30, 1997 totaled $5.8
million, representing laboratory equipment, office furniture and equipment,
computers and certain leasehold improvements. The majority of these purchases
have been financed through either direct financing leases or sale and leaseback
arrangements. As of September 30, 1997, the Company did not have any material
commitments for future capital expenditures. In the next 12 to 18 months, the
Company anticipates capital expenditures of approximately $2.5 million for
manufacturing facilities and related equipment. The Company has commitments from
lenders, in the form of term loans and lease lines, totaling $2.5 million to
provide for its expected capital needs during 1997 and 1998. As of September 30,
1997, the Company had drawn down $1.4 million under these credit facilities.
The Company believes that its existing capital resources, together with the
net proceeds of this offering, interest income and future payments due under
strategic alliances, will be sufficient to satisfy its current and projected
funding requirements for at least 18 months. However, no assurance can be given
that such net proceeds will be sufficient to conduct its research and
development programs as planned. The Company's future capital requirements will
depend on many factors, including continued scientific progress in its research
and development programs and the magnitude of these programs, progress with
preclinical testing and clinical trials, the time and costs involved in
obtaining regulatory approvals, if any, the costs involved in filing and
prosecuting patent applications and enforcing patent claims, competing
technological and market developments, the establishment of additional strategic
alliances, the cost of manufacturing facilities and of commercialization
activities and arrangements, and the cost of product in-licensing and any
possible acquisitions. There can be no assurance that the Company's cash, cash
equivalents and marketable securities including the net proceeds of this
offering, and interest income earned thereon, together with funding that may be
received under the Company's strategic alliances, will be adequate to satisfy
its capital and operating requirements.
Focal intends to seek additional funding through strategic alliances, and
may seek additional funding through public or private sales of the Company's
securities, including equity securities. In addition, the Company has obtained
equipment lease financing and other forms of debt financing and may continue to
pursue opportunities to obtain additional lease or debt financing in the future.
There can be no assurance, however, that additional equity or debt financing
will be available on reasonable terms, if at all. Any additional equity
financings would be dilutive to the Company's stockholders. If adequate funds
are not available, Focal may be required to curtail significantly one or more of
its research and development programs and/or obtain funds through arrangements
with corporate partners or others that may require Focal to relinquish rights to
certain of its technologies or product candidates.
23
<PAGE>
BUSINESS
GENERAL
Focal develops, manufactures and commercializes synthetic, absorbable,
liquid surgical sealants based on the Company's proprietary polymer technology.
The Company's family of FOCALSEAL surgical sealant products is currently being
developed for use inside the body with or without sutures and staples to seal
leaks resulting from lung, neuro, cardiovascular and gastrointestinal surgery.
FOCALSEAL-L, the Company's first surgical sealant product, will initially be
used to seal air leaks following lung surgery. The Company has entered into an
exclusive marketing and distribution agreement for its surgical sealant products
outside North America with Ethicon, Inc., a division of Johnson & Johnson
("Ethicon"), a worldwide leader in surgical wound closure products. The Company
anticipates commercial launch of FOCALSEAL-L for lung surgery indications in
Europe through Ethicon in the first half of 1998.
There are more than 4 million open and minimally invasive lung, neuro,
cardiovascular and gastrointestinal surgical procedures performed annually
worldwide in which air or fluid leaks may arise. Patients with persistent air or
fluid leaks may require prolonged hospitalization, have more complications and
have higher levels of post-operative pain, and a higher risk of mortality.
Sutures and staples, the principal products comprising the $2.0 billion wound
closure market, do not have inherent sealing capabilities, and therefore cannot
consistently eliminate air and fluid leakage at the wound site. Focal's liquid
surgical sealants adhere rapidly to underlying tissue, expand and contract with
tissue, withstand air and fluid pressure, and are designed to provide an
effective seal to reduce the incidence of air and fluid leaks following surgery.
FOCALSEAL surgical sealants, which are biocompatible remain intact through the
critical wound healing period and are then absorbed and eliminated by the body.
The Company believes the use of its FOCALSEAL liquid surgical sealants could
potentially shorten patient recovery times and hospital stays and reduce
post-surgical complications.
Focal is currently developing two principal surgical sealant formulations,
FOCALSEAL-L and FOCALSEAL-S, for a broad range of applications inside the body.
The Company has completed a 60-patient, multicenter, randomized, controlled
clinical trial in Europe involving use of FOCALSEAL-L in sealing air leaks
following lung surgery. In the study, FOCALSEAL-L was shown to be 100% effective
in sealing intraoperative air leaks in the 30 patients who were randomized into
the treated group. In the untreated group of patients who received sutures and
staples alone, only 27% were free of intraoperative air leaks. In September
1997, the Company initiated a pivotal, 180-patient, multicenter clinical trial
in the United States under a conditional IDE to evaluate FOCALSEAL-L in sealing
intraoperative and postoperative air leaks following lung surgery. The Company
expects to submit a PMA for lung surgery indications to the FDA by the end of
1998.
FOCALSEAL-S, the Company's second surgical sealant formulation, is absorbed
by the body more quickly than FOCALSEAL-L and is designed for applications in
which shorter sealing duration is desired. FOCALSEAL-S will initially be used to
seal fluid leaks following neurosurgery. The Company expects to commence a
clinical trial in Europe for this indication in mid-1998. The Company believes
that its FOCALSEAL-L and FOCALSEAL-S formulations, which are designed to have
absorption times that parallel long- and short-term synthetic absorbable polymer
sutures, respectively, will also be widely applicable to cardiovascular surgery,
gastrointestinal surgery and other surgical applications.
Focal is also developing other applications for its liquid polymer
technology, including local drug delivery systems and tissue coatings. In local
drug delivery applications, the Company believes that its polymers can deliver
high concentrations of drugs at local disease sites, thereby potentially
enhancing efficacy and reducing toxicity associated with systemic delivery of
drugs. The Company is initially pursuing local delivery of drugs with the
objective of reducing the incidence of restenosis following coronary angioplasty
procedures. The Company has entered into a collaboration with Novartis
Corporation ("Novartis") and Chiron Corporation ("Chiron") under which these
companies are funding development of a polymer-based local drug delivery system
for anti-restenosis agents being developed by them. In connection with the
collaboration, Novartis and Chiron received worldwide marketing and distribution
24
<PAGE>
rights for this indication. In addition, the Company is developing tissue
coatings to prevent the formation of post-surgical adhesions, excessive scar
tissue which attaches to surrounding tissue and can cause serious complications,
particularly in abdominal and gynecological surgeries. The Company intends to
enter into other collaborations with pharmaceutical companies for additional
drug delivery indications.
SURGICAL SEALANT MARKET OPPORTUNITY
Effective closure of internal wounds following surgical procedures is
critical to the restoration of the function of injured and diseased tissue and
the ultimate success of the surgical procedure. Failure to effectively seal
surgical wounds can result in leakage of air in lung surgeries, cerebral spinal
fluid in neurosurgeries, blood in cardiovascular surgeries, and gastrointestinal
contents in gastrointestinal surgeries. Air and fluid leaks resulting from
surgical procedures can lead to significant post-surgical morbidity resulting in
prolonged hospitalization, higher levels of post-operative pain and
complications and a higher mortality rate.
The current annual worldwide market for wound closure products, consisting
primarily of surgical sutures and staples, is estimated at $2 billion. Sutures
and staples facilitate healing by joining wound edges and allowing the body to
heal naturally. However, because sutures and staples do not have inherent
sealing capabilities, they cannot consistently eliminate air and fluid leakage
at the wound site. This is particularly the case when sutures and staples are
used to close tissues containing air or fluids under pressure, such as the lobes
of the lung, the dural membrane surrounding the brain and spinal cord, blood
vessels and the gastrointestinal tract. In addition, in minimally invasive
surgical procedures, where the physician must operate through small access
devices, it can be more difficult and time-consuming for the physician to place
sutures and staples as compared to open surgical procedures. The Company
believes that the use of surgical sealants with or without sutures and staples
in minimally invasive procedures could enhance the efficacy of these procedures
through more effective and rapid wound closure.
The limitations of sutures and staples in sealing certain air and fluid
leaks have led to the adaptation of other technologies for wound closure. These
alternatives include the use of liquid fibrin glues and nonliquid collagen patch
products. Fibrin glues, which were originally developed as hemostatic agents,
have limited efficacy in many surgical sealant applications because they do not
adhere strongly to, or move and expand with, underlying tissue, particularly
moist tissue. In spite of these limitations, annual international sales of
fibrin glue sealants are estimated at $250 million. Collagen patches have
similar limitations, in that they are not highly adherent, strong or elastic. In
addition, both collagen patches and fibrin glues are absorbed by enzymatic
reaction. Enzymatic reaction can result in variable absorption time from patient
to patient, depending upon metabolic rates, and can potentially result in
absorption prior to healing of the surgical site. Collagen patches and fibrin
glues are derived from animal by-products, including bovine collagen and bovine
and/or human plasma. These derivations have resulted in significant safety
concerns, and are reported to be one of the primary reasons fibrin glues have
not received FDA approval for United States commercial sales. Furthermore, the
wound closure industry has undergone a significant shift away from animal
derived materials to synthetic materials due to the more predictable absorption,
superior performance characteristics and safety of synthetic sutures. Currently,
the company estimates that over 65% of suture material is synthetic, as compared
to only approximately 25% in 1975.
Due to the limitations of sutures and staples in achieving rapid, leakproof
wound closure and the inadequacy of animal by-product sourced glues and patches,
Focal believes that a significant market opportunity exists for its synthetic,
absorbable, liquid, surgical sealants.
FOCAL'S SYNTHETIC POLYMER TECHNOLOGY
Focal's family of surgical sealants and its other products under development
are based on the Company's proprietary synthetic, absorbable, liquid polymer
technology. The Company's polymers are designed to incorporate several
beneficial characteristics, including adherence to tissue, strength, flexibility
25
<PAGE>
and elasticity, consistent absorption, and safety and biocompatibility, which
are critical to their use as surgical sealants and in other clinical
applications.
The Company's proprietary polymers are comprised of polyethylene glycol
("PEG"), other synthetic compounds and water. PEG and other synthetic compounds
comprise approximately 10-20% of the Company's polymer formulations and are
widely used in other medical products approved for use inside the body, such as
IV-administered pharmaceuticals, synthetic absorbable sutures, bone and dental
cements, cough syrups and eye drops. Water comprises the other 80-90% of Focal's
polymers. The Company combines PEG and other synthetic compounds in various
proprietary polymer formulations in order to control characteristics such as
viscosity, setting time, strength, absorption, flexibility and elasticity. This
enables the Company to tailor polymers for particular applications. A key
distinguishing characteristic of the Company's polymers is that they are applied
as liquids and polymerize into solid gels inside the body. The polymerized
biomaterial is highly flexible, elastic and transparent and strongly adheres to
moist or dry tissue. The design and macromer composition of the Company's
polymers enable them to polymerize quickly without generating heat, which is a
significant clinical advantage over other IN VIVO polymerizable materials.
The key technological hurdle which the Company overcame in the development
of its synthetic, liquid surgical sealants was the crucial need to adhere
strongly to moist tissue surfaces. The Company's sealants adhere to tissue as a
result of a proprietary two-step priming and sealing process. To use FOCALSEAL,
the physician first applies a liquid primer which penetrates the uneven surfaces
of spongy, porous tissue. Once the primer is brushed on, the sealant is applied
over the primer and both are exposed to a standard wavelength of visible light.
The primer and sealant contain a photoinitiator which enables them to polymerize
rapidly upon exposure to light, a process known as photopolymerization. The
viscosity and rapid photopolymerization characteristics of the Company's
surgical sealants enable the physician to apply the sealant where desired and
avoid significant run off of the material prior to polymerization. Surgeons can
perform the entire surgical sealant application process quickly and efficiently
after limited training.
The key properties of the Company's synthetic liquid polymers are:
- ADHERENCE TO TISSUE. The Company's FOCALSEAL surgical sealants adhere
strongly to both moist and dry tissue, a requirement for effective
sealants which, to the Company's knowledge, has not been adequately
demonstrated by alternative technologies in clinical applications. The
combination of a viscous liquid polymer incorporating a photoinitiator
enables the Company's polymers to adhere to tissue when applied as a
liquid and to polymerize rapidly when exposed to light.
- STRENGTH, FLEXIBILITY AND ELASTICITY. The composition of the Company's
polymers provides a high degree of strength, flexibility and elasticity,
enabling them to stretch with the tissue to which they are applied. These
qualities are especially significant when the polymers are used in areas
where resistance to air and fluid pressure is critical, including the
lungs, the dural membrane surrounding the brain, the vascular system and
the gastrointestinal tract.
- CUSTOMIZABLE POLYMER CHARACTERISTICS. By modifying the chemical
composition of its polymers, the Company is able to control
characteristics such as viscosity, setting time, strength, absorption,
flexibility and elasticity. The customizable nature of the Company's
polymer technology enables Focal to design and develop products with
characteristics and properties that are tailored for specific clinical
indications.
- HYDROLYTIC ABSORPTION. The Company's synthetic liquid polymers are
designed to be predictably broken down by water, a process known as
hydrolysis, and are absorbed by the body over a specified period of time
depending upon their chemical composition. As a result, the Company's
polymers should have a relatively consistent absorption profile from
patient to patient. Collagen patches and fibrin glues are absorbed by
enzymatic reaction, which can vary significantly from patient to patient
26
<PAGE>
depending upon an individual's metabolism, and can potentially result in
these products being absorbed before the wound site is completely healed.
- SAFETY AND BIOCOMPATIBILITY. Focal's synthetic polymers are comprised of
materials which are commonly found in other medical products approved for
use in humans. The PEG backbone allows the resulting formulations to be
water-soluble and biocompatible, resulting in minimal reaction with the
tissue to which the polymer is applied. In addition, the absence of animal
or human derived by-products eliminates safety concerns related to
transmission of blood borne diseases such as HIV and hepatitis.
Preclinical toxicology testing of FOCALSEAL-L and FOCALSEAL-S, and initial
clinical trials of FOCALSEAL-L in Europe, indicate that these formulations
are nontoxic biomaterials.
- TRANSPARENCY. The Company's polymers are transparent, enabling the
physician to observe the underlying tissue to which the polymers have
adhered to confirm sufficient coverage of the wound site. Other products
used as surgical sealants, including fibrin glues and collagen patches,
are not transparent.
The Company has also developed proprietary systems to deliver its surgical
sealants and other products to the wound site. Easy to use brush applicators
have been designed by the Company to apply its FOCALSEAL surgical sealants and
primer over tissue surfaces. The Company also employs a light source and light
wand to generate and deliver consistent amounts of light necessary for
photopolymerization of its surgical sealants. The Company has also developed a
proprietary double balloon catheter system for use with its restenosis drug
delivery polymers. This catheter system is designed for use with standard
guidewires used in interventional cardiology procedures.
The Company believes it has built a strong patent portfolio related to its
photopolymerizable polymer technology. The Company has received, licensed or
believes it has the right to license 21 issued United States patents and six
foreign patents corresponding to certain of the issued United States patents,
has 10 additional United States patent applications that have been allowed and
has 22 patent applications pending in the United States, as well as foreign
counterparts of certain of these applications. These patents and patent
applications cover certain aspects of the Company's photopolymerizable polymer
formulations, surgical sealant compositions and methods, and designs for
delivery devices.
BUSINESS STRATEGY
The Company's objective is to become a leader in the market for surgical
sealants and in other markets where the Company's novel polymer technology could
address large unmet clinical needs. The following are key elements of the
Company's strategy:
- MARKET FOCALSEAL SURGICAL SEALANT PRODUCTS THROUGH ETHICON INTERNATIONALLY
AND ESTABLISH ITS OWN DIRECT SALES FORCE IN NORTH AMERICA. The Company
will market and sell its surgical sealant products internationally through
Ethicon and intends to develop its own direct sales force for North
America concurrent with receipt of appropriate marketing approvals. The
Company's agreement with Ethicon will enable the Company to introduce its
surgical sealant products internationally through Ethicon's extensive
sales, marketing and distribution infrastructure. The Company believes
that international commercialization of its surgical sealants may
contribute to more rapid adoption in the United States following receipt
of FDA approvals.
- DEVELOP NEW PRODUCTS BY LEVERAGING ITS PROPRIETARY POLYMER
TECHNOLOGY. Focal's versatile polymers provide a broad technology
platform for the development of new products. The Company's novel
synthetic polymer technology allows for the modification of formulations
yielding properties well-suited to a variety of indications, including
surgical sealants, post-surgical adhesion prevention and local drug
delivery.
- COMMERCIALIZE FOCALSEAL SURGICAL SEALANTS TO PARALLEL THE EXISTING MARKET
FOR SYNTHETIC ABSORBABLE SUTURES. The Company intends to develop
formulations for FOCALSEAL surgical sealants to parallel
27
<PAGE>
the absorption times of long- and short-term synthetic absorbable polymer
sutures. The Company is developing FOCALSEAL-L, a long-term absorbable
sealant initially for use in lung surgery indications, where long-term
absorbable sutures are typically used, and FOCALSEAL-S, a short-term
absorbable sealant intially for use in neurosurgery indications, where
short-term absorbable sutures are typically used. The Company believes
this strategy may result in accelerated adoption of the Company's sealant
products by practitioners.
- FUND NEW RESEARCH AND DEVELOPMENT INITIATIVES THROUGH CORPORATE
COLLABORATIONS. The Company intends to obtain funding for major research
and development initiatives through strategic relationships with corporate
partners. Through September 30, 1997, the Company's strategic
relationships with Ethicon for surgical sealants and Novartis and Chiron
for restenosis drug delivery have provided the Company with over $17.1
million of research and development funding for these programs. The
Company may, however, commence future research and development initiatives
on its own and may seek strategic partner funding for such initiatives as
programs develop or if a strategic relationship can provide significant
advantages for product development, clinical or regulatory support or
marketing and distribution.
- RETAIN PROPRIETARY, AND OUTSOURCE NON-PROPRIETARY, MANUFACTURING
PROCESSES. The Company intends to manufacture its proprietary polymer
formulations in-house, and use third-party contract manufacturers for most
nonproprietary, high volume processes and the provision of system
components. The Company believes that this strategy will enable the
Company to protect its intellectual property, accelerate manufacturing
scale-up and reduce costs as production volume increases.
28
<PAGE>
PRODUCTS AND PRODUCT DEVELOPMENT PROGRAMS
The following table summarizes the status of the Company's products and
research and product development programs:
<TABLE>
<CAPTION>
MARKETING RIGHTS
PRODUCT ------------------------------------------
DEVELOPMENT PROGRAM INDICATION STATUS NORTH AMERICA INTERNATIONAL
-------------------- ------------------- ---------------------------------------- ------------------------ ---------------
<S> <C> <C> <C> <C>
Surgical Sealants
--------------------
FOCALSEAL-L Lung surgery Awaiting European marketing approval; Focal Ethicon
Pivotal U.S. clinical trial underway
FOCALSEAL-S Neurosurgery Preclinical (1); European clinical trial Focal Ethicon
expected to be initiated in mid-1998
FOCALSEAL-L or S Cardiovascular Preclinical(1) Focal Ethicon
surgery
FOCALSEAL-L or S Gastrointestinal Preclinical(1) Focal Ethicon
surgery
<CAPTION>
Local Drug
Delivery -----------
<S> <C> <C> <C> <C>
Restenosis Cardiovascular Preclinical(1) (2) Novartis/ Chiron Novartis/
prevention restenosis Chiron
Tissue Coatings
--------------------
Post-surgical Gynecological, Preclinical(1) Focal (3)
adhesion abdominal and neuro
prevention adhesions
</TABLE>
(1) "Preclinical" refers to formulation development and laboratory
experimentation in animal models, including animal efficacy, safety and
toxicology testing.
(2) The Company is currently involved in preclinical development of a drug
delivery system based on its polymer technology. In addition, the Company's
marketing partners are engaged in preclinical development of anti-restenosis
compounds which may be delivered using the Company's drug delivery system.
The Company's ability to develop a restenosis drug delivery product will be
dependent not only on the Company's development efforts but on the
development efforts of the Company's collaborative partners, the safety and
efficacy of any anti-restenosis compounds they develop and the ability of
the Company's marketing partners to conduct clinical trials of, obtain
regulatory approvals for and successfully commercialize any such products.
(3) The Company and Ethicon are negotiating a possible additional collaboration
for this field and there can be no assurance that the Company will
successfully enter into this collaboration.
FOCALSEAL SURGICAL SEALANT PRODUCTS
Focal is developing its FOCALSEAL-L and FOCALSEAL-S liquid surgical sealants
for use inside the body with or without sutures and staples to seal leaks
resulting from lung, neuro, cardiovascular and gastrointestinal surgery.
FOCALSEAL is expected to be used as an adjunct to sutures and staples in most
indications; however, the Company believes there are numerous occasions where
FOCALSEAL can be used in lieu of sutures and staples. In lung surgery,
FOCALSEAL-L can be used to seal air leaks in areas of the lung where sutures and
staples are ineffective. In neurosurgery, FOCALSEAL-S can potentially reduce the
number of sutures needed to close the dura in cranial procedures and can replace
sutures in spinal surgery where their use can be ill-advised due to the
proximity of the spinal cord. The FOCALSEAL surgical sealant system consists of
a procedure kit containing primer and sealant solutions and disposable
applicators, a light source used for photopolymerization of the polymer, and a
reusable light wand. The Company's surgical sealant products
29
<PAGE>
will be marketed outside North America by Ethicon, a world leader in surgical
wound closure products. The Company has retained North American marketing rights
to all of its FOCALSEAL surgical sealants.
FOCALSEAL-L FOR LUNG SURGERY. The Company is developing FOCALSEAL-L to seal
air leaks resulting from lung surgery. During lung surgery, air leaks can
develop in the lung tissue that has been traumatized during surgery and can
unpredictably occur along staple and suture lines. Approximately 260,000 lung
surgery procedures, primarily for the treatment of lung cancer, are performed
worldwide each year including 130,000 such procedures in the United States.
According to the Company's European clinical trial data, 79% of patients
undergoing lung surgery experience intraoperative air leaks that are not
resolved with sutures or staples. Approximately 15% of lung surgery patients
have air leaks that persist longer than seven days and approximately 5-10% of
patients have air leaks that are severe enough to warrant additional surgical
intervention.
As air leaks from the lung it accumulates in the pleural cavity, making
breathing difficult as the lung cannot expand and contract normally. As a
result, patients require insertion of chest drainage tubes to vent accumulated
air. These chest tubes prolong pain and limit patient mobility. In addition to
undergoing prolonged hospitalization until the air leaks are resolved, patients
with persistent air leaks must receive more intense nursing observation and care
while in the hospital than patients who do not experience air leaks. This
additional hospitalization and more intensive care, as well as the additional
surgical procedures needed for patients whose air leaks are severely prolonged,
result in substantial additional health care costs. Because it is often not
possible to determine at the conclusion of surgery which air leaks are likely to
be prolonged or sustained, the Company believes that FOCALSEAL-L may be used
prophylactically in major lung surgery procedures.
The Company has completed a 60-patient, multicenter, controlled, randomized
clinical trial in Europe involving use of FOCALSEAL-L in sealing air leaks
following lung surgery. Of the 60 patients in the study, the initial four were
pilot patients and the remaining 56 were randomized into the treated or
nontreated group. In the study, prior to randomization, it was determined that
79% of the patients had air leaks following the use of standard sutures and
staples. FOCALSEAL-L was 100% effective in sealing intraoperative air leaks in
the 30 patients who were randomized into the treated group. By contrast, of the
patients in the untreated group who received sutures and staples alone, only 27%
were free of intraoperative air leaks.
The Company is awaiting CE mark approval for European commercialization and
anticipates receiving such approval in late-1997. In September 1997, the Company
completed a CE mark and ISO 9001 standards site audit, which is one of the
principal steps in the CE mark approval process. Subject to receipt of CE mark
approval, the Company expects to commercially introduce FOCALSEAL-L for lung
surgeries in Europe in the first half of 1998 through its strategic marketing
alliance with Ethicon. See "--Strategic Alliances--Ethicon--a division of
Johnson & Johnson."
The protocol for the European clinical trial called for application of
FOCALSEAL-L to all lung tissues that could potentially leak postoperatively.
This included the end of the bronchial segment, known as the bronchial stump,
leading to the diseased lung lobe that was removed during surgery. In lung
surgeries, the bronchial stump is carefully closed with sutures or staples.
During the trial, a higher than anticipated incidence of insufficient wound
healing at the bronchial stump was observed in patients in the treated group.
The bronchial stump typically heals through tissue overgrowth from surrounding
areas. Based upon its review and analysis of the clinical data, the Company
believes that in those cases in which FOCALSEAL-L was applied directly to the
bronchial stump it may have acted as a barrier to such tissue overgrowth,
thereby slowing natural healing of the bronchial stump. As a result of this
observed clinical event, the protocol for the United States clinical trial of
FOCALSEAL-L prohibits its use on the bronchial stump. The clinical data from the
Company's European trial indicates that this limitation will not result in
reduced efficacy of the product. Intraoperative air leaks rarely occur at the
bronchial stump, and were not observed there during the study. These clinical
observations were provided to the European regulatory body as part
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<PAGE>
of the CE mark approval process and to the FDA as part of the IDE submission for
the Company's United States clinical trial.
In September 1997, pursuant to a conditionally approved IDE, the Company
initiated a 180-patient, pivotal, multicenter clinical trial in the United
States involving the use of FOCALSEAL-L in sealing intraoperative and
postoperative air leaks following lung surgery. The IDE allows for enrollment of
patients at up to seven sites and the Company plans to initially conduct the
study at four clinical sites. The Company believes that enrollment in this
clinical trial will be completed in the first half of 1998 and that it will
submit a PMA to the FDA for FOCALSEAL-L by the end of 1998. Based on
communications to date, the FDA may require the Company to pursue clinical trial
endpoints that were not the subject of the European clinical trial which could
result in delays or adversely affect the success of the clinical trial. In the
event that the Company is required to pursue these endpoints, it may be more
difficult for the Company to demonstrate the efficacy of FOCALSEAL-L in the
United States trial than in the European trial, which could result in delays on
adversely affect the success of the clinical trial. Approval of a PMA
application for FOCALSEAL-L will be required prior to commercial sales in the
United States.
FOCALSEAL-S FOR NEUROSURGERY. The Company is developing FOCALSEAL-S to seal
the dura, a membrane that encapsulates the brain and spinal cord and contains
cerebral spinal fluid ("CSF") for cushioning and support. In cranial surgeries,
the neurosurgeon must open the cranium and penetrate the dura. Following
surgery, the neurosurgeon must meticulously suture the dura, a process that
requires the use of up to hundreds of small sutures. Approximately 370,000
cranial surgeries are performed annually worldwide, and leakage of CSF has been
reported to occur in approximately 15% of these procedures. CSF leakage can
result in infections, including meningitis, caused by the passage of infectious
agents through the dural leak, as well as debilitating headaches resulting from
settling of the brain onto the spinal cord due to the loss of CSF. The Company
believes that, because CSF leaks can occur unpredictably in cranial surgeries,
FOCALSEAL-S may be used prophylactically in cranial surgery procedures.
In 1996, neurosurgeons at two major universities demonstrated the safety and
efficacy of FOCALSEAL-S in sealing CSF leaks in cranial surgeries in a
randomized, controlled large animal study. This work was presented at the April
1997 meeting of the American Association of Neurological Surgeons. The Company
expects to initiate a human clinical trial of FOCALSEAL-S in cranial surgery
applications in Europe in mid-1998.
In spinal surgeries, the surgeon seeks to avoid penetration of the dura.
According to published literature, inadvertent penetration of the dura occurs in
up to approximately 13% of the approximately 800,000 spinal surgeries that are
performed annually worldwide. Penetration of the dura can result in leakage of
CSF with potential complications similar to those that can arise in cranial
surgeries. When inadvertent penetration of the dura occurs in spinal surgeries,
the surgeon generally does not elect to use sutures to close the dural leak due
to the risk of injuring the spinal cord with the suturing needle.
CARDIOVASCULAR SURGICAL SEALANT. Focal is evaluating use of its FOCALSEAL
surgical sealants for use in sealing anastomoses and arteriotomies in
cardiovascular surgeries, of which approximately 1.3 million are performed
annually worldwide. These procedures include both open and minimally invasive
coronary artery bypass graft ("CABG") surgeries and other vascular surgical
procedures. In most cardiovascular surgical procedures, vascular anastomoses are
closed with sutures. These anastomoses use both blood vessel grafts from the
patient's own veins or arteries, which occasionally leak, and synthetic grafts,
which regularly leak. In minimally invasive CABG surgeries, achievement of a
leakproof vascular anastomosis can be particularly difficult and time consuming
because the small access ports through which the surgeon must operate can make
placement of sutures difficult. Failure to achieve a leakproof vascular graft
anastomosis can result in sudden blood leaks that may potentially be
life-threatening. These complications can add significant costs to
cardiovascular procedures by increasing the level of care required and
prolonging hospitalization. The Company's sealants have been shown to be
effective in sealing high
31
<PAGE>
pressure vascular leaks in several preclinical large animal models. The Company
and Ethicon are currently preparing the preclinical development plans for this
indication.
GASTROINTESTINAL SURGICAL SEALANT. Focal is evaluating use of its FOCALSEAL
surgical sealants to prevent leakage of gastrointestinal contents following
gastrointestinal surgery. Leakage can occur as a result of incomplete
anastomosis of the portions of the digestive tract being operated upon and may
result in infections, delayed healing or fibrosis. Clinically significant
gastrointestinal tract leakage is most prevalent and unpredictable in esophageal
and large bowel surgeries. Approximately 1.5 million gastrointestinal surgeries
are performed annually worldwide, including approximately 400,000 esophageal and
large bowel surgeries. Postoperative leaks are reported to occur up to 5% of
large bowel surgeries and up to 25% of esophageal surgeries. The Company
believes that, due to the unpredictable nature of leaks in these procedures,
FOCALSEAL surgical sealant may be used prophylactically. The Company's sealants
have been shown to be effective in sealing gastrointestinal leaks in several
preclinical large animal models. The Company and Ethicon are currently preparing
the preclinical development plans for this indication.
LOCAL DRUG DELIVERY FOR CARDIOVASCULAR RESTENOSIS PREVENTION
Focal's polymers have properties that enable them to incorporate and deliver
drugs over a sustained period of time at local disease sites. Focal is currently
developing a drug delivery system that is designed to coat the interior wall of
the coronary artery (with or without a metallic stent) with a synthetic polymer
following angioplasty procedures to provide a depot for sustained local delivery
of drugs. These drugs can potentially reduce the proliferation of tissue that
leads to the renarrowing of the artery, a condition known as restenosis. The
Company has developed a proprietary delivery device, consisting of a double
balloon catheter with a fiber optic cable, for depositing and photopolymerizing
its polymer coating. Focal has entered into a collaboration with Novartis and
Chiron to develop a system for local delivery of their anti-restenosis
compounds.
The Company has demonstrated in large animal studies the ability to coat the
interior wall of the coronary artery with an adherent coating that remains in
place for up to 14 days. The Company has also shown in preclinical animal
studies the ability to locally deliver drugs from this polymer coating over a
period of up to 14 days. Focal's drug delivery product will require substantial
additional preclinical development work and animal studies before human clinical
trials can be commenced. Furthermore, the utility of Focal's drug delivery
product will be dependent upon the efficacy of the anti-restenosis compounds
that will be delivered to the angioplasty site using Focal's product.
Accordingly, this project will require substantial additional development
funding which will be provided primarily by the Company's strategic partners,
and has a very high degree of development risk. In addition, the Company's
agreement with Novartis and Chiron may be terminated by such parties upon 90
days notice with or without cause at any time, including any time prior to
development of a product or commencement of human clinical trials. In the event
of any such termination, the Company anticipates that it would terminate or
significantly scale back this research program.
TISSUE COATING FOR POST-SURGICAL ADHESION PREVENTION
The Company is exploring the development of its synthetic, liquid polymers
as coatings that could be applied to surgical sites with the objective of
preventing the growth of post-surgical adhesions. Post-surgical adhesions
develop as a result of wound healing and scar formation triggered by surgical
trauma to tissue. These adhesions develop as part of the body's normal healing
process when surgical sites are in proximity to other tissues and are typically
most serious in gynecological and abdominal surgeries. There are approximately 1
million gynecological and 1 million abdominal surgical procedures performed
annually worldwide in which post-surgical adhesion formation may occur.
Depending upon the type of surgical procedure, adhesions can become symptomatic
and cause serious complications, including infertility, abdominal pain and bowel
obstruction, and reduced mobility.
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In connection with the Company's collaborative agreement with Ethicon for
surgical sealants, the Company and Ethicon are negotiating a possible additional
collaboration in this area. There can be no assurance that the Company will
successfully enter into this collaboration.
OTHER RESEARCH AND DEVELOPMENT INITIATIVES
The Company has identified several additional potential applications for its
proprietary synthetic, liquid polymer technology. These include tissue and
membrane reinforcement, periodontal infection control, orthopedic surgery, other
drug delivery applications, vascular grafts and nonvascular stenting. All of
these projects are at an early research stage, and the Company is not currently
devoting a significant amount of resources to any of these projects.
Accordingly, there can be no assurance that the Company will continue any of
these research initiatives, that any of such research initiatives will result in
the identification of product formulations that demonstrate sufficient promise
in animal models to enable them to become candidates to enter human clinical
trials, or that any products for which the Company is able to seek and obtain
regulatory approvals and introduce commercially either in the United States or
internationally will result from these efforts.
RESEARCH AND DEVELOPMENT EXPENDITURES
During the years ended December 31, 1994, 1995 and 1996 and the nine months
ended September 30, 1997, the Company incurred $11.9, $9.7, $11.7 and $10.9
million, respectively, on research and development activities, including amounts
funded by the Company's strategic partners.
STRATEGIC ALLIANCES
Focal's commercial strategy is to develop its products both independently
and in collaboration with strategic corporate partners, including pharmaceutical
companies and medical device companies. The Company's strategic corporate
relationships are described below.
ETHICON (A DIVISION OF JOHNSON & JOHNSON)
In January 1997, the Company entered into an exclusive Distribution, License
and Supply Agreement with Ethicon, Inc., a division of Johnson & Johnson, for
the research, development and commercialization of the Company's surgical
sealant products (the "Ethicon Agreement"). Ethicon received marketing rights
for all surgical sealant indications in all territories outside North America,
while the Company retained manufacturing rights worldwide and marketing rights
for North America and receives a royalty on all Ethicon sales. The Ethicon
Agreement outlines the basis and timetable for the development, supply,
marketing, packaging and distribution of FOCALSEAL-L and FOCALSEAL-S for use
intraoperatively as surgical sealants for lung surgery and neurosurgery
indications and other indications. The Ethicon Agreement also establishes a
framework for additional funding for the development of cardiovascular,
gastrointestinal and other surgical sealant indications. Ethicon will continue
to receive marketing rights outside North America to new surgical sealants as
they are developed.
The Ethicon Agreement provided the Company a one-time, non-refundable
payment of $7.0 million for research and development. During 1997 and 1998,
Ethicon is also obligated to provide Focal with development funding and, if and
to the extent certain regulatory milestones are achieved, milestone payments.
The initial payment, research and development funding and milestone payments for
the FOCALSEAL-L and FOCALSEAL-S surgical sealants will aggregate $18.0 million
over the term of the agreement. Through September 30, 1997, the Company had
received $12.0 million from Ethicon under the Ethicon Agreement.
Focal is responsible for obtaining the CE mark for its FOCALSEAL-L and
FOCALSEAL-S sealants for lung surgery and neurosurgery indications,
respectively. Ethicon is responsible for obtaining regulatory clearances and
approvals in Japan and countries outside of the European Union. Focal is
responsible for
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manufacturing products covered by the collaboration. Ethicon will pay Focal a
specified percentage of net sales of surgical sealant products manufactured by
Focal and shipped to Ethicon. In addition, in the event Focal is unable to
achieve specified supply targets or is in non-compliance with the manufacturing
standards established for the CE mark and by Ethicon, Ethicon has the right to
manufacture surgical sealants for sale in all territories outside North America.
Such manufacturing rights, if they are exercised by Ethicon, will be
royalty-bearing and non-exclusive.
The agreement is terminable upon specified events including material breach
by either party or bankruptcy or insolvency of either party. In addition,
Ethicon may terminate the agreement at any time after January 2000 upon 12
months' prior written notice with or without cause.
In addition, in connection with the Ethicon Agreement, the Company and
Ethicon are negotiating a possible additional collaboration in the post-surgical
adhesions prevention area. There can be no assurance that the Company will
successfully enter into this collaboration.
NOVARTIS CORPORATION AND CHIRON CORPORATION
The Company entered into a strategic alliance with Novartis and Chiron in
April 1996 for the development of non-surgical, vascular restenosis prevention
therapy products. The agreement grants Novartis and Chiron a worldwide license
for the use of the Focal polymer-based drug delivery technology in the
restenosis field. Focal retains manufacturing rights for its drug delivery
products developed under the collaboration, provided it is able to meet the
product supply requirements of Novartis or Chiron. Supply of pharmaceuticals
will be the responsibility of Novartis and Chiron.
Under the terms of the agreement, Novartis and Chiron have agreed to fund
research and development expenses and make certain milestone payments upon
achievement of certain preclinical, clinical, regulatory and commercial
milestones. In addition, Novartis and Chiron have agreed to pay for all expenses
incurred for human clinical testing of the products in development under the
collaboration. Focal will contribute its local drug delivery technology,
including its liquid, synthetic, bioabsorbable polymers and its delivery
catheters. Novartis and Chiron will pay Focal a specified percentage of net
sales of products incorporating Focal's drug delivery technology. Novartis and
Chiron have worldwide exclusive marketing rights for the products under
development. Through September 30, 1997, Focal had received $5.1 million in
research and development funding from Novartis and Chiron.
Either Novartis or Chiron have the right to terminate its respective
participation in the research collaboration with the Company upon 90 days
notice, with or without cause, without affecting the rights of the other
parties. Termination of the agreement will relieve Novartis and Chiron of
obligations to make any additional payments for unaccrued research and
development expenses, milestone payments, clinical trial costs or royalties and
transfer payments for products manufactured by Focal. In the event of
termination of funding by Novartis and Chiron, the Company anticipates that it
would terminate or significantly scale back its restenosis drug delivery
research program.
PATENTS AND PROPRIETARY RIGHTS
The Company believes that patents and other proprietary rights are important
to its business. The Company's policy is to file patent applications to protect
technology, inventions and improvements to its inventions that are considered
important to its business and that provide a competitive advantage. Focal also
relies on trade secrets, general know-how, in-licensing opportunities and
continuing technological innovation.
The Company has received, licensed or believes it has rights to license 21
issued United States patents and six foreign patents corresponding to certain of
the issued United States patents, has ten additional United States patent
applications that have been allowed and has 22 patent applications pending in
the United States, as well as foreign counterparts of certain of these
applications. The issued United States
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patents have expiration dates ranging from 2009 to 2014. These patents and
patent applications cover certain aspects of the Company's photopolymerizable
polymer formulations, surgical sealant compositions and methods, and designs for
delivery devices. These patents and patent applications are either held directly
by Focal, or the Company has licensed or believes it has rights to license these
patents. The Company has licensed from the University of Texas and Endoluminal
Therapeutics, Inc. (a company controlled by one of the Company's founding
scientists) worldwide rights to certain technologies which are the subject of
issued patents and pending patent applications based upon technologies developed
by two of the Company's founders. These licenses are terminable in the event of
failure by the Company to pay scheduled royalties, failure to commercialize
products in the fields covered by these licenses and under certain other
conditions. Because of the substantial length of time and expense associated
with bringing new products through the development and regulatory approval
processes in order to reach the marketplace, the medical products industry
places considerable importance on obtaining patent and trade secret protection
for new technologies, products and processes. Accordingly, the Company intends
to seek patent protection for its proprietary technology, products and
processes.
The Company's success will depend in part on its ability to obtain patent
protection for its products, preserve its trade secrets, prevent third parties
from infringing upon its proprietary rights, and operate without infringing upon
the proprietary rights of others, both in the United States and internationally.
There can be no assurance that the Company's pending or future patent
applications will issue, or that the claims of the Company's issued patents, or
any patents that may issue in the future will provide any competitive advantages
for the Company's products or that they will not be successfully challenged,
narrowed, invalidated or circumvented in the future. Moreover, litigation and
interference or opposition proceedings associated with enforcing or defending
patents or trade secrets is expensive and can divert the efforts of technical
and management personnel. The Company has filed patent applications in certain
foreign countries corresponding to certain patent applications that it filed in
the United States and may file additional patent applications inside and outside
the United States. The Company believes that obtaining foreign patents may be
more difficult than obtaining domestic patents because of differences in patent
laws and believes the protection afforded by foreign patents or any other
foreign intellectual property protection, if obtained, may be more limited than
that provided domestically. In addition, there can be no assurance that
competitors will not seek to apply for and obtain patents that will prevent,
limit or interfere with the Company's ability to make, use, import and sell its
products. The Company is aware that certain medical device, pharmaceutical and
other companies, universities and research institutions have filed patent
applications or have issued patents relating to the compositions and methods for
wound closure and adhesion prevention. In addition, the medical device and
pharmaceutical industry has been characterized by extensive litigation regarding
patents and other intellectual property rights, and many companies in the
medical device industry have employed intellectual property litigation to gain a
competitive advantage. There can be no assurance that litigation will not be
brought against the Company by third parties in the future challenging the
Company's patent rights or claiming infringement by the Company of patents held
by the third parties. Because patent applications in the United States are
confidential until the patents issue, and publication of discoveries in the
scientific and patent literature tends to lag behind actual discoveries by
several months, the Company cannot be certain that Company inventors or
licensors were the first to conceive of inventions covered by pending patent
applications or that Company was the first to file patent applications for such
inventions.
The Company may be required or find it desirable to obtain licenses to
patents or proprietary rights of others. No assurance can be given that any
licenses required under any patents or proprietary rights of third parties would
be made available on terms acceptable to the Company, or at all. If the Company
does not obtain such licenses, it could encounter delays in product
introductions while it attempts to design around such patents, or could find
that the development, manufacture or sale of products requiring such licenses is
foreclosed. Litigation may be necessary to defend against or assert claims of
patent infringement or invalidity, to enforce or defend patents issued to the
Company, to protect trade secrets or know-how owned by the Company, or to
determine the scope and validity of the proprietary rights of others. In
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addition, interference proceedings declared by the United States Patent and
Trademark Office, or opposition proceedings in a foreign patent office, may be
necessary to determine the priority of inventions with respect to patent
applications of the Company or its licensors. Litigation, interference or
opposition proceedings could result in substantial costs to and diversion of
effort by the Company, and adverse determinations in any such proceedings could
have a material adverse effect on the business, financial condition or results
of operations of the Company.
The Company also relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to develop and
maintain its competitive position, which it seeks to protect, in part, by
confidentiality agreements with its commercial partners, collaborators,
employees and consultants. The Company also has invention or patent assignment
agreements with its employees and certain, but not all, commercial partners and
consultants. There can be no assurance that relevant inventions will not be
developed by a person not bound by an invention assignment agreement. There can
be no assurance that binding agreements will not be breached, that the Company
would have adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known or be independently discovered by competitors.
GOVERNMENT REGULATION
UNITED STATES
The Company's proposed products and its research and development activities
are subject to regulation by numerous governmental authorities, principally, the
FDA and corresponding state and foreign regulatory agencies. The Federal Food,
Drug and Cosmetic Act (the "FDC Act"), as amended, the regulations promulgated
thereunder, and other federal and state statutes and regulations, govern, among
other things, the preclinical and clinical testing, manufacture, safety,
efficacy, labeling, storage, record keeping, advertising and promotion of
medical devices and drugs including the products currently under development by
the Company. Product development and approval within this regulatory framework
take a number of years and involves the expenditure of substantial resources.
In the United States, medical devices are classified into three different
classes, class I, II and III, on the basis of controls deemed necessary to
reasonably ensure the safety and effectiveness of the device. Class I devices
are subject to general controls (E.G., labeling, premarket notification and
adherence to FDA's good manufacturing practices ("GMPs")) and class II devices
are subject to general and special controls (E.G.,performance standards,
postmarket surveillance, patient registries, and FDA guidelines). Generally,
class III devices are those which must receive premarket approval by the FDA to
ensure their safety and effectiveness (E.G., life-sustaining, life-supporting
and implantable devices, or new devices which have been found not to be
substantially equivalent to legally marketed devices).
Before a new medical device can be marketed, marketing clearance must be
obtained through a premarket notification under Section 510(k) of the FDC Act or
a premarket approval ("PMA") application under Section 515 of the FDA Act. A
510(k) clearance will typically be granted by the FDA if it can be established
that the device is substantially equivalent to a legally marketed class I or II
device or a class III device for which the FDA has not called for PMAs. The FDA
has been requiring a rigorous demonstration of substantial equivalence and this
may include a requirement to submit human clinical trial data. It generally
takes four to twelve months from the date of a 510(k) submission to obtain
clearance, but it may take longer.
The FDA may determine that a medical device is not substantially equivalent
to a legally marketed device, or that additional information is needed before a
substantial equivalence determination can be made. A "not substantially
equivalent" determination, or a request for additional information, could
prevent or delay the market introduction of new products that fall into this
category. For any devices that are cleared through the 510(k) process,
modifications or enhancements that could significantly affect the
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safety or effectiveness, or that constitute a major change in the intended use
of the device, will require new 510(k) submissions.
A PMA application must be filed if a proposed device is not substantially
equivalent to a legally marketed class I or class II device, or if it is a class
III device for which the FDA has called for PMAs. A PMA application must be
supported by valid scientific evidence to demonstrate the safety and
effectiveness of the device, typically including the results of clinical trials,
bench tests, and laboratory and animal studies. The PMA must also contain a
complete description of the device and its components, and a detailed
description of the methods, facilities and controls used to manufacture the
device. In addition, the submission must include the proposed labeling,
advertising literature, and any training materials. The PMA process can be
expensive, uncertain and lengthy, and a number of devices for which FDA approval
has been sought by other companies have never been approved for marketing.
Upon receipt of a PMA application, the FDA makes a threshold determination
as to whether the application is sufficiently complete to permit a substantive
review. If the FDA determines that the PMA application is sufficiently complete
to permit a substantive review, the FDA will accept the application for filing.
Once the submission is accepted for filing, the FDA begins an in-depth review of
the PMA. The FDA review of a PMA application generally takes one to three years
from the date the PMA is accepted for filing, but may take significantly longer.
The review time is often significantly extended by the FDA asking for more
information or clarification of information already provided in the submission.
During the review period, an advisory committee, typically a panel of
clinicians, may be convened to review and evaluate the application and provide
recommendations to the FDA as to whether the device should be approved. The FDA
is not bound by the recommendation of the advisory panel. Toward the end of the
PMA review process, the FDA generally will conduct an inspection of the
manufacturer's facilities to ensure that the facilities are in compliance with
applicable GMP requirements.
If FDA evaluations of both the PMA application and the manufacturing
facilities are favorable, the FDA may issue either an approval letter or an
approvable letter, which usually contains a number of conditions that must be
met in order to secure final approval of the PMA. When and if those conditions
have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA
approval letter, authorizing marketing of the device for certain indications. If
the FDA's evaluation of the PMA application or manufacturing facilities is not
favorable, the FDA will deny approval of the PMA application or issue a
"non-approvable" letter. The FDA may determine that additional clinical trials
are necessary, in which case the PMA may be delayed for one or more years while
additional clinical trials are conducted and submitted in an amendment to the
PMA. Modifications to a device that is the subject of an approved PMA, its
labeling or manufacturing process may require approval by the FDA of PMA
supplements or new PMAs. Supplements to a PMA often require the submission of
the same type of information required for an initial PMA, except that the
supplement is generally limited to that information needed to support the
proposed change from the product covered by the original PMA.
If human clinical trials of a device are required, either for a 510(k) or a
PMA, and the device presents a "significant risk," the sponsor of the trial
(usually the manufacturer or the distributor of the device) must file an
investigational device exemption ("IDE") application prior to commencing human
clinical trials. The IDE application must be supported by data, typically
including the results of animal and laboratory testing. If the IDE application
is approved by the FDA and one or more appropriate Institutional Review Boards
("IRBs"), human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA. If the device presents a "nonsignificant risk" to the patient, a sponsor
may begin the clinical trial after obtaining approval for the study by one or
more appropriate IRBs without the need for FDA approval. Submission of an IDE
does not give assurance that FDA will approve the IDE and, if it is approved,
there is no assurance that FDA will determine that the data derived from the
studies support the safety and efficacy of the device or warrant the
continuation of clinical studies. Sponsors of clinical trials are permitted to
sell investigational devices distributed in the course of the study provided
such compensation does not exceed recovery of the costs of manufacture,
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research, development and handling. An IDE supplement must be submitted to and
approved by the FDA before a sponsor or investigator may make a change to the
investigational plan that may affect its scientific soundness or the rights,
safety or welfare of human subjects.
The Company's FOCALSEAL surgical sealant products will be regulated as a
class III medical device and will require PMA approval prior to being marketed
in the United States. Although the Company has received an IDE from the FDA
permitting the Company to conduct clinical trials of FOCALSEAL-L for lung
surgery in the United States and such clinical study has recently commenced,
there is no assurance that data from such studies will demonstrate the safety
and effectiveness of the FOCALSEAL-L product or will adequately support a PMA
application for the product. In addition, the Company will be required to obtain
additional IDEs for other applications of FOCALSEAL and for other products that
the Company develops that are regulated by the FDA as medical devices. There is
no assurance that data, typically the results of animal and laboratory testing,
that may be provided by the Company in support of future IDE applications will
be deemed adequate for the purposes of obtaining IDE approval or that the
Company will obtain approval to conduct clinical studies of any such future
product.
Other products that the Company is developing, including the products for
restenosis drug delivery, are likely to be regulated as drugs requiring FDA
approval of a new drug application ("NDA") prior to commercialization in the
United States. The new drug approval process is generally considered more
onerous, costly and lengthy than the PMA process, often requiring more extensive
preclinical and clinical testing, and many products for which NDAs have been
submitted have never been approved for marketing.
Before clinical studies of a new drug can begin, an investigational new drug
("IND") application must be submitted to the FDA. FDA regulations provide that
human clinical trials may begin 30 days following submission of an IND
application, unless the FDA advises otherwise or requests additional
information, clarification or additional time to review the application. An IND
application contains extensive preclinical data and information about the drug.
There is no assurance that the Company will develop sufficient data and
information to submit an IND for its restenosis delivery products or that such
data and information if submitted, would be sufficient for the purposes of
commencing clinical studies of the products. Delays in the receipt of or failure
to obtain FDA authorization to begin or continue clinical trials could have a
material adverse effect on the Company's business, financial condition or
results of operations.
Clinical testing involves the administration of the drug to healthy human
volunteers or to patients under the supervision of a qualified principal
investigator, usually a physician, pursuant to an FDA reviewed clinical study
protocol and under the auspices of an IRB at each institution at which the study
will be conducted. Human clinical trials carried out pursuant to an IND,
typically are conducted in three sequential phases, but the phases may overlap.
Phase I trials consist of testing the product in a small number of patients or
normal volunteers, primarily for safety, in one or more dosages, as well as
characterization of a drug's pharmacokinetic and/or pharmacodynamic profile. In
Phase 2, in addition to safety, the efficacy of the product is evaluated in a
patient population. Phase 3 trials typically involve additional testing for
safety and clinical efficacy and an expanded population at geographically
dispersed sites. All clinical studies must be conducted in conformance with
FDA's bioresearch monitoring regulations and the FDA may order the temporary or
permanent discontinuance of a clinical trial at any time, for a variety of
reasons. There is no assurance that if the Company is permitted to commence
clinical trials that the data collected from one phase of clinical trials will
support continuing to the next phase clinical trials.
Data from clinical trials must be submitted to the FDA in an NDA to
demonstrate the safety and effectiveness of the drug. The NDA must also include
information pertaining to the preparation of the drug substance, analytical
methods, drug product formulation, details on the manufacture of finished
products and proposed product packaging and labeling. The application review
process generally takes one to three years and may take substantially longer if,
among other things, the FDA has questions or concerns about the safety and/or
efficacy of a product. However, the submission of an NDA does not assure FDA
approval for marketing and the FDA ultimately may decide that the application
does not satisfy its
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regulatory criteria for approval. If an NDA is approved, its approval may be
conditioned on the results of post-approval clinical tests to confirm safety and
efficacy of the drug (so-called Phase 4 clinical trials). There can be no
assurance that data from any clinical trials will demonstrate the safety and
effectiveness of the product being studied or otherwise support NDA approval.
Delays in the receipt of or failure to obtain NDA approval could have a material
adverse effect on the Company's business, financial condition and results of
operations.
In addition, the FDA may impose restrictions on the use of the drug that may
be difficult and expensive to administer. Product approvals may be withdrawn if
compliance with regulatory requirements are not maintained or if problems occur
after the product reaches the market. After a product is approved for a given
indication in an NDA, subsequent new indications or dosage levels for the same
product are reviewed by FDA via the filing and upon approval of a NDA
supplement. The NDA supplement is more focused than the NDA and often deals
primarily with safety and effectiveness data related to the new indication or
dosage. Finally, FDA requires reporting of certain safety and other information
that becomes known to a manufacturer of an approved drug.
The Company is required to provide information to the FDA on death or
serious injuries alleged to have been associated with the use of its medical
devices, as well as product malfunctions that would likely cause or contribute
to death or serious injury if the malfunction were to recur. In addition, the
FDA prohibits a cleared or approved device from being marketed for uncleared or
unapproved applications. If the FDA believes that a company is not in compliance
with law, it can institute proceedings to detain or seize products, issue a
recall, enjoin future violations and assess civil and criminal penalties against
the Company, its officers and its employees. Failure to comply with the
regulatory requirements could have material adverse effect on the Company's
business, financial condition and results of operations. In addition,
regulations regarding the manufacture and sale of the Company's products are
subject to change. The Company cannot predict the effect, if any, that such
changes might have on its business, financial condition or results of
operations.
Among the requirements for product approval is the requirement that the
prospective manufacturer conform to the FDA's GMP regulations for drugs. In
complying with the GMP regulations, manufacturers must continue to expend time,
money and effort in product, record keeping and quality control to assure that
the product meets applicable specifications and other requirements. The FDA
periodically inspects manufacturing facilities in the U.S. in order to assure
compliance with applicable GMP requirements. Failure of the Company to comply
with the GMP regulations or other FDA regulatory requirements could have a
material adverse effect on the Company's business, financial condition, or
results of operations. The Company has not yet undergone an FDA GMP inspection
and does not anticipate that it will undergo such an inspection until after
submission of its initial PMA application for FOCALSEAL surgical sealants.
INTERNATIONAL
In order for the Company and its strategic partners to market its products
in Europe and other foreign countries, the Company and/or its partners must
obtain required regulatory approvals and comply with extensive regulations
governing safety, quality and manufacturing processes. These regulations vary
significantly from country to country. The time required to obtain approval to
market the Company's products may be longer or shorter than that required in the
United States. In order to market FOCALSEAL surgical sealants and other products
being developed by the Company in the member countries of the European Union,
the Company will be required to obtain CE mark certification. CE mark
certification is an international symbol of adherence to quality assurance
standards and compliance with applicable European medical device directives. In
September 1997, the Company completed a CE mark and ISO 9001 standards audit,
which is one of the principal steps in the CE mark approval process. The
remainder of the CE mark approval process consists primarily of review by the
approving body of additional documentation submitted by the Company in response
to observations made during the CE mark audit. Although the CE mark and ISO 9001
standards audit has been completed, there can be no assurance that the Company
will
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be successful in completing the remainder of the CE mark certification process
or obtaining CE mark certification in a timely manner, if at all.
SALES AND MARKETING
The Company intends to market and sell its surgical sealants internationally
through Ethicon and to develop its own direct sales and marketing force for
these products in North America. The Company intends to launch its FOCALSEAL-L
surgical sealant for lung surgery in Europe through Ethicon in the first half of
1998. Ethicon is one of the leading manufacturers of sutures and staples
worldwide and has a significant sales and marketing presence in Europe, Latin
America and the Pacific Rim. If and when the Company receives marketing approval
in the United States, the Company intends to build a direct sales force for
marketing its surgical sealant products in North America.
The Company's sales and marketing strategy for other products may include
using a combination of the Company's own direct sales force, strategic marketing
partners and distributors. The sales and marketing plans for these products will
be dependent on the Company's success in entering into strategic marketing
relationships, its ability to leverage its own internal sales force to market
additional products beyond the surgical sealant products and its ability to hire
and retain additional specialized sales personnel. There can be no assurance
that the Company will be able to secure any additional strategic marketing
partners or international distributors on terms that are acceptable to the
Company, or at all, or that the Company will be successful in building a direct
sales force in the United States.
MANUFACTURING
The Company has only limited experience in manufacturing its FOCALSEAL
surgical sealants. The Company has recently added manufacturing capacity at its
Lexington, Massachusetts facility in order to meet anticipated supply
requirements for the planned European commercial introduction of its FOCALSEAL-L
surgical sealant and for the United States clinical trial.
The Company performs certain steps in the FOCALSEAL manufacturing process
internally and relies on outside contractors for others. Certain proprietary
processes, including polymer synthesis, are performed by Focal. The Company uses
outside contractors for nonproprietary, high volume processes including
sterilization and fill and finish. The Company also contracts with third parties
for the manufacture of syringes, applicators, light sources and light wands.
There can be no assurance that the Company will be able to attract, train
and retain the required personnel or will be able to increase its manufacturing
capability to manufacture commercial quantities of surgical sealants in a timely
manner, or at all. Manufacturers often encounter difficulties in scaling up
production of their products, including problems involving production yields,
quality control and assurance, component supply and shortages of qualified
personnel. The Company anticipates that it will need to increase significantly
its current manufacturing capacity to meet commercial needs over the next
several years and that it may need to establish off-site manufacturing capacity
to meet these anticipated needs. In addition, the Company expects that it will
need to identify and qualify additional sources for materials and outsourced
manufacturing processes. There can be no assurance that the Company's
manufacturing scale-up efforts will be successful or that reliable, high-volume
manufacturing can be established or maintained at commercially reasonable costs
on a timely basis, or at all. Furthermore, the Company may be required to
establish an off-site manufacturing facility and qualify such facility under
GMP, ISO 9001 and other applicable regulatory and quality standards. The Company
would experience supply interruptions in the event it is unable to establish or
maintain commercial levels of polymer synthesis, as the Company's polymer
formulations are proprietary and are not available from third parties. In
addition, there can be no assurance that the Company will not encounter
unanticipated problems and delays in connection with its contract manufacturers
and suppliers. Delays associated with or difficulties encountered in
establishing commercial manufacturing, the establishment of new manufacturing
facilities, or problems encountered
40
<PAGE>
with contract manufacturers and suppliers, would result in disruptions of
product supply to the Company's marketing partners and for use in clinical
trials. In such event, Ethicon could, under its agreement with the Company,
commence manufacturing of surgical sealants for sales in all territories outside
North America. Any of the foregoing would have a material adverse affect on the
Company's business, financial condition and results of operations.
The Company purchases raw materials used in its products from various
suppliers. Certain materials and components are currently purchased by the
Company from single sources. These materials have generally been readily
available in the marketplace and have not been the subject of shortages. There
can, however, be no assurance that the Company or its suppliers or contract
manufacturers will not experience material shortages in the future. Any such
future shortages of materials or components could have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company is also required to register as a medical device manufacturer
with the FDA and to list its products with the FDA. As such, the Company is
subject to inspections by the FDA for compliance with the FDA's GMP and other
applicable regulations. These regulations require that the Company maintain its
documents in a prescribed manner with respect to manufacturing, testing and
control activities. Further, the Company and the third party manufacturers of
its products are required to comply with various FDA requirements for design,
safety, advertising and labeling. The Company has not yet undergone an FDA GMP
inspection and does not anticipate that it will undergo such an inspection until
after submission of its initial PMA application for FOCALSEAL surgical sealants.
COMPETITION AND TECHNOLOGICAL CHANGE
The Company competes with many domestic and foreign medical device,
pharmaceutical and biopharmaceutical companies. In the surgical sealant area,
the Company will compete with existing methodologies for sealing air and fluid
leaks resulting from surgery, including some traditional wound closure products
such as sutures and staples, marketed by companies such as Johnson & Johnson,
United States Surgical Corporation, American Home Products Corporation and
others. Other products currently being marketed include fibrin glue, sold in
Europe and the Pacific Rim countries by Immuno AG, Cention and Fujisawa and
under development by Baxter Healthcare Corporation, Bristol-Myers Squibb Company
and Vitex. Other competitors in the surgical sealant market include Closure
Medical Corporation, B. Braun GmBH and Cryolife. Competitive products may also
be under development by other large medical device, pharmaceutical and
biopharmaceutical companies. The other areas in which Focal is developing
products, such as post-surgical adhesion prevention and restenosis drug
delivery, are intensely competitive markets and the Company will encounter
competition from major medical device, pharmaceutical and biopharmaceutical
companies in such markets. Many of the Company's current and potential
competitors have substantially greater financial, technological, research and
development, regulatory and clinical, marketing and sales, and personnel
resources than the Company.
These competitors may also have greater experience in developing products,
conducting clinical trials, obtaining regulatory approvals, and manufacturing
and marketing such products. Certain of these competitors may obtain patent
protection, approval or clearance by the FDA or foreign countries or product
commercialization earlier than the Company, any of which could materially
adversely affect the Company. Furthermore, if the Company commences significant
commercial sales of its products, it will also be competing with respect to
manufacturing efficiency and marketing capabilities, areas in which it currently
has limited experience. Finally, there can be no assurance that the Company's
marketing partners will not pursue parallel development of other technologies or
products, which may result in a marketing partner developing additional products
that would compete with the Company's products.
41
<PAGE>
Other recently developed technologies or procedures are, or may in the
future be, the basis of competitive products. There can be no assurance that the
Company's current competitors or other parties will not succeed in developing
alternative technologies and products that are more effective, easier to use or
more economical than those which have or are being developed by the Company or
that would render the Company's technology and products obsolete and
non-competitive in these fields. In such event, the Company's business,
financial condition and results of operations could be materially adversely
affected.
THIRD PARTY REIMBURSEMENT
Reimbursement and health care payment systems in international markets vary
significantly by country. In connection with international product
introductions, the Company and its strategic marketing partners may be required
to seek international reimbursement approvals. If required, there can be no
assurance that any such approvals will be obtained in a timely manner, or at
all, and failure to receive such international reimbursement approvals could
have an adverse effect on market acceptance of the Company's products in the
international markets in which such approvals are sought.
In the United States, health care providers, such as hospitals and
physicians, that purchase medical devices such as the Company's products,
generally rely on third-party payors, principally federal Medicare, state
Medicaid and private health insurance plans, to reimburse all or part of the
cost of surgical procedures. The Company anticipates that in a prospective
payment system, such as the DRG system utilized by Medicare, and in many managed
care systems used by private health care payors, there will be no separate,
additional reimbursement for the Company's products. Accordingly, the Company
believes that there will be no procedure-specific reimbursement codes for the
Company's products. The Company anticipates that hospital administrators and
physicians will justify the additional cost of surgical sealants by the
attendant cost savings and clinical benefits that the Company believes will be
derived from the use of its products.
There can be no assurance that reimbursement for the Company's products will
be available in the United States or in international markets under either
governmental or private reimbursement systems. Furthermore, the Company could be
adversely affected by changes in reimbursement policies of governmental or
private health care payors. Failure by physicians, hospitals and other users of
the Company's products to obtain sufficient reimbursement from health care
payors for procedures in which the Company's products are used or adverse
changes in governmental and private third party payors' policies toward
reimbursement for such procedures would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's business may be also materially adversely affected by the
continuing efforts of government and third-party payors to contain or reduce the
costs of health care through various means. For example, in certain foreign
markets, pricing or profitability of certain medical products and prescription
pharmaceuticals is subject to government control. In the United States, an
increasing emphasis on managed care has put, and will continue to put, pressure
on pharmaceutical and medical product pricing. Such initiatives and proposals,
if adopted, could decrease the price that the Company receives for any products
it may develop and sell in the future, and thereby have a material adverse
effect on the Company's business, financial condition and results of operations.
Further, to the extent that such proposals or initiatives have a material
adverse effect on other companies that are corporate partners or prospective
corporate partners for certain of the Company's products, the Company's ability
to commercialize its products may be materially adversely affected.
EMPLOYEES
As of September 30, 1997, the Company employed 91 persons of whom 69 were in
research and development, seven were in clinical and regulatory affairs, and 15
were in finance and administration. None of the Company's current employees is
represented by a labor union or is the subject of a collective bargaining
agreement. The Company believes that relations with its employees are good.
42
<PAGE>
FACILITIES
Focal currently occupies approximately 54,000 square feet of manufacturing,
laboratory and administrative space in Lexington, Massachusetts under a lease
which expires in September 2004. Focal has an option to extend this lease for
several additional five year periods. The Company believes that this facility is
sufficient to meet the Company's requirements through at least mid-1998. The
Company is currently evaluating the possibility of obtaining additional facility
space in the Lexington, Massachusetts area and believes such space can be
obtained on commercially reasonable terms.
SCIENTIFIC ADVISORS
Focal has recruited several physician specialists and experienced
practitioners in various fields pertaining to its products to serve as
scientific advisors. The four founding scientists of Focal are scientific
advisors to the Company, including Jeffrey Hubbell, Ph.D., Professor, Swiss
Federal Institute of Technology, Zurich, Switzerland; Marvin Slepian, M.D.,
Cardiologist, University of Arizona Medical Center; Robert Langer, Ph.D.,
Professor, Massachusetts Institute of Technology; and Henry Brem, M.D.,
Professor, The Johns Hopkins University.
There is no fixed term of service for the scientific advisors. Current
members may resign or be removed at any time, and additional members may be
appointed. In general, members do not serve on an exclusive basis with the
Company and are not obligated to assign inventions to the Company. Drs. Langer,
Brem, Hubbell and Slepian are scientific founders of the Company and certain
inventions of Drs. Hubbell and Slepian were assigned to the Company under the
Company's license agreements with the Universities of Texas and Arizona,
respectively. Drs. Langer and Brem also serve as members of the Company's board
of directors. Scientific advisors have from time to time received option grants
to purchase Common Stock of the Company. Scientific Advisors have also received
cash compensation, with the amount of such compensation dependent on the time
commitment and level of involvement of each advisor. All scientific advisors
receive reimbursement for expenses incurred in traveling to and attending
meetings on behalf of the Company.
The following individuals are scientific advisors to Focal in their
respective areas of specialization identified below.
BIOMATERIALS/POLYMER SCIENCE
<TABLE>
<S> <C>
Jeffrey Hubbell, Ph.D. Swiss Federal Institute of Technology
John Eaton, Ph.D. Baylor University College of Medicine
Joachim Kohn, Ph.D. Rutgers University
Joseph Vacanti, Ph.D. Boston Children's Hospital
Allan Hoffman, Ph.D. University of Washington
</TABLE>
DRUG DELIVERY AND TISSUE ENGINEERING
<TABLE>
<S> <C>
Elazar Edelman, M.D., Ph.D. Harvard Medical School
Robert Langer, Ph.D. Massachusetts Institute of Technology
Jane Shaw, Ph.D. President of Stable Network; Former President
of Alza Corporation
Jeffrey Isner, M.D. St. Elizabeth's Hospital
</TABLE>
PROCEDURE DEVELOPMENT
<TABLE>
<S> <C>
Joseph LoCicero, M.D. Harvard Medical School
Peter Johnson, M.D. University of Pittsburgh Medical School
Ogan Gurel, M.D. Harvard Medical School
</TABLE>
LEGAL PROCEEDINGS
The Company is not currently a party to any material pending legal
proceedings.
43
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table sets forth the names, ages and positions of the
executive officers, key employees and directors of the Company as of September
30, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
David M. Clapper.......................... 46 President, Chief Executive Officer and Director
Arthur J. Coury, Ph.D..................... 56 Vice President, Materials Research
David J. Enscore, Ph.D.................... 46 Vice President, Development & Drug Delivery
Stephen J. Herman......................... 49 Vice President, Operations
Glenn M. Kazo............................. 36 Vice President, Corporate Development
Mary Lou Mooney........................... 41 Vice President, Clinical and Regulatory Affairs
& Quality
Ronald S. Rudowsky........................ 48 Vice President, Marketing and Procedure Development
W. Bradford Smith......................... 42 Vice President, Finance and Administration and
Chief Financial Officer
Henry Brem, M.D. (1)...................... 45 Director
Janet Effland (2)......................... 49 Director
Robert Langer, Ph.D....................... 48 Director
Mark J. Levin (1)......................... 45 Director
Michael J. Levinthal (1).................. 42 Director
Fred E. Silverstein, M.D. (2)............. 55 Director
Jesse I. Treu, Ph.D. (1)(2)............... 50 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
DAVID M. CLAPPER has been President, Chief Executive Officer and a Director
since joining Focal in July 1993. Before joining Focal, Mr. Clapper was employed
at Johnson & Johnson from 1977 until 1993. He served as Vice President and a
Board member at the Critikon, Inc. division of Johnson & Johnson from July 1992
to July 1993. From 1977 to June 1992, Mr. Clapper held a variety of positions,
including Vice President of Sales & Marketing and a Board Member of Ethicon
Endo-Surgery, and Vice President of Product Management and a Board Member at
Ethicon Inc.. Mr. Clapper holds a B.S. in Marketing from Bowling Green State
University.
ARTHUR J. COURY, PH.D. has been Vice President, Materials Research of the
Company since July 1993. From 1976 to June 1993, Dr. Coury held various
positions with Medtronic, Inc., serving most recently as Director, Polymer
Technology and Corporate Research Fellow. He has nearly 20 years of biomaterials
research and development experience and has been issued 25 patents. Dr. Coury
holds a Ph.D. in Organic Chemistry and an M.B.A. from the University of
Minnesota.
DAVID J. ENSCORE, PH.D. has been Vice President, Development and Drug
Delivery of the Company since September 1995. From 1979 until joining the
Company, Dr. Enscore held several positions with ALZA Corporation, a
biopharmaceutical company, most recently as Executive Director, Transdermal
Product Development. Dr. Enscore has been issued 15 patents. He holds a Ph.D. in
Chemical Engineering from North Carolina State University.
STEPHEN J. HERMAN has been Vice President, Operations of the Company since
August 1992. From March 1990 to May 1992, Mr. Herman served as President and
Chief Executive Officer of Cardiopulmonary Corporation, a medical equipment
development company. From 1982 to 1990, he held various positions with C. R.
Bard, Inc., a medical device company, most recently as President of its critical
care
44
<PAGE>
division. Mr. Herman previously held product development management positions
with Cobe Laboratories. Mr. Herman holds an M.B.A. from the University of
Colorado and a B.S. in Mechanical Engineering from the University of Missouri.
GLENN M. KAZO has been Vice President, Corporate Development of the Company
since November 1995. During 1995, prior to joining the Company, Mr. Kazo was
Managing Partner of Kazo Associates, a consulting business focusing on health
care strategy and development. From 1981 to 1994, he held various positions with
Enzon, Inc., a biopharmaceutical and drug delivery company, most recently as
Corporate Vice President, Strategic Planning and Public Affairs. Mr. Kazo holds
an M.S. in Biochemistry from Rutgers University.
MARY LOU MOONEY, Vice President, Clinical Affairs, Regulatory Affairs and
Quality, joined the Company in June 1993 as Director, Regulatory Affairs. In
January 1997, Ms. Mooney was promoted to her current position. From March 1991
to June 1993, she held various positions with C.R. Bard Inc., a medical device
company, most recently as Director, Regulatory Affairs and Quality Assurance for
its ventures division. Ms. Mooney has also held regulatory positions with
Cardiac Pacemakers, Inc., Biometric Research Institute, Inc. and Cordis
Corporation. Ms. Mooney holds an M.S. in Biomedical Science from Drexel
University.
RONALD S. RUDOWSKY, Vice President, Marketing and Procedure Development,
joined the Company in January 1994 as Director, Procedure Development. In
January 1997, Mr. Rudowsky was promoted to his current position. From June 1991
to December 1993, he was the Director of Marketing of Ethicon Endo-Surgery, a
medical device company and a division of Johnson & Johnson. Previously, he spent
14 yers in various sales and marketing positions at Ethicon, Inc. Mr. Rudowsky
holds a B.B.A. in Marketing from Marshall University.
W. BRADFORD SMITH, Vice President, Finance and Administration and Chief
Financial Officer, joined the Company as Director of Finance in May 1993. In
March 1994, Mr. Smith was appointed to his current position. From June 1990 to
May 1993, he served as Director of Finance for CytoTherapeutics, Inc., a
biotechnology company. Prior to that, he was Director of Finance at ImmuCell
Corporation, a biotechnology company, a Financial Analyst for a division of
Lockheed Corporation and a Senior Accountant with Coopers & Lybrand. Mr. Smith
holds an M.B.A. from the University of New Hampshire and a B.S. from Tufts
University.
HENRY BREM, M.D. is Director of the Brain Tumor Research Center and
Professor of Neurosurgery, Ophthalmology and Oncology at The Johns Hopkins
University. Dr. Brem has served as a member of the Company's Board of Directors
since June 1991. Dr. Brem is a Scientific Founder of the Company. Dr. Brem holds
an M.D. from Harvard University.
JANET EFFLAND joined the Company's Board of Directors in April 1996. Since
August 1988, Ms. Effland has been Vice President of Patricof & Co. Ventures,
Inc., a venture capital firm. She also serves on the Board of Directors of Cytyc
Corporation and Urologix, Inc., both of which are publicly traded. Ms. Effland
holds a J.D. from Arizona State University.
ROBERT LANGER, PH.D. joined the Company's Board of Directors in January
1996. Dr. Langer has been the Kenneth J. Germeshausen Professor of Chemical and
Biomedical Engineering at the Massachusetts Institute of Technology since 1992.
He is also a member of the National Academy of Sciences, National Academy of
Engineering and the Institute of Medicine. He also serves on the Board of
Directors of Alkermes, Inc., a publicly traded company. Dr. Langer holds a Sc.D.
from the Massachusetts Institute of Technology in Chemical Engineering.
MARK J. LEVIN, President and Chief Executive Officer and a Director of
Millennium Pharmaceuticals, Inc., has served as a Director since the Company's
inception in June 1991. Mr. Levin was the founding Chief Executive Officer of
Focal, Inc., as well as Cell Genesys, Inc., CytoTherapeutics, Inc., Tularik,
Inc. and Millennium Pharmaceuticals, Inc. Mr. Levin was previously a General
Partner with Mayfield Fund, a
45
<PAGE>
venture capital firm. Mr. Levin is a member of the Board of Directors of
CytoTherapeutics, Inc. Mr. Levin holds a B.S. and M.S. in Chemical Engineering
from Washington University.
MICHAEL J. LEVINTHAL joined the Company's Board of Directors in December
1992. Since 1984, Mr. Levinthal has been a General Partner of Mayfield Fund, a
venture capital firm. He also serves on the Board of Directors of Heartstream,
Inc. and InControl, Inc., both of which are publicly traded. Mr. Levinthal holds
an M.B.A. and an M.S. in Engineering from Stanford University.
FRED E. SILVERSTEIN, M.D. joined the Company's Board of Directors in July
1996. Since 1994, Dr. Silverstein has been a member of Frazier Management LLC, a
merchant banking group. From 1986 to 1994, he was a Professor of Medicine at the
University of Washington where he also held the positions of Director,
Gastrointestinal Endoscopy Service (1975-1991) and Director, Endoscopy Training
Program (1991-1994). Dr. Silverstein also serves on the Board of Directors of
Aradigm Corporation and Vision Sciences, Inc. Dr. Silverstein holds an M.D. from
Columbia University College of Physicians and Surgeons.
JESSE I. TREU, PH.D. was a member of the Company's Board of Directors from
March 1993 until April 1995 and from March 1996 to the present. Since 1986, he
has been a General Partner of Domain Associates, a venture capital management
firm. Dr. Treu also serves on the Board of Directors of GelTex Pharmaceuticals,
Inc., RiboGene, Inc. and Trimeris, Inc. He received his B.S. from Rensselaer
Polytechnic Institute, and holds an M.A. and Ph.D. in Physics from Princeton
University.
BOARD COMPOSITION
The Company currently has authorized eight directors. In accordance with the
terms of the Company's Restated Certificate of Incorporation, effective upon the
closing of this offering, the terms of office of the Board of Directors will be
divided into three classes; Class I, whose term will expire at the annual
meeting of stockholders to be held in 1998; Class II, whose term will expire at
the annual meeting of stockholders to be held in 1999; and Class III, whose term
will expire at the annual meeting of stockholders to be held in 2000. The Class
I directors are and , the Class II directors are , and
, and the Class III directors are , and . At each annual
meeting of stockholders after the initial classification, the successors to
directors whose term will then expire will be elected to serve from the time of
election and qualification until the third annual meeting following election. In
addition, the Company's Bylaws provide that the authorized number of directors
may be changed only by resolution of the Board of Directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the Board of
Directors may have the effect of delaying or preventing changes in control or
management of the Company.
Each officer is elected by and serves at the discretion of the Board of
Directors. Each of the Company's officers and directors, other than nonemployee
directors, devotes substantially full time to the affairs of the Company. The
Company's nonemployee directors devote such time to the affairs of the Company
as is necessary to discharge their duties. There are no family relationships
among any of the directors, officers or key employees of the Company.
BOARD COMMITTEES AND COMPENSATION COMMITTEE INTERLOCKS
The Audit Committee of the Board of Directors (consisting of Ms. Effland,
Dr. Treu and Dr. Silverstein) reviews the internal accounting procedures of the
Company and consults with and reviews the services provided by the Company's
independent accountants. The Compensation Committee of the Board of Directors
(consisting of Mr. Levinthal, Dr. Treu, Dr. Brem and Mr. Levin) reviews and
recommends to the Board the compensation and benefits of all executive officers
of the Company and establishes and reviews general policies relating to
compensation and benefits of employees of the Company.
46
<PAGE>
Since January 1, 1994, venture capital firms affiliated with directors Treu
and Levinthal have purchased securities of the Company and director Brem
received a loan from the Company in connection with a stock option exercise
program. Dr. Brem also has a consulting agreement with the Company. See "Certain
Transactions."
DIRECTOR COMPENSATION
Directors do not currently receive any cash compensation from the Company
for their service as members of the Board of Directors, although they are
reimbursed for certain expenses in connection with attendance at Board and
Committee meetings. The Company does not provide additional compensation for
committee participation or special assignments of the Board of Directors. From
time to time, certain directors of the Company have received grants of options
to purchase shares of the Company's Common Stock pursuant to the 1992 Incentive
Stock Plan. Beginning on the date of this offering, nonemployee directors of the
Company will be eligible to receive nondiscretionary, automatic grants of
options to purchase shares of the Company's Common Stock pursuant to the 1997
Director Option Plan. See "-- Incentive Stock Plans" and "Certain Transactions."
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth certain
information for the year ended December 31, 1996 regarding the compensation of
the Company's Chief Executive Officer and certain other executive officers of
the Company whose salary and bonus for such fiscal year were in excess of
$100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
1996 ANNUAL SECURITIES
COMPENSATION UNDERLYING ALL OTHER
-------------------
OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) (#)(1) ($)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David M. Clapper............................................ 230,000 -- 299,385 --
President and Chief Executive Officer
Stephen J. Herman........................................... 184,800 -- 49,405
Vice President, Operations
David J. Enscore, Ph.D...................................... 152,075 -- 60,966 9,904(2)
Vice President, Development and Drug Delivery
Arthur J. Coury, Ph.D....................................... 171,045 66,636
Vice President, Research
Glenn M. Kazo............................................... 160,000 -- 81,538 18,456(2)
Vice President, Product Development
</TABLE>
- ------------------------
(1) Options were granted under the Company's 1992 Incentive Stock Option Plan
and vest over four years as follows: (i) 1/4 of the total after one year and
1/48 of the total at the end of each month thereafter for new hires; and
(ii) 1/48 of the total at the end of each month for subsequent grants. In
each case, vesting is subject to the optionees continued relationship with
the Company.
(2) Consists of reimbursement for relocation expenses.
47
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR. The following table sets forth each
grant of stock options made during the fiscal year ended December 31, 1996 to
each of the Named Executive Officers:
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED EXERCISE FOR OPTION TERM(4)
OPTIONS DURING FISCAL PRICE EXPIRATION ------------------
NAME GRANTED (#)(1) 1996(%)(2) ($/SH)(3) DATE 5%($) 10%($)
- -------------------------------------------- -------------- ------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
David M. Clapper............................ 166,986 13.1% $ 1.20 2/28/06 $126,024 $319,361
132,307 10.4 1.20 8/30/06 99,852 253,037
Stephen J. Herman........................... 5,095 * 1.20 1/05/06 3,845 9,744
28,923 2.3 1.20 3/19/06 21,828 55,315
15,384 1.2 1.20 8/30/06 11,610 29,422
David J. Enscore, Ph.D...................... 1,273 * 1.20 1/05/06 960 2,435
28,923 2.3 1.20 3/19/06 21,828 55,315
30,769 2.4 1.20 8/30/06 23,221 58,846
Arthur J. Coury, Ph.D....................... 5,097 * 1.20 1/05/06 3,847 9,748
23,077 1.8 1.20 8/30/06 17,416 44,135
38,462 3.0 1.20 3/19/06 29,027 73,559
Glenn M. Kazo............................... 27,692 2.2 1.20 1/05/96 20,899 52,961
23,076 1.8 1.20 3/19/96 17,415 44,133
30,769 2.4 1.20 8/30/96 23,221 58,846
</TABLE>
- ------------------------
* Less than one percent (1.0%).
(1) Options were granted under the Company's 1992 Incentive Stock Option Plan
and vest over four years as follows: (i) 1/4 of the total after one year and
1/48 of the total at the end of each month thereafter for new hires; and
(ii) 1/48 of the total at the end of each month for subsequent grants. In
each case, vesting is subject to the optionees continued relationship with
the Company.
(2) Based on an aggregate of 1,275,691 options granted by the Company in the
year ended December 31, 1996 to employees of and consultants to the Company,
including the Named Executive Officers.
(3) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board of
Directors.
(4) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated assuming that the fair
market value of the Company's Common Stock on the date of grant appreciates
at the indicated annual rate compounded annually for the entire term of the
option and that the option is exercised and sold on the last day of its term
for the appreciated stock price. These numbers are calculated based on the
requirements promulgated by the Securities and Exchange Commission and do
not reflect the Company's estimate of future stock price growth.
48
<PAGE>
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES. There were no stock option exercises by any of the Named Executive
Officers during the year ended December 31, 1996. The following table sets forth
for each of the Named Executive Officers the number and value of securities
underlying unexercised options held at December 31, 1996:
AGGREGATE OPTION EXERCISES IN YEAR ENDED DECEMBER 31, 1996 AND
OPTION VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996 (#)(1) DECEMBER 31, 1996 ($)(2)
------------------------ ------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
David M. Clapper.......................................... 83,333 16,667 940,413 188,087
47,556 266,368 513,486 2,876,108
Stephen J. Herman......................................... 15,075 43,885 162,772 473,848
David J. Enscore, Ph.D.................................... 17,607 71,051 190,112 767,173
Arthur J. Coury, Ph.D..................................... 32,852 5,610 370,735 63,309
14,287 57,426 154,264 620,057
Glenn M. Kazo............................................. 14,870 66,668 160,559 719,848
</TABLE>
- ------------------------
(1) For each of the Named Executive Officers, the aggregate number of shares
underlying the options reflect options that were granted by the Company at
various times during the period from April 1993 to August 1996. Options were
granted under the Company's 1992 Incentive Stock Option Plan and generally
vest over four years as follows: (i) 1/4 of the total after one year and
1/48 of the total at the end of each month thereafter for new hires; and
(ii) 1/48 of the total at the end of each month for subsequent grants. In
each case, vesting is subject to the optionees continued relationship with
the Company. On January 20, 1997, each of the options were exercised as to
all of the shares underlying the options, vested and unvested. Once
exercised, the unvested shares became subject to the Company's right to
repurchase the shares at the original purchase price. The Company's
repurchase right lapses over time at such times and in such amounts as the
shares would have vested and become exercisable under the options
agreement(s) pursuant to which the options were granted.
(2) Based on a value of $12.00 per share, the assumed initial public offering
price, minus the per share exercise price, multiplied by the number of
shares underlying the option.
INCENTIVE STOCK PLANS
1992 INCENTIVE STOCK PLAN. The Company's 1992 Incentive Stock Plan (the
"1992 Plan") provides for the grant of incentive stock options to employees
(including employee directors) and nonstatutory stock options and stock purchase
rights to employees, employee directors and consultants. A total of 2,600,000
shares of Common Stock have been reserved for issuance pursuant to the 1992
Plan. As of September 30, 1997, 1,590,031 shares had been issued upon the
exercise of stock options granted under the 1992 Plan and 297,921 shares were
subject to outstanding options. The 1992 Plan is administered by the Board of
Directors and the Compensation Committee thereof. Options and stock purchase
rights granted under the 1992 Plan will vest as determined by the Board, and may
accelerate and become fully vested in the event of an acquisition of the Company
if so determined. The exercise price of options and stock purchase rights
granted under the 1992 Plan will be as determined by the Board, although the
exercise price of incentive stock options must be at least equal to the fair
market value of the Company's Common Stock on the date of grant. The Board of
Directors may amend or modify the 1992 Plan at any time. The 1992 Plan will
terminate in October 2002, unless terminated earlier by the Board of Directors.
49
<PAGE>
1997 DIRECTOR OPTION PLAN. The Company has adopted a 1997 Director Option
Plan (the "Director Plan"), and has reserved a total of 150,000 shares of Common
Stock for issuance thereunder. On the date of each year's annual stockholders'
meeting, commencing with the 1998 annual meeting of stockholders, each
nonemployee director will automatically be granted a nonstatutory option to
purchase 5,000 shares of Common Stock, providing that he or she shall have
served on the Board of Directors for at least the preceding six months. The
exercise price of each of these options will be equal to the fair market value
of the Common Stock on the date of grant. Each option granted under the Director
Plan will vest on a cumulative monthly basis over a four-year period. In the
event of a change in control of the Company, including a merger of the Company
with or into another corporation, or the sale of all or substantially all of the
assets of the Company, then all shares subject to options granted under the
Director Plan will become fully vested and exercisable unless such options are
assumed by the successor or acquiring company. In the event that a nonemployee
director is involuntarily terminated following such an option assumption, such
option becomes fully vested and exercisable. The Director Plan will terminate in
September 2007, unless terminated earlier in accordance with the provisions of
the Director Plan.
1997 EMPLOYEE STOCK PURCHASE PLAN. The Company has adopted a 1997 Employee
Stock Purchase Plan (the "Purchase Plan"), and has reserved a total of 200,000
shares of Common Stock for issuance thereunder. No shares have been issued under
the Purchase Plan to date. The Purchase Plan, which is intended to qualify under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"), will
be administered by the Board of Directors of the Company or by a committee
appointed by the Board of Directors. Under the Purchase Plan, the Company will
withhold a specified percentage (not to exceed 15%) of each salary payment to
participating employees over certain offering periods. Any employee who is
currently employed for at least 20 hours per week and for at least five
consecutive months in a calendar year, either by the Company or by a
majority-owned subsidiary of the Company, will be eligible to participate in the
Purchase Plan. Unless the Board of Directors or its committee determines
otherwise, each offering period will run for 24 months and will be divided into
four consecutive purchase periods of approximately six months. The first
offering period and the first purchase period will commence on the date of this
Prospectus. New 24 month offering periods will commence every six months
thereafter. In the event of a change in control of the Company, including a
merger of the Company with or into another corporation, or the sale of all or
substantially all of the assets of the Company, the offering and purchase
periods then in progress will be shortened unless the rights to purchase stock
are assumed by the successor or acquiring company. The price at which Common
Stock will be purchased under the Purchase Plan is equal to 85% of the fair
market value of the Common Stock on the first day of the applicable offering
period or the last day of the applicable purchase period, whichever is lower.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment with the Company. The maximum number of shares that a participant may
purchase on the last day of any offering period is determined by dividing the
payroll deductions accumulated during the purchase period by the purchase price.
However, no person may purchase shares under the Purchase Plan to the extent
such person would own 5% or more of the total combined value or voting power of
all classes of the capital stock of the Company or of any of its subsidiaries,
or to the extent that such person's rights to purchase stock under all employee
stock purchase plans would accrue at a rate that exceeds $25,000 worth of stock
for any calendar year. The Board of Directors may amend the Purchase Plan at any
time. The Purchase Plan will terminate in September 2007, unless terminated
earlier in accordance with the provisions of the Purchase Plan.
SECTION 401(K) PLAN
The Company has adopted a Retirement Savings and Investment Plan (the
"401(k) Plan") covering the Company's employees who are located in the United
States and have been employed by the Company for three months or more. Pursuant
to the 401(k) Plan, employees may elect to reduce their current compensation by
up to the statutorily prescribed annual limit ($9,500 in 1997) and to have the
amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan
permits, but does not require, additional
50
<PAGE>
matching contributions by the Company on behalf of all participants in the
401(k) Plan. The Company has not made any contributions to the 401(k) Plan. The
401(k) Plan is intended to qualify under Section 401(k) of the Code, so that
contributions to the 401(k) Plan by employees or by the Company, and the
investment earnings thereon, are not taxable to employees until withdrawn from
the 401(k) Plan, and that contributions by the Company, if any, will be
deductible by the Company when made.
EMPLOYMENT AGREEMENTS
There are no employment agreements between the Company and any of its
executive officers, except that Mr. Clapper is entitled to severance pay of six
months salary in the event of termination of employment by the Company without
cause and Mr. Herman is entitled to receive severance pay of six months salary
in the event of termination by the Company without cause. In addition, officers
of the Company have received loans in connection with stock option exercises and
relocations. See "Certain Transactions."
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for (i) any
breach of their duty of loyalty to the corporation or its stockholders, (ii)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) unlawful payments of dividends or unlawful stock
repurchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit. Such limitation of liability does not
apply to liabilities arising under the federal securities laws and does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers and may indemnify its other officers and employees and
other agents to the fullest extent permitted by law. The Company believes that
indemnification under its Bylaws covers at least negligence and gross negligence
on the part of indemnified parties. The Company's Bylaws also permit it to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether the Bylaws would permit indemnification.
The Company has entered into agreements to indemnify its directors and
executive officers, in addition to indemnification provided for in the Company's
Bylaws. These agreements, among other things, indemnify the Company's directors
and executive 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 Company
arising out of such person's services as a director or executive officer of the
Company, any subsidiary of the Company or any other company or enterprise to
which the person provides services at the request of the Company. The Company
believes that these provisions and agreements are necessary to attract and
retain qualified persons as directors and executive officers.
51
<PAGE>
CERTAIN TRANSACTIONS
In August 1994, the Company issued shares of Series D Preferred Stock in a
financing transaction to certain entities affiliated with directors of the
Company and certain 5% stockholders of the Company at an as-converted purchase
price of $9.71 per share. The number of shares of Common Stock issuable upon
conversion of such shares of Series D Preferred Stock issued to each such entity
is set forth below.
<TABLE>
<CAPTION>
NO. OF
NAME OF INVESTOR SHARES
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
ENTITIES AFFILIATED WITH DIRECTORS
Entities Affiliated with Frazier & Company (Fred E. Silverstein, M.D.).............................. 22,662
Entities Affiliated with Mayfield Fund (Michael J. Levinthal)....................................... 80,347
Domain Partners II, L.P. (Jesse I. Treu, Ph.D.)..................................................... 30,903
Biotechnology Investments Limited (Jesse I. Treu, Ph.D.)............................................ 18,542
5% STOCKHOLDERS
General Electric Pension Trust...................................................................... 206,021
</TABLE>
In connection with the August 1994 financing, the Company issued warrants
exercisable for 87,043 shares of Common Stock at an as converted purchase price
of $11.16 to Frazier Investment Securities. These warrants were issued in
consideration of placement agency services provided by Frazier Investment
Securities. Fred Silverstein, M.D., a director of the Company, is a member of
Frazier Management LLC, an affiliate of Frazier Investment Securities.
In April 1996, the Company issued shares of Series E Preferred Stock in a
financing transaction to certain entities affiliated with directors of the
Company and certain 5% stockholders of the Company at an as-converted purchase
price of $5.66 per share. The number of shares of Common Stock issuable upon
conversion of such shares of Series D Preferred Stock issued to each such entity
is set forth below.
<TABLE>
<CAPTION>
NO. OF
NAME OF INVESTOR SHARES
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
ENTITIES AFFILIATED WITH DIRECTORS
Entities Affiliated with Patricof & Co. Ventures (Janet Effland).................................... 1,591,509
Entities Affiliated with Frazier & Company (Fred E. Silverstein, M.D.).............................. 66,870
Entities Affiliated with Mayfield Fund (Michael J. Levinthal)....................................... 238,571
Domain Partners II, L.P. (Jesse I. Treu, Ph.D.)..................................................... 96,522
Biotechnology Investments Limited (Jesse I. Treu, Ph.D.)............................................ 57,986
5% STOCKHOLDERS
General Electric Pension Trust...................................................................... 128,444
</TABLE>
In January 1997, the Company implemented a program under which directors,
executive officers and certain other key employees were permitted to exercise
their outstanding options as to both vested and unvested shares, with unvested
shares being subject to a right of repurchase at cost in favor of the Company in
the event of termination of employment prior to vesting of all then-unvested
shares. Under this program, the participants paid the exercise price for their
outstanding options pursuant to full recourse
52
<PAGE>
promissory notes. The notes bear interest at 6.0% per annum and are due and
payable on December 31, 2000. The principal amounts of each note payable by a
director or executive officer are set forth below:
<TABLE>
<CAPTION>
DIRECTOR OR EXECUTIVE OFFICER NOTE AMOUNT
<S> <C>
David M. Clapper...................................... $ 448,993
Arthur J. Coury, Ph.D................................. $ 113,733
David J. Enscore, Ph.D................................ $ 106,612
Stephen J. Herman..................................... $ 70,897
Glenn M. Kazo......................................... $ 98,050
Mary Lou Mooney....................................... $ 54,218
Ronald S. Rudowsky.................................... $ 92,223
W. Bradford Smith..................................... $ 102,341
Henry Brem, M.D....................................... $ 51,800
Robert Langer, Ph.D................................... $ 88,800
Mark J. Levin......................................... $ 33,000
</TABLE>
The Company has from time to time made loans to executive officers and key
employees in connection with their employment with the Company to assist them
with respect to relocation expenses. From August 1993 through February 1997, the
Company lent Dr. Coury an aggregate of $120,000. These loans bear interest at
interest rates ranging from 5.0% to 7.0% per annum and are due and payable in
full on December 31, 1999. However, the outstanding principal of these loans and
accrued, unpaid interest thereon will be forgiven on December 31, 1999 if the
value of Dr. Coury's stock and stock options has not attained a certain
threshold on such date. In March, 1995, the Company lent Mr. Rudowsky $20,000.
This loan bears interest at 6.0% per annum and is due and payable in full on
July 1, 1998. However, the outstanding principal of these loans and accrued,
unpaid interest thereon will be forgiven on July 1, 1998 if the value of Mr.
Rudowsky stock and stock options has not attained a certain threshold by such
date.
The Company has a consulting agreement with Dr. Brem under which it pays Dr.
Brem $30,000 per annum for scientific advisory and consulting services provided
by Dr. Brem. Dr. Brem is a founder and director of the Company and has, from
time to time, been granted options to purchase Common Stock of the Company. See
"Principal Stockholders."
The Company has a consulting agreement with Dr. Langer under which it pays
Dr. Langer $60,000 per annum for scientific advisory and consulting services
provided by Dr. Langer. Dr. Langer is a founder and director of the Company and
has, from time to time, been granted options to purchase Common Stock of the
Company. See "Principal Stockholders."
All future transactions, including any loans from the Company to its
officers, directors, principal stockholders or affiliates, will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested members of the Board of Directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.
53
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to the Company regarding
the beneficial ownership of its Common Stock as of September 30, 1997, and as
adjusted to reflect the sale of Common Stock offered by the Company hereby and
conversion of all outstanding shares of Preferred Stock into shares of Common
Stock, for (i) each person known by the Company to own beneficially more than 5%
of the Company's Common Stock, (ii) each of the Company's directors, (iii) each
of the Named Executive Officers and (iv) all directors and executive officers as
a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
(1)
SHARES --------------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------------------------------------------------------------- ----------- --------- ---------
<S> <C> <C> <C>
Entities affiliated with Patricof & Co. Ventures(3)............................ 1,591,509 15.3% 12.3%
(Janet Effland)
2100 Gerg Road, Suite 150
Palo Alto, CA 94303
Entities affiliated with Mayfield Fund(2)...................................... 1,530,325 14.8 12.0
(Michael J. Levinthal)
2800 Sand Hill Rd, Suite 250
Menlo Park, CA 94025
Domain Partners II, L.P........................................................ 585,851 5.7 4.6
(Jesse I. Treu, Ph.D.)
c/o Domain Associates
One Palmer Square, Suite 515
Princeton, NJ 05815
General Electric Pension Trust................................................. 849,519 8.2 6.6
3000 Summer Street
Stanford, CT 06904
Entities affiliated with Frazier & Company(4).................................. 523,856 5.1 4.0
(Fred E. Silverstein, M.D.)
601 Union Street, Suite 2110
Seattle, WA 98101
David M. Clapper(5)............................................................ 413,923 4.0 3.2
David Enscore, Ph.D.(5)........................................................ 88,658 * *
Stephen J. Herman(5)........................................................... 120,496 1.1 *
Glenn M. Kazo(5)............................................................... 81,538 * *
Arthur J. Coury(5)............................................................. 110,173 * *
Henry Brem, M.D.(5)............................................................ 129,230 1.3 *
Janet Effland(6)............................................................... 1,591,509 15.3 12.3
Robert Langer, Ph.D.(5)........................................................ 222,523 2.1 1.7
Mark J. Levin(5)............................................................... 46,153 * *
Michael Levinthal(7)........................................................... 1,530,325 14.8 12.0
Fred E. Silverstein, M.D.(8)................................................... 523,856 5.1 4.0
Jesse I. Treu, Ph.D.(9)........................................................ 943,096 9.1 7.3
All directors and executive officers as a group (15 persons)(10)............... 6,018,334 58.0 46.4
</TABLE>
- ------------------------
* Represents beneficial ownership of less than one percent of the Common
Stock.
54
<PAGE>
(1) Beneficial ownership is determined in accordance with the rules of
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
The number of shares of Common Stock outstanding used in calculating the
percentage for each listed person includes the shares of Common Stock
underlying options or warrants held by such person that are exercisable
within 60 days of the date of this Prospectus, but excludes shares of Common
Stock underlying options or warrants held by any other person. Percentage of
beneficial ownership is based on 10,365,337 shares of Common Stock
outstanding as of September 30, 1997 (after giving effect to the conversion
of Preferred Stock into Common Stock and the exercise of certain warrants
upon the completion of this offering) and 12,865,337 shares of Common Stock
outstanding after completion of this offering.
(2) Consists of 904,711 shares beneficially owned by Mayfield VI, 382,567 shares
beneficially owned by Mayfield VII, 130,435 shares beneficially owned by
Mayfield Medical Partners, 48,675 shares beneficially owned by Mayfield
Medical Partners (1992), 43,129 shares beneficially owned by Mayfield
Associates and 20,808 shares beneficially owned by Mayfield Associates Fund
II, (the "Mayfield Funds").
(3) Consists of 1,072,833 shares beneficially owned by APA Excelsior IV, L.P.,
309,460 shares beneficially owned by The P/A Fund, 189,323 shares
beneficially owned by APA Excelsior IV/Offshore, L.P. and 19,893 shares
beneficially owned by Patricof Private Investment Club, L.P. (the "Patricof
Funds").
(4) Consists of 398,563 shares beneficially owned by Frazier Healthcare
Investments, L.P., 38,079 shares beneficially owned by Frazier & Co. L.P.,
171 shares owned by Frazier Management Partners, L.P. (the "Frazier Funds")
and an aggregate of 87,043 shares issuable upon the exercise of warrants
held by Frazier Investment Securities, L.P.
(5) Consists of unvested shares issued pursuant to an early stock option
exercise program. The unvested portion of such shares are subject to a
repurchase option in favor of the company at cost in the event of the
termination of such individual's employment or consultant relationship with
the company prior to vesting. See "Certain Transactions."
(6) Consists of shares beneficially owned by the Patricof Funds. Ms. Effland
disclaims beneficial ownership of the shares beneficially owned by the
Patricof Funds except to the extent of her proportional partnership interest
therein.
(7) Consists of shares beneficially owned by the Mayfield Funds. Mr. Levinthal
disclaims beneficial ownership of the shares beneficially owned by the
Mayfield Funds except to the extent of his proportional partnership interest
therein.
(8) Consists of shares beneficially owned by the Frazier Funds and an aggregate
of 87,043 shares issuable upon the exercise of warrants held by Frazier
Investment Securities, L.P. Dr. Silverstein disclaims beneficial ownership
of the shares beneficially owned by the Frazier Funds except to the extent
of his proportional partnership interest therein.
(9) Consists of 585,851 shares beneficially owned by Domain Partners II, L.P.
Dr. Treu is a general partner of One Palmer Square Associates II, L.P., the
general partner of Domain Partners II, L.P. and has indirect beneficial
ownership of these shares. Also includes 357,235 shares owned by
Biotechnology Investments Limited ("BIL"). Pursuant to a contractual
agreement, Domain Associates, of which Dr. Treu is a general partner, is the
U.S. venture capital advisor to BIL. Domain Associates has no voting or
investment power over BIL's shares and Dr. Treu disclaims beneficial
ownership of BIL's shares.
(10) See footnotes 2 through 9.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Restated Certificate of Incorporation, which will become
effective upon the closing of this offering, authorizes the issuance of up to
50,000,000 shares of Common Stock, $0.01 par value per share and authorizes the
issuance of 5,000,000 shares of Preferred Stock, $0.01 par value per share, the
rights and preferences of which may be established from time to time by the
Company's Board of Directors. As of September 30, 1997, 2,247,534 shares of
Common Stock (including 19,496 shares of Common Stock issuable upon exercise of
a warrant upon the closing of this offering) were issued and outstanding and
held by 74 stockholders, shares of Preferred Stock convertible into 8,117,803
shares of Common Stock upon the completion of this offering were issued and
outstanding and held by 45 stockholders and warrants to purchase 179,586 shares
of Common Stock were issued and outstanding and held by six holders.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held on
all matters to be voted upon by the stockholders and there are no cumulative
voting rights. Subject to preferences that may be applicable to any outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividends Policy." In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock would be
entitled to share in the Company's assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted the
holders of any outstanding shares of Preferred Stock. Holders of Common Stock
have no preemptive or conversion rights or other subscription rights. There are
no redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
by the Company in this offering, when issued and paid for, will be, fully paid
and nonassessable. The rights, preferences and privileges of the holders of
Common Stock are subject to, and may be adversely affected by the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate in the future.
PREFERRED STOCK
Upon the closing of this offering, the Board of Directors will be
authorized, subject to any limitations prescribed by law, without stockholder
approval, from time to time to issue up to an aggregate of 5,000,000 shares of
Preferred Stock, $0.01 par value per share, in one or more series, each of such
series to have such rights and preferences, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences, as
shall be determined by the Board of Directors. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
holders of any Preferred Stock that may be issued in the future. Issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, a majority of the outstanding voting
stock of the Company. The Company has no present plans to issue any shares of
Preferred Stock.
WARRANTS
Upon the completion of this offering, the Company will have outstanding
warrants to purchase 179,586 shares of Common Stock at a weighted average
exercise price of $10.40 per share. These warrants have net exercise provisions
under which the holder may, in lieu of payment of the exercise price in cash,
surrender the warrant and receive a net amount of shares, based on the fair
market value of the Company's Common Stock at the time of exercise of the
warrant, after deducting the aggregate exercise price. These warrants expire on
dates ranging from September 1998 to February 2006.
56
<PAGE>
CERTAIN CHARTER AND BYLAWS PROVISIONS AND DELAWARE ANTI-TAKEOVER STATUE
Certain provisions of the Company's Restated Certificate of Incorporation
and Bylaws may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
the Company. Such provisions could limit the price that certain investors might
be willing to pay in the future for shares of the Company's Common Stock.
Certain of these provisions allow the Company to issue Preferred Stock without
any vote or further action by the stockholders, eliminate the right of
stockholders to act by written consent without a meeting and eliminate
cumulative voting in the election of directors. These provisions may make it
more difficult for stockholders to take certain corporate actions and could have
the effect of delaying or preventing a change in control of the Company. In
addition, the Company is subject to Section 203 of the Delaware General
Corporation Law which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder, unless: (i) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder; the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by persons who are directors and also officers
and by employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; of (iii) 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 66 2/3% of the outstanding voting stock which is
not owned by the interested stockholder.
The Company's Certificate of Incorporation provides that, upon the closing
of this offering, the Board of Directors will be divided into three classes of
directors with each class serving a staggered three-year term. The
classification system of electing directors may tend to discourage a third party
from making a tender offer or otherwise attempting to obtain control of the
Company and may maintain the incumbency of the board of Directors, as the
classification of the board of directors generally increases the difficulty of
replacing a majority of the directors. The Company's Certificate of
Incorporation eliminates the right of stockholders to act by written consent
without a meeting and the Company's Bylaws eliminate the right of stockholders
to call special meetings of stockholders. The Certificate of Incorporation and
Bylaws do not provide for cumulative voting in the election of directors. The
authorization of undesignated Preferred Stock makes it possible for the board of
directors to issue Preferred Stock with voting or other rights or preferences
that could impede the success of any attempt to change control of the Company.
These and other provisions may have the effect of deferring hostile takeovers or
delaying changes in control or management of the Company. The amendment of any
of these provisions would require approval by holders of at least 66 2/3% of the
outstanding Common Stock.
SHAREHOLDER RIGHTS PLAN
Pursuant to the Preferred Shares Rights Agreement (the "Rights Agreement")
dated as of , 1997 between the Company and Norwest Bank Minnesota, N.A.,
as Rights Agent (the "Rights Agent"), the Company's Board of Directors declared
a dividend of one right (a "Right") to purchase one one-thousandth share of the
Company's Series A Participating Preferred Stock ("Series A Preferred") for each
outstanding share of Common Stock ("Common Shares") of the Company. The dividend
is payable on , 1997 (the "Record Date") to stockholders of record as of
the close of business on that date. Each Right entitles the registered holder to
purchase from the Company one one-thousandth of a share of Series A Preferred at
an exercise price of $150.00 (the "Purchase Price"), subject to adjustment. The
following summary of the principal terms of the Rights Agreement is a general
description only and is subject to the detailed terms and conditions of the
Rights Agreement.
57
<PAGE>
The Rights will not be exercisable until the Distribution Date (defined
below). Until the Distribution Date, certificates for the Rights ("Rights
Certificates") will not be sent to stockholders; instead, the Rights will attach
to and trade only together with the Common Shares. Accordingly, Common Share
certificates outstanding on the Record Date will evidence the Rights related
thereto, and Common Share certificates issued after the Record Date will contain
a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or the earlier redemption or expiration of the Rights), the
surrender or transfer of any certificates for Common Shares outstanding as of
the Record Date, even without the notation or a copy of the Summary of Rights
being attached thereto, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate. The Rights
will separate from the Common Shares, Rights Certificates will be issued and the
Rights will become exercisable upon the earlier of: (i) 10 days (or such later
date as may be determined by a majority of the Board of Directors, excluding
directors affiliated with the Acquiring Person, as defined below (the
"Continuing Directors")) following a public announcement that a person or group
of affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding Common Shares; or (ii) 10 business days (or such later date as may
be determined by a majority of the Continuing Directors) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of the outstanding Common Shares.
The earlier of such dates is referred to as the "Distribution Date." As soon as
practicable following the Distribution Date, separate Rights Certificates will
be mailed to holders of record of the Common Shares as of the close of business
on the Distribution Date and such separate Rights Certificates alone will
evidence the Rights from and after the Distribution Date. All Common Shares
issued prior to the Distribution Date will be issued with Rights. Common Shares
issued after the Distribution Date may be issued with Rights if such shares are
issued (i) upon the conversion of outstanding convertible debentures or any
other convertible securities issued after adoption of the Rights Agreement or
(ii) pursuant to the exercise of stock options or under employee benefit plans
or arrangements unless such issuance would result in (or create a risk that)
such options, plans or arrangements would not qualify for otherwise available
special tax treatment. Except as otherwise determined by the Board of Directors,
no other Common Shares issued after the Distribution Date will be issued with
Rights. The Rights will expire on the earliest of (i) January 28, 2007 (the
"Final Expiration Date"), (ii) redemption or exchange of the Rights as described
below, or (iii) consummation of an acquisition of the Company satisfying certain
conditions by a person who acquired shares pursuant to a Permitted Offer as
described below.
Following the Distribution Date, and until one of the further events
described below, holders of the Rights will be entitled to receive, upon
exercise and the payment of $150.00 per Right, one one-thousandth of a share of
the Series A Preferred. In the event that the Company does not have sufficient
Series A Preferred available for all Rights to be exercised, or the Board
decides that such action is necessary and not contrary to the interests of
Rights holders, the Company may instead substitute cash, assets or other
securities for the Series A Preferred for which the Rights would have been
exercisable under this provision or as described below. Unless the Rights are
earlier redeemed, in the event that an Acquiring Person becomes the beneficial
owner of 15% or more of the Company's Common Shares then outstanding (other than
pursuant to a Permitted Offer), then each holder of a Right which has not
theretofore been exercised (other than Rights beneficially owned by the
Acquiring Person, which will thereafter be void) will thereafter have the right
to receive, upon exercise, Common Shares having a value equal to two times the
Purchase Price. Rights are not exercisable following the occurrence of an event
as described above until such time as the Rights are no longer redeemable by the
Company as set forth below. Unless the Rights are earlier redeemed, in the event
that, after the Shares Acquisition Date (as defined below), (i) the Company is
acquired in a merger or other business combination transaction, or (ii) the
Company consummates a merger or other business combination transaction in which
the Company is the continuing or surviving corporation, or (iii) 50% or more of
the Company's assets or earning power are sold, each holder of a Right which has
not theretofore been exercised (other than Rights beneficially owned by the
58
<PAGE>
Acquiring Person, which will thereafter be void) will thereafter have the right
to receive, upon exercise, shares of common stock of (i) the corporation
acquiring the Company or (ii) the Company or (iii) the purchaser of 50% or more
of the Company's assets or earning power, respectively, such shares in each case
having a value equal to two times the Purchase Price (unless the transaction
satisfies certain conditions and is consummated with a person who acquired
shares pursuant to a Permitted Offer, in which case the Rights will expire). A
Permitted Offer means a tender offer for all outstanding Common Shares that has
been determined by a majority of the Continuing Directors to be fair and
otherwise in the best interests of the Company and its stockholders. Where the
Board of Directors has determined that a tender offer constitutes a Permitted
Offer, the Rights will not become exercisable to purchase Common Shares or
shares of the acquiring company (as the case may be) at the discounted price
described above.
At any time after the acquisition by an Acquiring Person of 15% or more of
the Company's outstanding Common Shares and prior to the acquisition by such
Acquiring Person of 50% or more of the Company's outstanding Common Shares, the
Board of Directors of the Company may exchange the Rights (other than Rights
owned by the Acquiring Person), in whole or in part, at an exchange ratio of one
Common Share per Right. At any time on or prior to the close of business on the
earlier of (i) the 10th day following the acquisition by an Acquiring Person of
15% or more of the Company's outstanding Common Shares (the "Shares Acquisition
Date") or such later date as may be determined by a majority of the Continuing
Directors and publicly announced by the Company, or (ii) the Final Expiration
Date of the Rights, the Company may redeem the Rights in whole, but not in part,
at a price of $.001 per Right.
The Purchase Price payable, the number of Rights, and the number of Series A
Preferred or Common Shares or other securities or property issuable upon
exercise of the Rights are subject to adjustment from time to time in connection
with the dilutive issuances by the Company as set forth in the Rights Agreement.
With certain exceptions, no adjustment in the Purchase Price will be required
until cumulative adjustments require an adjustment of at least 1% in such
Purchase Price.
No fractional portion less than integral multiples of one Common Share will
be issued upon exercise of a Right and in lieu thereof, an adjustment in cash
will be made based on the market price of the Common Shares on the last trading
date prior to the date of exercise.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company (other than any rights resulting from such
holder's ownership of Common Shares), including, without limitation, the right
to vote or to receive dividends.
The provisions of the Rights Agreement may be supplemented or amended by the
Board of Directors in any manner prior to the close of business on the date of
the acquisition by an Acquiring Person of 15% or more of the Company's
outstanding Common Shares without the approval of Rights holders. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, defect or inconsistency, to make changes
which do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person), or to shorten or lengthen any time period
under the Rights Agreement; provided, however, that no amendment to adjust the
time period governing redemption shall be made at such time as the Rights are
not redeemable.
Series A Preferred purchasable upon exercise of the Rights will not be
redeemable. Each share of Series A Preferred will be entitled to an aggregate
dividend of 1,000 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Series A Preferred will be entitled to a minimum
preferential liquidation payment equal to $150,000 per share. Each share of
Series A Preferred will have 1,000 votes, voting together with the Common
Shares. In the event of any merger, consolidation or other transaction in which
the Common Shares are changed or exchanged, each share of Series A Preferred
will be entitled to receive 1,000 times the amount received per Common Share.
These rights are protected by customary anti-dilution provisions.
59
<PAGE>
Because of the nature of the dividend, liquidation and voting rights of the
shares of Series A Preferred, the value of the one one-thousandth interest in a
share of Series A Preferred purchasable upon exercise of each Right should
approximate the value of one Common Share.
The Rights approved by the Board are designed to protect and maximize the
value of the outstanding equity interests in the Company in the event of an
unsolicited attempt by an acquiror to take over the Company in a manner or on
terms not approved by the Board of Directors. Takeover attempts frequently
include coercive tactics to deprive the Company's Board of Directors and its
stockholders of any real opportunity to determine the destiny of the Company or
to evaluate and protect the long-term value of the Company. The Rights are not
intended to prevent a takeover of the Company. The Rights may be redeemed by the
Company at $.001 per Right within ten days (or such later date as may be
determined by a majority of the Continuing Directors) after the accumulation of
15% or more of the Company's shares by a single acquiror or group. Accordingly,
the Rights should not interfere with any merger or business combination approved
by the Board of Directors. Issuance of the Rights does not in any way weaken the
financial strength of the Company or interfere with its business plans. The
issuance of the Rights themselves has no dilutive effect, will not affect
reported earnings per share, should not be taxable to the Company or to its
stockholders, and will not change the way in which the Company's shares are
presently traded. The Company's Board of Directors believes that the Rights
represent a sound and reasonable means of addressing the complex issues of
corporate policy created by the current takeover environment. However, the
Rights may have the effect of rendering more difficult or discouraging an
acquisition of the Company deemed undesirable by the Board of Directors. The
Rights may cause substantial dilution to a person or group that attempts to
acquire the Company on terms or in a manner not approved by the Company's Board
of Directors, except pursuant to an offer conditioned upon the negation,
purchase or redemption of the Rights.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is Norwest
Bank Minnesota, N.A. Its telephone number is 800-468-9716
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time. Sales
of substantial amounts of Common Stock of the Company in the public market after
the restrictions lapse could adversely affect the prevailing market price and
the ability of the Company to raise equity capital in the future.
Upon the completion of this offering, the Company will have 12,865,337
shares of Common Stock outstanding, assuming no exercise of options after
September 30, 1997. Of these shares, the 2,500,000 shares sold in this offering
will be freely tradable without restriction under the Securities Act, unless
held by "affiliates" of the Company, as that term is defined in Rule 144 under
the Securities Act. The remaining 10,365,337 shares of Common Stock held by
existing stockholders were issued and sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act. These
shares may be sold in the public market only if registered, or pursuant to an
exemption from registration, including Rule 144, 144(k) or 701 under the
Securities Act. All of the directors and executive officers and certain
stockholders and optionholders of the Company have each agreed not to, without
the prior written consent of Lehman Brothers Inc., directly or indirectly,
offer, sell, contract to sell, hypothecate or otherwise dispose (or enter into
any transaction which is designed to, or could be expected to, result in the
disposition by any person) of any shares of Common Stock (including, without
limitation, shares which may be deemed to be beneficially owned in accordance
with the Rules and Regulations of the Securities and Exchange Commission under
the Securities Act of 1933, as amended), or any security convertible into or
exercisable for Common Stock of the Company, or any rights to purchase or
acquire, Common Stock of the Company (other than pursuant to bona fide gifts to
persons who agree in writing to be bound by the provisions of the agreement). In
addition, all of the stockholders and optionholders are subject to separate
180-day lockup agreements with the Company (all such agreements are collectively
referred to as the "Lock-Up Agreements"). The Company is subject to a similar
180-day agreement with the Representatives, except that the Company may issue
shares upon the exercise of stock options granted prior to the date of this
Prospectus, and may grant additional options or stock purchase rights under its
employee compensation plans, provided that, without the prior written consent of
the Representatives, the shares issuable upon exercise of such options or stock
purchase rights may not be resold during such 180-day period. However, Lehman
Brothers Inc. may in its sole discretion and at any time without notice, release
all or any portion of the securities subject to the Lock-Up Agreements.
Upon expiration of the Lock-Up Agreements, approximately 10,365,337 shares
of Common Stock as well as an additional approximately 176,087 shares issuable
upon exercise of vested options will become eligible for immediate public
resale, subject in some cases to vesting provisions applicable to certain
outstanding shares of Common Stock and volume limitations applicable to
securities held by persons who may be deemed to be affiliates of the Company
pursuant to Rule 144. In addition, 8,297,389 of the shares outstanding
immediately following the completion of this offering will be entitled to
registration rights with respect to such shares upon the release of the Lock-Up
Agreements. The number of shares sold in the public market could increase if
such rights are exercised.
As of September 30, 1997, 297,921 shares were subject to outstanding
options. All of these shares are subject to the Lock-Up Agreements described
above. Approximately 90 days after the date of this Prospectus, the Company
intends to file a Registration Statement on Form S-8 covering shares issuable
under the Company's 1992 Incentive Stock Plan (including shares subject to then
outstanding options under such plans), 1997 Director Option Plan and 1997
Employee Stock Purchase Plan, thus permitting the resale of such shares in the
public market without restriction under the Securities Act after expiration of
the applicable Lock-Up Agreements.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year (including the holding period of any prior owner,
61
<PAGE>
except an affiliate) is entitled to sell in "broker's transactions" or to market
makers, within any three-month period commencing 90 days after the date of this
Prospectus, a number of shares that does not exceed the greater of (i) one
percent of the number of shares of Common Stock then outstanding (approximately
129,000 shares immediately after this offering) or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
required filing of a Form 144 with respect to such sale. Sales under Rule 144
are generally subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an affiliate
of the Company 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, is
entitled to sell such shares without having to comply with the manner of sale,
public information, volume limitation or notice provisions of Rule 144. Under
Rule 701 under the Securities Act, persons who purchase shares upon exercise of
options granted prior to the effective date of this offering are entitled to
sell such shares 90 days after the effective date of this offering in reliance
on Rule 144, without having to comply with the holding period requirements of
Rule 144 and, in the case of non-affiliates, without having to comply with the
public information, volume limitation or notice provisions of Rule 144.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
The holders of 8,297,389 shares of Common Stock (the "Registrable
Securities") or their transferees are entitled to certain rights with respect to
the registration of such shares under the Securities Act. These rights are
provided under the terms of an agreement between the Company and the holders of
Registrable Securities. The holders of at least 40% of the Registrable
Securities may require, on two occasions, that the Company use its best efforts
to register the Registrable Securities for public resale, provided, among other
limitations, that the proposed aggregate selling price to the public is at least
$5.0 million. If the Company registers any of its Common Stock either for its
own account or for the account of other security holders, the holders of
Registrable Securities are entitled to include their shares of Common Stock in
the registration, subject to the ability of the underwriters to limit the number
of shares included in the offering (but to not less than 20% of the offering,
except in the case of this Offering). The holders of the Registrable Securities
may also require the Company, on four occasions, but not more than once during
any 12-month period, to register all or a portion of their Registrable
Securities on Form S-3 when use of such form becomes available to the Company,
provided, among other limitations, that the proposed aggregate selling price
(net of any underwriters' discounts or commissions) is at least $1.0 million.
All registration expenses must be borne by the Company and all selling expenses
relating to Registrable Securities must be borne by the holders of the
securities being registered. The holders of Registrable Securities have waived
their right to have shares of Common Stock registered under the Securities Act
as part of this Offering and for a period of 180 days following this Offering.
62
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement, the form of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part, the Underwriters named below,
for whom Lehman Brothers Inc., Piper Jaffray Inc. and Pacific Growth Equities,
Inc. are acting as representatives (the "Representatives"), have severally
agreed to purchase from the Company, and the Company has agreed to sell to each
Underwriter, the aggregate number of shares set forth opposite the name of each
such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Lehman Brothers Inc..................................................................................
Piper Jaffray Inc....................................................................................
Pacific Growth Equities, Inc.........................................................................
----------
Total............................................................................................ 2,500,000
----------
----------
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares to the public at the initial public offering price
set forth on the cover page hereof, and to certain dealers at such initial
public offering price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain other Underwriters or to certain other brokers or
dealers. After the initial offering to the public, the offering price and other
selling terms may be changed by the Representatives.
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares offered hereby are
subject to approval of certain legal matters by counsel and to certain other
conditions, including the condition that no stop order suspending the
effectiveness of the Registration Statement is in effect and no proceedings for
such purpose are pending or threatened by the Securities and Exchange Commission
and that there has been no material adverse change or any development involving
a prospective material adverse change in the condition of the Company from that
set forth in the Registration Statement otherwise than as set forth or
contemplated in this Prospectus, and that certain certificates, opinions and
letters have been received from the Company and its counsel and independent
auditors. The Underwriters are obligated to take and pay for all of the above
shares of Common Stock if any such shares are taken.
The Company and the Underwriters have agreed in the Underwriting Agreement
to indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Company has granted to the Underwriters an option to purchase up to an
additional 375,000 shares of Common Stock, exercisable solely to cover
over-allotments, at the initial public offering price, less the underwriting
discounts and commissions shown on the cover page of this Prospectus. Such
option may be exercised at any time until 30 days after the date of the
Underwriting Agreement. To the extent that such option is exercised, each
Underwriter will be committed, subject to certain conditions, to purchase a
number of the additional shares of Common Stock that is proportionate to such
Underwriter's initial commitment as indicated in the preceding table.
63
<PAGE>
All of the directors and executive officers and certain stockholders and
optionholders of the Company have each agreed not to, without the prior written
consent of Lehman Brothers Inc., directly or indirectly, offer, sell, contract
to sell, hypothecate or otherwise dispose (or enter into any transaction which
is designed to, or could be expected to, result in the disposition by any
person) of any shares of Common Stock (including, without limitation, shares
which may be deemed to be beneficially owned by the undersigned in accordance
with the Rules and Regulations of the Securities and Exchange Commission under
the Securities Act of 1933, as amended), or any security convertible into or
exercisable for Common Stock, or any rights to purchase or acquire, Common Stock
of the Company (other than pursuant to bona fide gifts to persons who agree in
writing to be bound by the provisions of this Agreement). In addition, all of
the stockholders and optionholders are subject to separate 180-day lock-up
agreements with the Company. Except for the Common Stock to be sold in the
offering, the Company has agreed, with certain limited exceptions relating to
the grant of options and issuance of Common Stock pursuant to the Company's
stock option plans and stock purchase plans, not to offer for sale, sell or
otherwise dispose of (or enter into any transaction or device which is designed
to, or could be expected to, result in the disposition by any person at any time
in the future of), directly or indirectly, any shares of Common Stock or other
capital stock or any securities convertible into or exchangeable or exercisable
for, or any rights to acquire, Common Stock or other capital stock, prior to the
expiration of 180 days from the date of this Prospectus without the prior
written consent of Lehman Brothers Inc. on behalf of the Representatives.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.
Until the distribution of the shares is completed, the rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase shares of Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions may consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock. In addition, if the Representatives over-allot (sell more shares
of Common Stock than are set forth on the cover page of this Prospectus), and
thereby create a short position in the Common Stock in connection with this
offering, the Representatives may reduce that short position by purchasing
Common Stock in the open market. The Representatives may also elect to reduce
any short position by exercising all or part of the over-allotment option
described herein.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of the Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of this offering. In general, purchases of shares
of Common Stock for the purpose of stabilization or to reduce a syndicate short
position could cause the price of the Common Stock to be higher than it might
otherwise be in the absence of such purchases. The imposition of a penalty bid
might have an effect on the price of a security to the extent that it were to
discourage resales of the security by purchasers in the offering. Neither the
Company nor any of the Underwriters makes any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the price of the Common Stock. In addition, neither the Company nor
any of the Underwriters makes any representation that the Representatives will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
Prior to this offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be determined through
negotiations among the Company and the Representatives. Among the factors to be
considered in determining the initial public offering price of the Common Stock,
in addition to prevailing market conditions, will be the Company's historical
performance, capital structure, estimates of the business potential and earnings
prospects of the Company, an assessment of the
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<PAGE>
Company's management, consideration of the above factors in relation to market
valuation of companies in related businesses and other factors deemed relevant.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters will be passed upon for the Underwriters
by Mintz, Levin, Cohn, Ferris, Glovksy and Popeo, P.C., Boston, Massachusetts.
Mario M. Rosati and Christopher D. Mitchell, Secretary and Assistant Secretary
of the Company, respectively, are members of Wilson Sonsini Goodrich & Rosati,
Professional Corporation.
EXPERTS
Certain legal matters with respect to information contained in this
Prospectus under the captions "Risk Factors--Uncertainties Related to Patents
Proprietary Technology" and "Business--Patents and Proprietary Rights" will be
passed upon for the Company by Arnall, Golden & Gregory LLP, Atlanta, Georgia,
patent counsel to the Company.
The financial statements of Focal, Inc. at December 31, 1995 and 1996, and
for each of the three years in the period ended December 31, 1996, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") Washington, D.C. 20549, a Registration Statement on Form S-1,
including amendments thereto, the Registration Statement under the Securities
Act, with respect to the Securities offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules filed therewith. For further information with respect to
the Company and the Common Stock offered hereby, reference is made to such
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any contract,
agreement or 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. The Registration Statement,
including the exhibits and schedules thereto, may be inspected without charge at
the principal office of the Commission, at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at its regional offices in New York
(Seven World Trade Center, New York, New York, 10007) and in Chicago (Citicorp
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60611), and
copies of all or any part thereof may be obtained from such office upon the
payment of prescribed fees. Such information is also available electronically by
means of the Commission's web site on the Internet at http://www.sec.gov. The
Company intends to distribute to its stockholders annual reports containing
financial statements audited by its independent auditors and will make available
copies of quarterly reports for the first three quarters of each fiscal year
containing unaudited financial statements.
65
<PAGE>
FOCAL, INC.
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors....................................................... F-2
Balance Sheets....................................................................... F-3
Statements of Operations............................................................. F-4
Statements of Stockholders' Equity................................................... F-5
Statements of Cash Flows............................................................. F-6
Notes to Financial Statements........................................................ F-7
</TABLE>
F-1
<PAGE>
A picture of the FOCALSEAL Surgical Sealant System including the primer and
sealant contained in the disposable applicators and the reusable light wand and
cable, and light source used to photopolymerize the FOCALSEAL sealant and
primer.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 2
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 17
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Dilution.................................................................. 19
Selected Financial Data................................................... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................................................. 21
Business.................................................................. 24
Management................................................................ 44
Certain Transactions...................................................... 52
Principal Stockholders.................................................... 54
Description of Capital Stock.............................................. 56
Shares Eligible for Future Sale........................................... 61
Underwriting.............................................................. 63
Legal Matters............................................................. 65
Experts................................................................... 65
Additional Information.................................................... 65
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,500,000 SHARES
[LOGO]
FOCAL, INC.
COMMON STOCK
-------------------
PROSPECTUS
, 1997
---------------------
LEHMAN BROTHERS
PIPER JAFFRAY INC.
PACIFIC GROWTH EQUITIES, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee......................................................... $ 12,334
NASD filing fee.............................................................. 4,238
Nasdaq National Market listing fee........................................... 40,000
Printing and engraving costs................................................. 125,000
Legal fees and expenses...................................................... 250,000
Accounting fees and expenses................................................. 100,000
Blue Sky fees and expenses................................................... 5,000
Transfer Agent and Registrar fees............................................ 5,000
Miscellaneous expenses....................................................... 58,428
---------
Total.................................................................... $ 600,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). The Registrant's Restated
Certificate of Incorporation to be filed upon the closing of the offering to
which this Registration Statement relates (Exhibits 3.1 and 3.2 hereto) and the
Registrant's Bylaws (Exhibist 3.3 and 3.4 hereto) provide for indemnification of
the Registrant's directors, officers, employees and other agents to the extent
and under the circumstances permitted by the Delaware General Corporation Law.
The Registrant also intends to enter into agreements with its directors and
executive officers that will require the Registrant among other things to
indemnify them against certain liabilities that may arise by reason of their
status or service as directors to the fullest extent not prohibited by Delaware
law.
The Underwriting Agreement provides for indemnification by the Underwriters
of the Registrant, its directors and officers, and by the Registrant of the
Underwriters, for certain liabilities, including liabilities arising under the
Act, and affords certain rights of contribution with respect thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1994, the Registrant has issued and sold the following
unregistered securities:
In February 1994, the Company issued a warrant to purchase 24,324 shares of
Series D Preferred Stock at a purchase price of $3.70 per share in connection
with an equipment leasing arrangement.
In August 1994, the Company issued 1,730,840 shares of Series D Preferred
Stock at a price of $3.70 per share to a group of 18 venture capital and
institutional investors. All investors participating in such financing were
accredited investors within the meaning of Rule 501(a) under the Securities Act.
In August 1994, the Company issued a warrant to purchase 5,000 shares of
Series D Preferred Stock at an exercise price of $3.70 per share in connection
with obtaining a letter of credit from a commercial bank.
II-1
<PAGE>
In November 1994, the Company issued warrants to purchase an aggregate of
25,000 shares of Series D Preferred Stock at an exercise price of $4.255 per
share as compensation for placement agency services provided in connection with
the Company's August 1994 financing.
In April 1996, the Company issued 11,322,152 shares of Series E Preferred
Stock at a price of $1.74 per share to a group of 34 venture capital and
institutional investors. All investors participating in such financing were
accredited investors within the meaning of Rule 501(a) under the Securities Act.
In April 1996, the Company issued a warrant to purchase 63,362 shares of
Common Stock at a purchase price of $0.37 per share as compensation for
placement agency services provided in connection with the Company's April 1996
financing.
Since the Company's inception, the Company has issued 5,167,601 shares of
Common Stock upon exercise of stock options granted to employees and consultants
of the Company under the Company's 1992 Incentive Stock Plan. The exercise price
of such options ranged from $0.22 to $0.37 per share.
The foregoing share and per share amounts do not give effect to the
Company's 1 for 3.25 reverse stock split that will be effected in connection
with the offering of the shares registered hereunder and the conversion of
Preferred Stock into Common Stock that will occur upon completion of such
offering.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act, as transactions by an issuer not involving a public
offering or transactions pursuant to compensatory benefit plans and contracts
relating to compensation as provided under such Rule 701. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access, through their relationships with the Company, to information
about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- --------------- -------------------------------------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement.
3.1 Certificate of Incorporation of Focal, Inc., a Delaware corporation, as currently in effect.
3.2 Form of Restated Certificate of Incorporation of the Registrant to be filed after the closing of
the offering made under this Registration Statement.
3.3 Bylaws of the Registrant, as currently in effect.
3.4 Bylaws of the Registrant, as proposed to be amended in connection with this offering.
4.1* Specimen Common Stock Certificate.
4.2 Representative Form of Common Stock Purchase Warrant.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Form of Indemnification Agreement between the Registrant and each of its directors and officers.
10.2 1992 Incentive Stock Plan and form of Stock Option Agreement thereunder.
10.3 1997 Employee Stock Purchase Plan and forms of agreements thereunder.
10.4 1997 Directors' Option Plan and forms of agreements thereunder.
10.5 Restated Investors Rights Agreement dated April 12, 1996 among the Registrant and certain
stockholders of the Registrant.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.6 Lease Agreement dated April 4, 1994 between Registrant and The Mutual Life Insurance Company of
New York relating to lease of facility located at 4 Maguire Road, Lexington, MA, as amended to
date.
10.7 Master Lease Agreement dated October 30, 1992 between Registrant and Comdisco, Inc.
10.8 Master Lease Agreement dated February 28, 1994 between Registrant and MMC/GATX Limited
Partnership I.
10.9 Master Loan and Security Agreement dated April 18, 1997 between Registrant and Transamerica
Leasing.
10.10+ Patent and Technology License Agreement dated June 11, 1992 between Registrant and University of
Texas.
10.11+ Exclusive License Agreement dated August 7, 1992 among Registrant, Marvin Slepian, M.D. and
Endoluminal Therapeutics, Inc.
10.12+ Collaboration and License Agreement dated April 25, 1996 between Registrant, Ciba Corporation and
Chiron Corporation.
10.13+ Distribution, License and Supply Agreement dated January 2, 1997 between Registrant and Ethicon,
Inc.
10.14 Agreement for Consulting Services dated November 15, 1991 between Registrant and Robert Langer,
Ph.D.
10.15 Agreement for Consulting Services dated August 7, 1992 between Registrant and Marvin Slepian,
M.D.
10.16 Agreement for Consulting Services and Sabbatical Employment dated June 1, 1992 between Registrant
and Jeffrey Hubbell.
10.17* Consulting Agreement dated , 199 between Registrant and Henry Brem, M.D.
10.18 Form of Restricted Stock Purchase Agreement.
10.19 Loan Agreement dated March 29, 1995 between Registrant and Ronald Rudowsky.
10.20 Loan Agreement dated February 28, 1997 between Registrant and Arthur Coury, Ph.D.
10.21 Form of Preferred Shares Rights Agreement dated , 1997 between Registrant and Norwest Bank
Minnesota N.A.
11.1 Calculation of earnings per share.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1).
23.3 Consent of Arnall Golden & Gregory, LLP.
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Confidential treatment has been requested for certain portions of this
Exhibit.
(B) FINANCIAL STATEMENT SCHEDULES
None
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
II-3
<PAGE>
(a) It will provide to the Underwriters at the closing as 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.
(b) Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant, 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 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 be governed by the final
adjudication of such issue.
(c) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
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 this registration
statement as of the time it was declared effective.
(d) 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
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lexington, State of
Massachusetts, on the 21st day of October, 1997.
FOCAL, INC.
By: /s/ DAVID M. CLAPPER
-----------------------------------------
David M. Clapper, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David M. Clapper and W. Bradford Smith and each
of them, his attorneys-in-fact, each with the power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto in all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that such attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- ----------------
President, Chief Executive
/s/ DAVID M. CLAPPER Officer and Director
- ------------------------------ (Principal Executive October 21, 1997
(David M. Clapper) Officer)
Vice President, Finance and
/s/ W. BRADFORD SMITH Chief Financial Officer
- ------------------------------ (Principal Financial and October 21, 1997
(W. Bradford Smith) Accounting Officer)
/s/ HENRY BREM Director
- ------------------------------ October 21, 1997
(Henry Brem, M.D.)
/s/ JANET EFFLAND Director
- ------------------------------ October 21, 1997
(Janet Effland)
II-5
<PAGE>
<TABLE>
<C> <S> <C>
/s/ ROBERT LANGER Director
- ------------------------------ October 21, 1997
(Robert Langer, Ph.D.)
/s/ MARK J. LEVIN Director
- ------------------------------ October 21, 1997
(Mark J. Levin)
/s/ MICHAEL J. LEVINTHAL Director
- ------------------------------ October 21, 1997
(Michael J. Levinthal)
/s/ FRED E. SILVERSTEIN Director
- ------------------------------ October 21, 1997
(Fred E. Silverstein, M.D.)
/s/ JESSE I. TREU Director
- ------------------------------ October 21, 1997
(Jesse I. Treu, Ph.D.)
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- ---------
<C> <S> <C>
1.1 Underwriting Agreement..........................................................................
3.1 Certificate of Incorporation of Focal, Inc., a Delaware corporation, as currently in effect.....
3.2 Form of Restated Certificate of Incorporation of the Registrant to be filed after the closing of
the offering made under this Registration Statement...........................................
3.3 Bylaws of the Registrant, as currently in effect................................................
3.4 Bylaws of the Registrant, as proposed to be amended in connection with
this offering.................................................................................
4.1* Specimen Common Stock Certificate...............................................................
4.2 Representative Form of Common Stock Purchase Warrant............................................
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation...........................
10.1 Form of Indemnification Agreement between the Registrant and each of its directors and
officers......................................................................................
10.2 1992 Incentive Stock Plan and form of Stock Option Agreement thereunder.........................
10.3 1997 Employee Stock Purchase Plan and forms of agreements thereunder............................
10.4 1997 Directors' Option Plan and forms of agreements thereunder..................................
10.5 Restated Investors Rights Agreement dated April 12, 1996 among the Registrant and certain
stockholders of the Registrant................................................................
10.6 Lease Agreement dated April 4, 1994 between Registrant and The Mutual Life Insurance Company of
New York relating to lease of facility located at 4 Maguire Road, Lexington, MA, as amended to
date..........................................................................................
10.7 Master Lease Agreement dated October 30, 1992 between Registrant and
Comdisco, Inc.................................................................................
10.8 Master Lease Agreement dated February 28, 1994 between Registrant and
MMC/GATX Limited Partnership I................................................................
10.9 Master Loan and Security Agreement dated April 18, 1997 between Registrant and Transamerica
Leasing.......................................................................................
10.10+ Patent and Technology License Agreement dated June 11, 1992 between Registrant and University of
Texas.........................................................................................
10.11+ Exclusive License Agreement dated August 7, 1992 among Registrant,
Marvin Slepian, M.D. and Endoluminal Therapeutics, Inc........................................
10.12+ Collaboration and License Agreement dated April 25, 1996 between Registrant,
Ciba Corporation and Chiron Corporation.......................................................
10.13+ Distribution, License and Supply Agreement dated January 2, 1997 between Registrant and Ethicon,
Inc...........................................................................................
10.14 Agreement for Consulting Services dated November 15, 1991 between Registrant and Robert Langer,
Ph.D..........................................................................................
10.15 Agreement for Consulting Services dated August 7, 1992 between Registrant and Marvin Slepian,
M.D...........................................................................................
10.16 Agreement for Consulting Services and Sabbatical Employment dated June 1, 1992 between
Registrant and Jeffrey Hubbell................................................................
10.17* Consulting Agreement dated , 199 between Registrant and
Henry Brem, M.D...............................................................................
10.18 Form of Restricted Stock Purchase Agreement.....................................................
10.19 Loan Agreement dated March 29, 1995 between Registrant and Ronald Rudowsky......................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- ---------
<C> <S> <C>
10.20 Loan Agreement dated February 28, 1997 between Registrant and
Arthur Coury, Ph.D............................................................................
10.21 Form of Preferred Shares Rights Agreement dated , 1997 between Registrant and Norwest Bank
Minnesota N.A.................................................................................
11.1 Calculation of earnings per share...............................................................
23.1 Consent of Ernst & Young LLP, Independent Auditors..............................................
23.2 Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1)...........................
23.3 Consent of Arnall Golden & Gregory, LLP.........................................................
24.1 Power of Attorney (see page II-5)...............................................................
27.1 Financial Data Schedule.........................................................................
</TABLE>
- ------------------------
* To be filed by amendment.
+ Confidential treatment has been requested for certain portions of this
Exhibit.
<PAGE>
_________ Shares
FOCAL, INC.
Common Stock
($.001 Par Value)
UNDERWRITING AGREEMENT
_______, 1997
LEHMAN BROTHERS INC.
PIPER JAFFRAY, INC.
PACIFIC GROWTH EQUITIES, INC.
As Representatives of the several
Underwriters named in Schedule 1,
C/O LEHMAN BROTHERS INC.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Focal, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to the several underwriters named in Schedule 1 hereto (the
"Underwriters") _________ shares (the "Firm Shares") of the Company's Common
Stock, $.001 par value per share (the "Common Stock"). In addition, the
Company proposes to grant to the Underwriters an option to purchase up to an
additional _______ shares of Common Stock on the terms and for the purposes
set forth in Section 2 (the "Option Shares"). The Firm Shares and the Option
Shares, if purchased, are hereinafter collectively called the "Shares." This
is to confirm the agreement concerning the purchase of the Shares from the
Company by the Underwriters.
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company represents, warrants and agrees that:
(a) A registration statement on Form S-1 (File No. 333-_____)
with respect to the Shares has (i) been prepared by the Company in conformity
with the requirements of the United States Securities Act of 1933, as amended
(the "Securities Act"), and the rules and regulations (the "Rules and
Regulations") of the United States Securities and Exchange Commission (the
"Commission") thereunder, (ii) been filed with the Commission under the
Securities Act and (iii) become effective under the Securities Act. If any
post-effective amendment
<PAGE>
to such registration statement has been filed with the Commission prior to
the execution and delivery of this Agreement, the most recent such amendment
has been declared effective by the Commission. Copies of such registration
statement and all amendments thereto, including post-effective amendments, if
any, have been delivered by the Company to you as the representatives (the
"Representatives") of the Underwriters. As used in this Agreement,
"Effective Time" means the date and the time as of which such registration
statement, or the most recent post-effective amendment thereto or any related
registration statement filed pursuant to Rule 462(b) of the Rules and
Regulations ("Rule 462(b)"), if any, was declared effective by the
Commission; "Effective Date" means the date of the Effective Time;
"Preliminary Prospectus" means each prospectus included in such registration
statement or amendments thereof, before it became effective under the
Securities Act and any prospectus filed with the Commission by the Company
with the consent of the Representatives pursuant to Rule 424(a) of the Rules
and Regulations; "Registration Statement" means such registration statement,
as amended at the Effective Time, including all information contained in the
final prospectus filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations in accordance with Section 5 hereof and deemed to be a
part of the registration statement as of the Effective Time pursuant to
paragraph (b) of Rule 430A of the Rules and Regulations; if the Company has
filed or files a registration statement under Rule 462(b) to register
additional shares (a "Rule 462(b) Registration Statement"), then the term
"Registration Statement" shall be deemed to include such registration
statement; and "Prospectus" means such final prospectus, as first filed with
the Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the Rules
and Regulations. The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or Prospectus or the
effectiveness of the Registration Statement, and no proceeding for any such
purpose has been initiated or, to the best of the Company's knowledge,
threatened by the Commission.
(b) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration Statement or
the Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all material respects to the
requirements of the Securities Act and the Rules and Regulations and do not
and will not, as of the applicable effective date (as to the Registration
Statement and any amendment thereto) contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading and as of the
applicable filing date (as to a prospectus and any amendment or supplement
thereto) include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; PROVIDED that
the Company makes no representation or warranty as to information contained
in or omitted from the Registration Statement or the Prospectus in reliance
upon and in conformity with written information furnished to the Company
through the Representatives by or on behalf of any Underwriter specifically
for inclusion therein. There is no contract or document required to be
described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement which is not described or filed as
required.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, is duly qualified to do
2
<PAGE>
business and is in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of property or the conduct of
its business requires such qualification, and has all power and authority
necessary to own or hold its properties and to conduct the business in which
it is engaged; the Company has no subsidiaries, and it does not own directly
or indirectly an equity interest in any other entity.
(d) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the outstanding shares of capital stock of the
Company have been duly authorized and validly issued, are fully paid and
non-assessable and conform to the description thereof contained in the
Prospectus. There are no preemptive rights or other rights to subscribe for
or to purchase, or, upon consummation of the offering to which this Agreement
relates, any restriction upon the voting or transfer of, any shares of
capital stock pursuant to the Company's Articles of Incorporation, Bylaws or
other governing documents or any agreement or other instrument to which the
Company is a party or by which it may be bound, except pursuant to the
Company's stock option and employee stock purchase plans described in the
Prospectus.
(e) The Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued, fully paid and non-assessable and not be subject to any
preemptive rights; and the Shares will conform to the description thereof
contained in the Prospectus.
(f) The Company has full right, power and authority to enter
into this Agreement and to perform and discharge its obligations hereunder,
and this Agreement has been duly authorized, executed and delivered by the
Company and constitutes the valid and legally binding agreement of the
Company enforceable in accordance with its terms, except as rights to
indemnification may be limited by federal or state securities laws and except
for the effect of bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting the rights of creditors generally.
(g) The execution, delivery and performance of this Agreement
by the Company and the consummation of the transactions contemplated hereby
will not conflict with or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which the
Company is a party or by which the Company is bound or to which any of the
property or assets of the Company is subject, nor will such actions result in
any violation of the provisions of the Certificate of Incorporation or Bylaws
or other organizational documents of the Company, as amended, or any statute
or any order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or any of its properties or assets; and
except for the registration of the Shares under the Securities Act and such
consents, approvals, authorizations, registrations or qualifications as may
be required under the Exchange Act and applicable blue sky, state or foreign
securities laws in connection with the purchase and distribution of the
Shares by the Underwriters, no consent, approval, authorization or order of,
or filing or registration with, any such
3
<PAGE>
court or governmental agency or body is required for the execution, delivery
and performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby.
(h) Except as described in the Prospectus, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the
Company owned or to be owned by such person or to include such securities for
registration in a registration statement filed by the Company under the
Securities Act; and the Company is not required to include any such
securities in the securities being registered pursuant to the Registration
Statement, nor is it required to file any registration statement for the
registration of any securities of any person or register any such securities
pursuant to any other registration statement filed by the Company under the
Securities Act for a period of at least 180 days after the Effective Date.
(i) The Company has not sold or issued any shares of Common
Stock during the six-month period preceding the date of the Prospectus,
including any sales pursuant to Rule 144A under, or Regulations D or S of,
the Securities Act, other than shares issued pursuant to the 1992 Incentive
Stock Plan, the 1997 Director Option Plan and the 1997 Employee Stock
Purchase Plan (collectively, the "Stock Option and Purchase Plans").
(j) The Company has not sustained, since the date of the
latest audited financial statements included in the Prospectus, any material
loss or interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and since such date there has not been any
change in the capital stock or long-term debt of the Company or any material
adverse change, or any development involving a prospective material adverse
change, in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company, otherwise than
as set forth or contemplated in the Prospectus.
(k) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or included
in the Prospectus present fairly the financial condition and results of
operations of the Company, at the dates and for the periods indicated, and
have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved.
(l) Ernst & Young LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus and who
have delivered the initial letter referred to in Section 7(g) hereof, are
independent public accountants as required by the Securities Act and the
Rules and Regulations.
(m) The Company has good and marketable title to all personal
property owned by it, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not
4
<PAGE>
materially interfere with the use made and proposed to be made of such
property by the Company; and all real property and buildings held under lease
by the Company are held by it under valid, subsisting and enforceable leases,
with such exceptions as are not material and do not interfere with the use
made and proposed to be made of such property and buildings by the Company.
(n) The Company carries, or is covered by, insurance in such
amounts and covering such risks as is required by its contractual relations,
or as is adequate for the conduct of its business and the value of its
properties and as is customary for companies engaged in similar businesses in
similar industries.
(o) Except as described in the Prospectus, the Company owns or
possesses adequate rights to use all material patents (or foreign
equivalents), patent applications, trademarks, service marks, trade names,
trademark registrations, service mark registrations, copyrights and licenses,
both in the United States and outside the United States, necessary for the
conduct of its business as currently conducted and as contemplated to be
conducted in the Prospectus and has no reason to believe that the conduct of
its business will conflict in any material respect with, and has not received
any notice of any material claim of conflict with, any such rights of others.
(p) Except as described in the Prospectus, there are no legal
or governmental proceedings pending to which the Company is a party or of
which any property or assets of the Company are the subject which, if
determined adversely to the Company, could have a material adverse effect on
the consolidated financial position, stockholders' equity, results of
operations, business or prospects of the Company (a "Material Adverse
Effect"), and to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others.
(q) There are no contracts or other documents which are
required to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and Regulations
which have not been described in the Prospectus or filed as exhibits to the
Registration Statement.
(r) No relationship, direct or indirect, exists between or
among the Company on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company on the other hand, which is required to
be described in the Prospectus but is not so described.
(s) No labor disturbance by the employees of the Company
exists or, to the knowledge of the Company, is imminent which could be
expected to have a Material Adverse Effect.
(t) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as
5
<PAGE>
defined in ERISA) for which the Company would have any liability; the Company
has not incurred and does not expect to incur liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any "pension plan"
or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as
amended, including the regulations and published interpretations thereunder
(the "Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such qualification.
(u) The Company has filed all federal, state and local income
and franchise tax returns (or the foreign equivalents thereof) required to be
filed through the date hereof or has requested extensions thereof and has
paid all taxes due thereon, and no tax deficiency has been determined
adversely to the Company which has had (nor does the Company have any
knowledge of any tax deficiency which, if determined adversely to the
Company, could have) a Material Adverse Effect.
(v) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be disclosed
in the Prospectus, the Company has not (i) issued or granted any securities
(except pursuant to the exercise of any options or warrants that are
disclosed in the Prospectus), (ii) incurred any material liability or
obligation, direct or contingent, other than liabilities and obligations
which were incurred in the ordinary course of business, (iii) entered into
any transaction not in the ordinary course of business or (iv) declared or
paid any dividend on its capital stock.
(w) The Company (i) makes and keeps accurate books and
financial records and (ii) maintains internal accounting controls which
provide reasonable assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded as necessary
to permit preparation of its financial statements and to maintain
accountability for its financial and corporate books and records and
financial accounts, (C) access to its assets is permitted only in accordance
with management's authorization and (D) the reported accountability for its
assets is compared with existing assets at reasonable intervals.
(x) The Company is not (i) in violation of its Certificate of
Incorporation or Bylaws, as amended, (ii) in default in any material respect,
and no event has occurred which, with notice or lapse of time or both, would
constitute such a default, in the due performance or observance of any term,
covenant or condition contained in any material indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which it is a party
or by which it is bound or to which any of its properties or assets is
subject or (iii) in violation in any material respect of any law, ordinance,
governmental rule, regulation or court decree to which it or its property or
assets may be subject or has failed to obtain any material license, permit,
certificate, franchise or other governmental authorization or permit
necessary to the ownership of its property or to the conduct of its business.
(y) Neither the Company, nor any director, officer, agent,
employee or other person associated with or acting on behalf of the Company,
has used any corporate funds for
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any unlawful contribution, gift, entertainment or other unlawful expense
relating to political activity; made any direct or indirect unlawful payment
to any foreign or domestic government official or employee from corporate
funds; violated or is in violation of any provision of the Foreign Corrupt
Practices Act of 1977; or made any unlawful bribe, rebate, payoff, influence
payment, kickback or other payment.
(z) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment of toxic
wastes, medical wastes, hazardous wastes or hazardous substances by the
Company (or, to the knowledge of the Company, any of its predecessors in
interest) at, upon or from any of the property now or previously owned or
leased by the Company in violation of any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit or which would require remedial
action under any applicable law, ordinance, rule, regulation, order,
judgment, decree or permit, except for any violation or remedial action which
would not have, or could not reasonably be expected to have, singularly or in
the aggregate with all such violations and remedial actions, a Material
Adverse Effect; there has been no material spill, discharge, leak, emission,
injection, escape, dumping or release of any kind onto such property or into
the environment surrounding such property of any toxic wastes, medical
wastes, solid wastes, hazardous wastes or hazardous substances due to or
caused by the Company or with respect to which the Company has knowledge,
except for any such spill, discharge, leak, emission, injection, escape,
dumping or release which would not have, or could not reasonably be expected
to have, singularly or in the aggregate with all such spills, discharges,
leaks, emissions, injections, escapes, dumpings and releases, a Material
Adverse Effect; and the terms "hazardous wastes", "toxic wastes", "hazardous
substances" and "medical wastes" shall have the meanings specified in any
applicable local, state, federal and foreign laws or regulations with respect
to environmental protection.
(aa) The Company is not an "investment company" within the
meaning of such term under the United States Investment Company Act of 1940
and the rules and regulations of the Commission thereunder.
(ab) Except as disclosed in the Prospectus, there are no
business relationships or related-party transactions of the nature required
to be disclosed in the Prospectus pursuant to Item 404 of Regulation S-K
under the Securities Act.
(ac) Neither the Company nor any of its affiliates have taken,
directly or indirectly, any action designed to cause or result in, or which
has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common Stock to
facilitate the sale or resale of the Shares.
(ad) The Shares have been approved for inclusion on the Nasdaq
National Market ("Nasdaq"), subject only to official notice of issuance.
(ae) The Company believes that it has satisfied all applicable
regulatory requirements for marketing FOCALSEAL-L in Europe.
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2. PURCHASE OF THE SHARES BY THE UNDERWRITERS. On the basis of
the representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell _________ Firm
Shares to the several Underwriters, and each of the Underwriters, severally
and not jointly, agrees to purchase the number of the Firm Shares appearing
opposite that Underwriter's name in Schedule 1 hereto. The respective
purchase obligations of the Underwriters with respect to the Firm Shares
shall be rounded among the Underwriters to avoid fractional shares, as the
Representatives may determine.
In addition, the Company hereby grants to the Underwriters an option
to purchase up to _______ Option Shares. Such option is granted solely for
the purpose of covering over-allotments in the sale of Firm Shares and is
exercisable as provided in Section 4 hereof. Option Shares shall be
purchased severally for the account of the Underwriters in proportion to the
number of Firm Shares set forth opposite the name of such Underwriters in
Schedule 1 hereto. The respective purchase obligations of each Underwriter
with respect to the Option Shares shall be adjusted by the Representatives so
that no Underwriter shall be obligated to purchase Option Shares other than
in 100 share quantities. The price of both the Firm Shares and any Option
Shares shall be $____ per share.
The Company shall not be obligated to deliver any of the Shares to
be delivered on the First Delivery Date or the Second Delivery Date (as
hereinafter defined), as the case may be, except upon payment for all of the
Shares to be purchased on such Delivery Date as provided herein.
3. OFFERING OF SHARES BY THE UNDERWRITERS. Upon authorization by
the Representatives of the release of the Firm Shares, the several
Underwriters propose to offer the Firm Shares for sale upon the terms and
conditions set forth in the Prospectus.
4. DELIVERY OF AND PAYMENT FOR THE SHARES. Delivery of and
payment for the Firm Shares shall be made at the offices of Mintz, Levin,
Cohn, Ferris, Glovsky and Popeo, P.C., One Financial Center, Boston,
Massachusetts at 10:00 A.M., East Coast time, on the third full business day
following the date of this Agreement (or on the fourth full business day if
the pricing of the Firm Shares should take place after 4:30 p.m., East Coast
time) or at such other date or place as shall be determined by agreement
between the Representatives and the Company. This date and time are
sometimes referred to as the "First Delivery Date." On the First Delivery
Date, the Company shall deliver or cause to be delivered certificates
representing the Firm Shares to the Representatives for the account of each
Underwriter against payment to or upon the order of the Company of the
purchase price by certified or official bank check or checks payable in New
York Clearing House (next-day) funds. Time shall be of the essence, and
delivery at the time and place specified pursuant to this Agreement is a
further condition of the obligation of each Underwriter hereunder. Upon
delivery, the Firm Shares shall be registered in such names and in such
denominations as the Representatives shall request in writing not less than
two full business days prior to the First Delivery Date. For the purpose of
expediting the checking and packaging of the certificates for the Firm
Shares, the Company shall make the certificates representing the Firm
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Shares available for inspection by the Representatives in New York, New York,
not later than 2:00 p.m., East Coast time, on the business day prior to the
First Delivery Date.
At any time on or before the thirtieth day after the date of this
Agreement, the option granted in Section 2 may be exercised by written notice
being given to the Company by the Representatives. Such notice shall set
forth the aggregate number of Option Shares as to which the option is being
exercised, the names in which the Option Shares are to be registered, the
denominations in which the Option Shares are to be issued and the date and
time, as determined by the Representatives, when the Option Shares are to be
delivered; PROVIDED, HOWEVER, that this date and time shall not be earlier
than the First Delivery Date nor earlier than the second business day after
the date on which the option shall have been exercised nor later than the
fifth business day after the date on which the option shall have been
exercised. The date and time the Option Shares are delivered are sometimes
referred to as the "Second Delivery Date" and the First Delivery Date and the
Second Delivery Date are sometimes each referred to as a "Delivery Date".
Delivery of and payment for the Option Shares shall be made at the
place specified in the first sentence of the first paragraph of this Section
4 (or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 a.m., East Coast time, on the
Second Delivery Date. On the Second Delivery Date, the Company shall deliver
or cause to be delivered the certificates representing the Option Shares to
the Representatives for the account of each Underwriter against payment to or
upon the order of the Company of the purchase price by certified or official
bank check or checks payable in New York Clearing House (next-day) funds.
Time shall be of the essence, and delivery at the time and place specified
pursuant to this Agreement is a further condition of the obligation of each
Underwriter hereunder. Upon delivery, the Option Shares shall be registered
in such names and in such denominations as the Representatives shall request
in the aforesaid written notice. For the purpose of expediting the checking
and packaging of the certificates for the Option Shares, the Company shall
make the certificates representing the Option Shares available for inspection
by the Representatives in New York, New York, not later than 2:00 p.m., East
Coast time, on the business day prior to the Second Delivery Date.
5. FURTHER AGREEMENTS OF THE COMPANY. The Company hereby
covenants and agrees:
(a) To prepare the Prospectus in the form required by the
Securities Act and reasonably acceptable to the Representatives and to file
such Prospectus pursuant to Rule 424(b) under the Securities Act not later
than Commission's close of business on the second business day following the
execution and delivery of this Agreement or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Securities Act; to notify the
Representatives and their counsel of, and provide thereto, any request by the
Commission for any amendment of or supplement to the Registration Statement
or the Prospectus or for supplemental information; to make no further
amendment or any supplement to the Registration Statement or to the
Prospectus prior to the last Delivery Date except as permitted herein; to
advise the Representatives, promptly after it receives notice thereof, of the
time when any amendment to the Registration Statement has
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<PAGE>
been filed or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish the Representatives with
copies thereof; to file, if the Company elects to rely upon Rule 462(b), a
Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) and to pay the applicable fees in accordance with Rules 111 and
3(a) of the Rules and Regulations by the earlier of (i) 10.00 p.m., New York
time on the date of this Agreement or (ii) the time confirmations are sent or
given, as specified by Rule 462(b); to advise the Representatives, promptly
after it receives notice thereof, of the issuance by the Commission of any
stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, of the
initiation or threatening of any proceeding for any such purpose, or of any
request by the Commission for the amending or supplementing of the
Registration Statement or the Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or
suspending any such qualification, to use promptly its best efforts to obtain
its withdrawal;
(b) To furnish promptly to each of the Representatives and to
counsel for the Underwriters a signed copy of the Registration Statement as
originally filed with the Commission, and each amendment thereto filed with
the Commission, including all consents and exhibits filed therewith;
(c) To deliver promptly to the Representatives such number of
the following documents as the Representatives shall reasonably request: (i)
conformed copies of the Registration Statement as originally filed with the
Commission and each amendment thereto; and (ii) each Preliminary Prospectus,
the Prospectus and any amended or supplemented Prospectus; and, if the
delivery of a prospectus is required at any time after the Effective Time in
connection with the offering or sale of the Shares or any other securities
relating thereto and if at such time any events shall have occurred as a
result of which the Prospectus as then amended or supplemented would include
an untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made when such Prospectus is delivered,
not misleading, or, if for any other reason it shall be necessary to amend or
supplement the Prospectus in order to comply with the Securities Act, to
notify the Representatives and, upon their request, to prepare and furnish
without charge to each Underwriter and to any dealer in securities as many
copies as the Representatives may from time to time reasonably request of an
amended or supplemented Prospectus which will correct such statement or
omission or effect such compliance;
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the Prospectus
that may, in the judgment of the Company or the Representatives, be required
by the Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement, Rule 462(b) Registration Statement or supplement to
the Prospectus or any Prospectus pursuant to Rule 424 of the Rules and
Regulations, to furnish a copy thereof to the
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<PAGE>
Representatives and counsel for the Underwriters and obtain the consent of
the Representatives to the filing, which consent shall not be unreasonably
withheld;
(f) As soon as practicable after the Effective Date to make
generally available to the Company's shareholders and to deliver to the
Representatives in accordance with Rule 158 of the Rules and Regulations an
earnings statement of the Company (which need not be audited) complying with
Section 11(a) of the Securities Act and the Rules and Regulations and
covering a period of at least twelve consecutive months beginning after the
Effective Date;
(g) For a period of five years following the Effective Date,
to furnish to the Representatives copies of all materials furnished by the
Company to its shareholders and all public reports and all reports and
financial statements furnished by the Company to the principal national
securities exchange or Nasdaq, as the case may be, upon which the Common
Stock may be listed or traded pursuant to requirements of or agreements with
such exchange or to the Commission pursuant to the Exchange Act or any rule
or regulation of the Commission thereunder, except for any portion of such
report furnished to such exchange or to the Commission for which Confidential
Treatment has been requested;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Shares for offering and
sale under the securities laws of such jurisdictions as the Representatives
may request and to comply with such laws so as to permit the continuance of
sales and dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Shares; PROVIDED that in
connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction;
(i) For a period of 180 days from the date of the Prospectus,
not to, directly or indirectly, offer for sale, sell or otherwise dispose of
(or enter into any transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any time in the
future of) any shares of Common Stock (other than the Shares and shares
issued pursuant to the Stock Option and Purchase Plans), or sell or grant
options, rights or warrants with respect to any shares of Common Stock (other
than the grant of options pursuant to the Stock Option and Purchase Plans),
without the prior written consent of Lehman Brothers Inc.; and to cause each
officer, director, shareholder and optionholder of the Company to furnish to
the Representatives, prior to the First Delivery Date, a letter or letters,
in form and substance satisfactory to counsel for the Underwriters, pursuant
to which each such person shall agree not to, directly or indirectly, offer
for sale, sell or otherwise dispose of (or enter into any transaction or
device which is designed to, or could be expected to, result in the
disposition by any person at any time in the future of) any shares of Common
Stock or other securities of the Company for a period of 180 days from the
date of the Prospectus, without the prior written consent of Lehman Brothers
Inc.;
(j) Prior to the Effective Date, to apply for the listing of
the Shares on the Nasdaq National Market and to complete such listing as of
the date hereof;
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(k) To apply the net proceeds from the sale of the Shares
being sold by the Company as set forth in the Prospectus;
(l) To take such steps as shall be necessary to ensure that
the Company shall not become an "investment company" within the meaning of
such term under the United States Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
6. EXPENSES. The Company agrees to pay (a) the costs incident to
the authorization, issuance, sale and delivery of the Shares and any taxes
payable in that connection; (b) the costs incident to the preparation,
printing and filing under the Securities Act of the Registration Statement
and any amendments and exhibits thereto; (c) the costs of distributing the
Registration Statement as originally filed and each amendment thereto and any
post-effective amendments thereof (including, in each case, exhibits), any
Preliminary Prospectus, the Prospectus and any amendment or supplement to the
Prospectus, all as provided in this Agreement; (d) the costs of producing and
distributing this Agreement, the Agreement Among Underwriters and any other
related documents in connection with the offering, purchase, sale and
delivery of the Shares; (e) the filing fees incident to securing any required
review by the National Association of Securities Dealers, Inc. of the terms
of sale of the Shares; (f) any applicable Nasdaq listing or other fees; (g)
the fees and expenses of qualifying the Shares under the securities laws of
the several jurisdictions as provided in Section 5(h) and of preparing,
printing and distributing a Blue Sky Memorandum (including related fees and
expenses of counsel to the Underwriters related thereto); and (h) all other
costs and expenses incident to the performance of the obligations of the
Company under this Agreement; PROVIDED that, except as provided in this
Section 6 and in Section 11, the Underwriters shall pay their own costs and
expenses, including the costs and expenses of their counsel, any transfer
taxes on the Shares which they may sell and the expenses of advertising any
offering of the Shares made by the Underwriters.
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The respective
obligations of the several Underwriters hereunder are subject to the
accuracy, as of the date hereof and on each Delivery Date (as if made on such
date), of the representations and warranties of the Company, the agreements
of the Company and to each of the following additional terms and conditions:
(a) The Prospectus shall have been filed in a timely manner
with the Commission in accordance with Section 5(a); the Registration
Statement and all post-effective amendments thereto shall have become
effective, all filings required by Rule 424 and Rule 430A of the Rules and
Regulations shall have been made, and no such filings shall have been made
without the consent of the Representatives, which consent shall not have been
unreasonably withheld; if the Company has elected to rely on Rule 462(b), the
Rule 462(b) Registration Statement shall have become effective not later than
the earlier of (i) 10:00 p.m., New York Time on the date of this Agreement or
(ii) the time confirmations are sent or given as specified in Rule 462(b); no
stop order suspending the effectiveness of the Registration Statement or any
part thereof shall have been issued, and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and any request of the
Commission for inclusion of additional information in the
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Registration Statement or the Prospectus or otherwise shall have been
disclosed to you and complied with to your satisfaction.
(b) No Underwriter shall have been advised by the Company or
shall have discovered and disclosed to the Company on or prior to such
Delivery Date that the Registration Statement or the Prospectus or any
amendment or supplement thereto contains an untrue statement of fact which,
in your opinion or in the opinion of Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., counsel for the Underwriters, is material or omits to state a
fact which, in your opinion or the opinion of such counsel, is material and
is required to be stated therein or is necessary to make the statements
therein not misleading.
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the Shares, the
Registration Statement and the Prospectus, and all other legal matters
relating to this Agreement and the transactions contemplated hereby shall be
reasonably satisfactory in all material respects to you and your counsel, and
the Company shall have furnished to such counsel all documents and
information that they may reasonably request to enable them to pass upon such
matters.
(d) On each Delivery Date, there shall have been furnished to
you the written opinion of Wilson, Sonsini, Goodrich & Rosati, counsel to the
Company, addressed to the Underwriters and dated such Delivery Date, in form
and substance reasonably satisfactory to the Representatives and their
counsel, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, is qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which its ownership or
leasing of property or the conduct of its business requires such
qualification and has all corporate power and authority necessary to
own or hold its properties and conduct the businesses in which it is
engaged; and the Company has no subsidiaries.
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the outstanding shares of capital
stock of the Company, including the Shares, have been duly and validly
authorized and issued, are fully paid and non-assessable and conform
to the description thereof contained in the Prospectus; and there are
no preemptive or other rights to subscribe for or to purchase, nor any
restriction upon the voting or transfer of, any of the Shares pursuant
to the Company's Certificate of Incorporation or Bylaws, as amended,
or any agreement or other instrument known to such counsel;
(iii) To such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company is a party or of which any
property or assets of the Company is the subject which, if determined
adversely to the Company, might have a Material Adverse
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Effect; and, to such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened
by others;
(iv) The Registration Statement and all post effective
amendments thereto, if any, have been declared effective (or in the
case of any Rule 462(b) Registration Statement, has become effective)
under the Securities Act, the Prospectus has been filed with the
Commission pursuant to the subparagraph of Rule 424(b) of the Rules
and Regulations specified in such opinion on the date specified
therein and no stop order suspending the effectiveness of the
Registration Statement has been issued and, to such counsel's
knowledge, no proceeding for that purpose is pending or threatened by
the Commission;
(v) The Registration Statement and the Prospectus and any
further amendments or supplements thereto made by the Company (other
than the financial statements and related schedules therein, as to
which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act and the
Rules and Regulations;
(vi) The statements made in the Prospectus under the
headings "Description of Capital Stock", "Shares Eligible For Future
Sale", and "Business - Strategic Alliances" and in the Registration
Statement in Items 14 and 15, insofar as such statements constitute
summaries of statutes, regulations, contracts, proceedings, documents
or transactions, are fair, complete and accurate summaries thereof,
and insofar as such statements constitute statements of law or legal
conclusions, fairly present the information presented therein;
(vii) To such counsel's knowledge, there are no
contracts or other documents which are required to be described in the
Prospectus or filed as exhibits to the Registration Statement by the
Securities Act or by the Rules and Regulations which have not been
described or filed as exhibits to the Registration Statement;
(viii) This Agreement has been duly authorized, executed
and delivered by the Company;
(ix) The issue and sale of the Shares being delivered on
such Delivery Date by the Company and the compliance by the Company
with all of the provisions of this Agreement and the consummation of
the transactions contemplated hereby will not conflict with or result
in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company
is a party or by which the Company is bound or to which any of the
property or assets of the Company is subject, nor will such actions
result in any violation of the provisions of the Certificate of
Incorporation or Bylaws of the Company, as such documents may be
amended from time to time, or any statute or
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any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its properties or
assets; and, except for the registration of the Shares under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required and have been
obtained under the Exchange Act and applicable blue sky, state or
foreign securities laws in connection with the purchase and
distribution of the Shares by the Underwriters, no consent, approval,
authorization or order of, or filing or registration with, any such
court or governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby;
(x) Except as described in the Prospectus, to such
counsel's knowledge, there are no contracts, agreements or
understandings between the Company and any person granting such person
the right to require the Company to file a registration statement
under the Securities Act with respect to any securities of the Company
owned or to be owned by such person or to include such securities for
registration in a registration statement filed by the Company under
the Securities Act; and the Company is not required to include any
such securities in the securities being registered pursuant to the
Registration Statement, nor is it required to file any registration
statement for the registration of any securities of any person or
register any such securities pursuant to any other registration
statement filed by the Company under the Securities Act for a period
of 180 days after the Effective Date; and
(xi) The Company is not an "investment company" within the
meaning of such term under the United States Investment Company Act of
1940 and the rules and regulations of the Commission thereunder.
In rendering such opinion, such counsel may state that its opinion
is limited to matters governed by the Federal laws of the United States of
America, the laws of the State of California and the General Corporation Law
of the State of Delaware. Such counsel shall also have furnished to the
Representatives a written statement, addressed to the Underwriters and dated
such Delivery Date, in form and substance reasonably satisfactory to the
Representatives, to the effect that (x) such counsel has acted as general
counsel to the Company on a regular basis in connection with securities laws
matters and other matters, including the preparation of the Registration
Statement and (y) based on the foregoing, no facts have come to the attention
of such counsel which lead them to believe that the Registration Statement,
as of the Effective Date, or any amendment thereto, contains or contained any
untrue statement of a material fact or omits or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus, or any amendment or
supplement thereto, contains or contained any untrue statement of a material
fact or omits or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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(e)(I) On each delivery date, the Company shall have
furnished to the Representatives an opinion of Arnall, Golden & Gregory, LLP,
United States patent counsel for the Company, addressed to the Underwriters
and dated such Delivery Date in form and substance reasonably satisfactory to
the Representatives to the effect that:
(i) The statements in the Registration Statement and
Prospectus under the caption "Risk Factors -- Uncertainties Related to
Patents and Proprietary Technology" and "Business - Patents and
Proprietary Rights", are accurate statements or summaries of the
matters set forth therein, and that such counsel is not aware of any
facts which would form a basis for a belief that any of the other
statements in this section are untrue or misleading.
(ii) No facts have come to the attention of such counsel
which would form a basis for the belief that (a) the Registration
Statement or any amendment thereto or (b) the Prospectus, as amended
or supplemented, contain any untrue statement of a material fact or
matter of law with respect to the patent position of the Company, or
omit to state any material fact or matter of law relating to the
patent position of the Company, which is necessary to make the
statements contained therein not misleading.
(iii) The Company has obtained assignment documents from
the named inventors for each of its United States patent applications,
and to the inventions described and claimed therein and to any foreign
applications filed for such inventions, and has caused these
assignments to be recorded in the United States Patent and Trademark
Office.
(iv) The Company has valid license rights to the patents and
patent applications listed in Schedule A to such counsel's opinion.
(v) To the best of such counsel's knowledge, the Company
has complied with the duty of candor and disclosure required by the
United States Patent and Trademark Office for each United States
patent application.
(vi) No facts have come to the attention of such counsel
that would form a basis for the belief that any of the United States
patents owned by or licensed to the Company are unenforceable or
invalid, and to the best of such counsel's knowledge, there is no
pending action, suit, proceeding or claim by others challenging the
patentability, validity or enforceability of any claim of any patents
owned or licensed by the Company in the United States or elsewhere.
(vii) Such counsel is not aware of any patents of others
in the United States or elsewhere which are or would be infringed by
the Company's specific current or proposed products or processes
referred to in the Prospectus; such counsel has no knowledge of any
pending or threatened action, suit, proceeding or
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<PAGE>
claim by others in the United States or elsewhere that the Company is
infringing or may infringe any patent which could result in any
material adverse effect on the Company.
(viii) Such counsel does not know of any contracts or
other documents relating to the proprietary information of the Company
or patents or patent applications in the United States or elsewhere
other than those described in the Registration Statement and the
Prospectus or identified on Schedule A.
(II) On each Delivery Date, the Company shall have
furnished to the Representatives an opinion of Hogan & Hartson L.L.P.,
regulatory counsel for the Company, addressed to the Underwriters and dated
such Delivery Date in form and substance reasonably satisfactory to the
Representatives and their counsel to the effect that:
(i) the statements in the Prospectus under the captions
"Risk Factors - Government Regulation; No Assurance of Regulatory
Approvals," "Risk Factors - Limited Manufacturing Experience" (third
and fourth paragraphs only), "Business - Products and Product
Development Programs; FOCALSEAL-L for lung surgery" (fourth and sixth
paragraphs only), "Business - Government Regulation," and "Business -
Manufacturing" (sixth paragraph only), and other references in the
Prospectus to those matters described in such sections, are accurate
and complete statements of the legal matters, documents and
proceedings set forth therein;
(ii) no facts have come to such counsel's attention which
cause such counsel to believe that the statements in the Prospectus
under the captions "Risk Factors - Government Regulation; No Assurance
of Regulatory Approvals," "Risk Factors - Limited Manufacturing
Experience" (third and fourth paragraphs only), "Business - Products
and Product Development Programs; FOCALSEAL-L for lung surgery"
(fourth and sixth paragraphs only), "Business - Government
Regulation," and "Business - Manufacturing" (sixth paragraph only),
and other references in the Prospectus to those matters described in
such sections, at the time the Registration Statement became
effective, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or as of the date hereof,
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; and
(iii) such counsel has no actual knowledge of any
action, suit or proceeding pending or threatened by the FDA or other
federal regulatory authority, except in each case as described in the
Prospectus.
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<PAGE>
(f) The Representatives shall have received from Mintz, Levin,
Cohn, Ferris, Glovsky and Popeo, P.C., counsel for the Underwriters, such
opinion or opinions, dated such Delivery Date, with respect to the issuance
and sale of the Shares, the Registration Statement, the Prospectus and other
related matters as the Representatives may reasonably require, and the
Company shall have furnished to such counsel such documents as they
reasonably request for the purpose of enabling them to pass upon such
matters.
(g) At the time of execution of this Agreement, the
Representatives shall have received from Ernst & Young LLP a letter, in form
and substance satisfactory to the Representatives, addressed to the
Underwriters and dated the date hereof (i) confirming that they are
independent public accountants within the meaning of the Securities Act and
are in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date hereof (or, with respect to matters
involving changes or developments since the respective dates as of which
specified financial information is given in the Prospectus, as of a date not
more than five days prior to the date hereof), the conclusions and findings
of such firm with respect to the financial information and other matters
ordinarily covered by accountants' "comfort letters" to underwriters in
connection with registered public offerings.
(h) With respect to the letter of Ernst & Young LLP referred
to in the preceding paragraph and delivered to the Representatives
concurrently with the execution of this Agreement (the "initial letter"), on
each Delivery Date the Company shall have furnished to the Representatives a
letter (the "bring-down letter") of such accountants, addressed to the
Underwriters and dated such Delivery Date (i) confirming that they are
independent public accountants within the meaning of the Securities Act and
are in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date of the bring-down letter (or, with
respect to matters involving changes or developments since the respective
dates as of which specified financial information is given in the Prospectus,
as of a date not more than five days prior to the date of the bring-down
letter), the conclusions and findings of such firm with respect to the
financial information and other matters covered by the initial letter and
(iii) confirming in all material respects the conclusions and findings set
forth in the initial letter.
(i) On each Delivery Date, the Company shall have furnished to
the Representatives a certificate, dated such Delivery Date, of its Chairman
of the Board or its President and its Chief Financial Officer stating that:
(i) The representations and warranties of the Company
contained in this Agreement are true and correct as of such Delivery
Date, and the Company has complied with all agreements and satisfied
all conditions on its part to be complied with or satisfied prior to
such Delivery Date; and the conditions set forth in Sections 7(a) and
7(l) have been fulfilled; and
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<PAGE>
(ii) They have carefully examined the Registration Statement
and the Prospectus and, in their opinion (A) as of the Effective Date,
the Registration Statement and Prospectus did not include any untrue
statement of a material fact and did not omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (B) since the Effective Date no event has
occurred which should have been set forth in a supplement or amendment
to the Registration Statement or the Prospectus.
(j) You shall have been furnished such additional documents
and certificates as you or counsel for the Underwriters may reasonably
request.
(k) The letter agreements among you and officers, directors
and the stockholders and optionholders of the Company relating to
restrictions on sales of the Company's securities, delivered to you on or
prior to the date hereof, shall be in full force and effect on such Delivery
Date.
(l) (i) The Company shall not have sustained since the date of
the latest audited financial statements included in the Prospectus any loss
or interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus or (ii) since such date there shall not have
been any change in the capital stock or long-term debt of the Company or any
change, or any development involving a prospective change, in or affecting
the general affairs, management, financial position, stockholders' equity or
results of operations of the Company, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is, in the judgment of the Representatives,
so material and adverse as to make it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares being delivered on
such Delivery Date on the terms and in the manner contemplated in the
Prospectus.
(m) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or in
the over-the-counter market shall have been suspended or minimum prices shall
have been established on any such exchange or such market by the Commission,
by such exchange or by any other regulatory body or governmental authority
having jurisdiction, (ii) a banking moratorium shall have been declared by
Federal or state authorities, (iii) the United States shall have become
engaged in hostilities, there shall have been an escalation in hostilities
involving the United States or there shall have been a declaration of a
national emergency or war by the United States or (iv) there shall have
occurred such a material adverse change in general economic, political or
financial conditions (or the effect of international conditions on the
financial markets in the United States shall be such) as to make it, in the
judgment of a majority in interest of the Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of the Shares
being delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
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<PAGE>
(n) Nasdaq shall have approved the Shares for listing, subject
only to official notice of issuance.
All such opinions, letters, evidence, certificates and documents
shall be in compliance with the provisions of this Agreement only if they are
satisfactory in form and substance to you and counsel for the Underwriters.
The Company shall furnish to you conformed copies of such opinions, letters,
evidence, certificates and documents in such number as you shall reasonably
request. If any of the conditions specified in this Section 7 shall not have
been fulfilled when and as required by this Agreement, the Agreement and all
obligations of the Underwriters hereunder may be canceled at, or prior to,
each Delivery date, by you. Any such cancellation shall be without liability
of the Underwriters to the Company. Notice of such cancellation shall be
given to the Company in writing, or by telecopy or telephone confirmed in
writing.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company shall indemnify and hold harmless each
Underwriter [(including any Underwriter in its role as a qualified independent
underwriter pursuant to the rules of the National Association of Securities
Dealers, Inc.)], its officers and employees and each person, if any, who
controls any Underwriter within the meaning of the Securities Act, from and
against any loss, claim, damage or liability, joint or several, or any action
in respect thereof (including, but not limited to, any loss, claim, damage,
liability or action relating to purchases and sales of Shares), to which that
Underwriter, officer, employee or controlling person may become subject, under
the Securities Act or otherwise, insofar as such loss, claim, damage, liability
or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained (A) in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any amendment
or supplement thereto or (B) in any blue sky application or other document
prepared or executed by the Company (or based upon any written information
furnished by the Company) specifically for the purpose of qualifying any or
all of the Shares under the securities laws of any state or other
jurisdiction (any such application, document or information being hereinafter
called a Blue Sky Application"), (ii) the omission or alleged omission to
state in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or necessary to
make the statements therein not misleading or (iii) any act or failure to act
or any alleged act or failure to act by any Underwriter in connection with,
or relating in any manner to, the Shares or the offering contemplated hereby,
and which is included as part of or referred to in any loss, claim, damage,
liability or action arising out of or based upon matters covered by clause
(i) or (ii) above (PROVIDED that the Company shall not be liable under this
clause (iii) to the extent that it is determined in a final judgment by a
court of competent jurisdiction that such loss, claim, damage, liability or
action resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its gross negligence or
willful misconduct), and shall reimburse each Underwriter and each such
officer, employee or controlling person promptly upon demand for any legal or
other expenses reasonably incurred by that Underwriter, officer, employee or
controlling person in connection with investigating or defending or preparing
to defend against any such loss, claim, damage, liability or action as such
expenses are incurred; PROVIDED, HOWEVER, that
20
<PAGE>
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of, or is based upon, any
untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or in any such amendment or supplement, or in any Blue Sky
Application, in reliance upon and in conformity with written information
concerning such Underwriter furnished to the Company through the
Representatives by or on behalf of any Underwriter specifically for inclusion
therein. The foregoing indemnity agreement is in addition to any liability
which the Company may otherwise have to any Underwriter or to any officer,
employee or controlling person of that Underwriter.
(b) Each Underwriter, severally and not jointly, shall
indemnify and hold harmless the Company, each of its directors, each of its
officers who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of the Securities Act or otherwise,
from and against any loss, claim, damage or liability, joint or several, or
any action in respect thereof, to which the Company or any such director,
officer or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises
out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or supplement
thereto, or (B) in any Blue Sky Application or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, the Registration Statement
or the Prospectus, or in any amendment or supplement thereto, or in any Blue
Sky Application any material fact required to be stated therein or necessary
to make the statements therein not misleading, but in each case only to the
extent that the untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information concerning such Underwriter furnished to the Company through the
Representatives by or on behalf of that Underwriter specifically for
inclusion therein, and shall reimburse the Company and any such director,
officer or controlling person for any legal or other expenses reasonably
incurred by the Company or any such director, officer or controlling person
in connection with investigating or defending or preparing to defend against
any such loss, claim, damage, liability or action as such expenses are
incurred. The foregoing indemnity agreement is in addition to any liability
which any Underwriter may otherwise have to the Company or any such director,
officer or controlling person.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; PROVIDED, HOWEVER,
that the failure to notify the indemnifying party shall not relieve it from
any liability which it may have under this Section 8 except to the extent it
has been materially prejudiced by such failure and, PROVIDED FURTHER, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 8. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and, to the
extent that it wishes, jointly with any other similarly notified indemnifying
party, to assume the defense thereof
21
<PAGE>
with counsel reasonably satisfactory to the indemnified party. After notice
from the indemnifying party to the indemnified party of its election to
assume the defense of such claim or action, the indemnifying party shall not
be liable to the indemnified party under this Section 8 for any legal or
other expenses subsequently incurred by the indemnified party in connection
with the defense thereof other than reasonable costs of investigation;
PROVIDED, HOWEVER, that the Representatives shall have the right to employ
counsel to represent jointly the Representatives and those other Underwriters
and their respective officers, employees and controlling persons who may be
subject to liability arising out of any claim in respect of which indemnity
may be sought by the Underwriters against the Company under this Section 8
if, in the reasonable judgment of the Representatives, it is advisable for
the Representatives and those Underwriters, officers, employees and
controlling persons to be jointly represented by separate counsel, and in
that event the fees and expenses of such separate counsel shall be paid by
the Company. No indemnifying party shall (i) without the prior written
consent of the indemnified parties (which consent shall not be unreasonably
withheld), settle or compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to
such claim or action) unless such settlement, compromise or consent includes
an unconditional release of each indemnified party from all liability arising
out of such claim, action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with the consent
of the indemnifying party or if there be a final judgment of the plaintiff in
any such action, the indemnifying party agrees to indemnify and hold harmless
any indemnified party from and against any loss or liability by reason of
such settlement or judgment.
(d) If the indemnification provided for in this Section 8
shall for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a) or 8(b) in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to therein,
then each indemnifying party shall, in lieu of indemnifying such indemnified
party, contribute to the amount paid or payable by such indemnified party as
a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the
relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company on the one hand and the Underwriters on the other with respect to the
statements or omissions which resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and the Underwriters on the other with respect to such offering
shall be deemed to be in the same proportion as the total net proceeds from
the offering of the Shares purchased under this Agreement (before deducting
expenses) received by the Company on the one hand, and the total underwriting
discounts and commissions received by the Underwriters with respect to the
Shares purchased under this Agreement, on the other hand, bear to the total
gross proceeds from the offering of the Shares under this Agreement, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to whether the untrue or
alleged
22
<PAGE>
untrue statement of a material fact or omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Underwriters, the intent of the parties and their relative knowledge, access
to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this Section 8 were to be
determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does
not take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the loss,
claim, damage or liability, or action in respect thereof, referred to above
in this Section 8 shall be deemed to include, for purposes of this Section
8(d), any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8(d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute as provided in this Section 8(d) are
several in proportion to their respective underwriting obligations and not
joint.
(e) The Underwriters severally confirm and the Company
acknowledges that the statements with respect to the public offering of the
Shares by the Underwriters set forth on the cover page of, the legend
concerning over-allotments on the inside front cover page of and the
concession and reallowance figures appearing under the caption "Underwriting"
in, the Prospectus are correct and constitute the only information concerning
such Underwriters furnished in writing to the Company by or on behalf of the
Underwriters specifically for inclusion in the Registration Statement and the
Prospectus.
9. DEFAULTING UNDERWRITERS. If, on either Delivery Date, any
Underwriter defaults in the performance of its obligations under this
Agreement, the remaining non-defaulting Underwriters shall be obligated to
purchase the Shares which the defaulting Underwriter agreed but failed to
purchase on such Delivery Date in the respective proportions which the number
of the Firm Shares set opposite the name of each remaining non-defaulting
Underwriter in Schedule 1 hereto bears to the total number of the Firm Shares
set opposite the names of all the remaining non-defaulting Underwriters in
Schedule 1 hereto; PROVIDED, HOWEVER, that the remaining non-defaulting
Underwriters shall not be obligated to purchase any of the Shares on such
Delivery Date if the total number of Shares which the defaulting Underwriter
or Underwriters agreed but failed to purchase on such date exceeds 9.09% of
the total number of Shares to be purchased on such Delivery Date, and any
remaining non-defaulting Underwriter shall not be obligated to purchase more
than 110% of the number of Shares which it agreed to purchase on such
Delivery Date pursuant to the terms of Section 2. If the foregoing maximums
are exceeded, the remaining non-defaulting Underwriters, or those other
underwriters satisfactory to the Representatives who so agree, shall have the
right, but shall not be obligated, to purchase, in such proportion as may be
agreed upon among them, all the Shares to be purchased on such Delivery Date.
If the remaining non-defaulting Underwriters or
23
<PAGE>
other underwriters satisfactory to the Representatives do not elect to
purchase the shares which the defaulting Underwriter or Underwriters agreed
but failed to purchase on such Delivery Date, this Agreement (or, with
respect to the Second Delivery Date, the obligation of the Underwriters to
purchase, and of the Company to sell, the Option Shares) shall terminate
without liability on the part of any non-defaulting Underwriter or the
Company, except that the Company will continue to be liable for the payment
of expenses to the extent set forth in Sections 6 and 11. As used in this
Agreement, the term "Underwriter" includes, for all purposes of this
Agreement unless the context requires otherwise, any party not listed in
Schedule 1 hereto who, pursuant to this Section 9, purchases Firm Shares
which a defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of
any liability it may have to the Company for damages caused by its default.
If other underwriters are obligated or agree to purchase the Shares of a
defaulting or withdrawing Underwriter, either the Representatives or the
Company may postpone the Delivery Date for up to seven full business days in
order to effect any changes that in the opinion of counsel for the Company or
counsel for the Underwriters may be necessary in the Registration Statement,
the Prospectus or in any other document or arrangement.
10. TERMINATION. The obligations of the Underwriters hereunder may
be terminated by the Representatives by notice given to and received by the
Company prior to delivery of and payment for the Firm Shares if, prior to
that time, any of the events described in Sections 7(l) or 7(m), shall have
occurred or if the Underwriters shall decline to purchase the Shares for any
reason permitted under this Agreement.
11. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the Company shall
fail to tender the Shares for delivery to the Underwriters by reason of any
failure, refusal or inability on the part of the Company to perform any
agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled is not fulfilled
or if the Underwriters shall not purchase the Shares for any reason permitted
pursuant to this Agreement, the Company will reimburse the Underwriters for
all reasonable out-of-pocket expenses (including fees and disbursements of
counsel) incurred by the Underwriters in connection with this Agreement and
the proposed purchase of the Shares, and upon demand (accompanied by
reasonable documentation of such expenses) the Company shall pay the full
amount thereof to the Representatives. If this Agreement is terminated
pursuant to Section 9 by reason of the default of one or more Underwriters,
the Company shall not be obligated to reimburse any defaulting Underwriter on
account of those expenses.
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<PAGE>
12. NOTICES, ETC. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by
mail, telex or facsimile transmission to Lehman Brothers Inc., Three World
Financial Center, New York, New York 10285, Attention: Syndicate Department
(Fax: 212-526-6588), with a copy, in the case of any notice pursuant to
Section 8(c), to the Director of Litigation, Office of the General Counsel,
Lehman Brothers Inc., Three World Financial Center, 10th Floor, New York, NY
10285;
(b) if to the Company, shall be delivered or sent by mail,
telex or facsimile transmission to the address of the Company set forth in
the Registration Statement, Attention: David Clapper (Fax: 617-280-7802);
PROVIDED, HOWEVER, that any notice to an Underwriter pursuant to Section 8(c)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by
the Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company
shall be entitled to act and rely upon any request, consent, notice or
agreement given or made on behalf of the Underwriters by the Representatives.
13. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall
inure to the benefit of and be binding upon the Underwriters, the Company and
their respective successors. This Agreement and the terms and provisions
hereof are for the sole benefit of only those persons, except that (A) the
representations, warranties, indemnities and agreements of the Company
contained in this Agreement shall also be deemed to be for the benefit of the
person or persons, if any, who control any Underwriter within the meaning of
Section 15 of the Securities Act and (B) the indemnity agreement of the
Underwriters contained in Section 8(b) of this Agreement shall be deemed to
be for the benefit of directors of the Company, officers of the Company who
have signed the Registration Statement and any person controlling the Company
within the meaning of Section 15 of the Securities Act. Nothing in this
Agreement is intended or shall be construed to give any person, other than
the persons referred to in this Section 13, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision
contained herein.
14. SURVIVAL. The respective indemnities, representations,
warranties and agreements of the Company and the Underwriters contained in
this Agreement or made by or on behalf on them, respectively, pursuant to
this Agreement, shall survive the delivery of and payment for the Shares and
shall remain in full force and effect, regardless of any investigation made
by or on behalf of any of them or any person controlling any of them.
15. DEFINITION OF THE TERMS "BUSINESS DAY" AND "SUBSIDIARY". For
purposes of this Agreement, (a) "business day" means any day on which the New
York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 of the Rules and Regulations.
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<PAGE>
16. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of New York.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
18. HEADINGS. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning
or interpretation of, this Agreement.
26
<PAGE>
If the foregoing correctly sets forth the agreement between the Company
and the Underwriters, please indicate your acceptance in the space provided
for that purpose below.
Very truly yours,
FOCAL, INC.
By _______________________________
David Clapper, President and
Chief Executive Officer
Accepted:
LEHMAN BROTHERS INC.
PIPER JAFFRAY, INC.
PACIFIC GROWTH EQUITIES, INC.
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By ____________________________
Authorized Representative
27
<PAGE>
SCHEDULE 1
----------
Number of
Underwriters Firm Shares
- ------------ -----------
Lehman Brothers Inc.............................................................
Piper Jaffray, Inc..............................................................
Pacific Growth Equities, Inc....................................................
TOTAL
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION OF FOCAL, INC.
Focal, Inc., a corporation organized and existing under the laws of the
State of Delaware, hereby certifies as follows:
A. The name of the corporation is Focal, Inc. The corporation was
originally incorporated under the name Pegas Pharmaceuticals, Inc. and the
original Certificate of Incorporation of the corporation was filed with the
Secretary of State of the State of Delaware on June 27, 1991.
B. Pursuant to Sections 228, 242 and 245 of the General Corporation Law
of the State of Delaware, this Restated Certificate of Incorporation restates
and integrates and further amends the provisions of the Certificate of
Incorporation of this corporation.
C. The text of the Certificate of Incorporation as heretofore amended or
supplemented is hereby amended and restated in its entirety to read as follows:
ONE. The name of this corporation is Focal, Inc.
TWO. The address of the corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such office is The Corporation
Trust Company.
THREE. The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOUR. This corporation is authorized to issue two classes of stock to be
designated Common Stock and Preferred Stock. The total number of shares of
Common Stock which this corporation has authority to issue is 50,000,000 with
par value of $.01 per share. The total number of shares of Preferred Stock
which this corporation has authority to issue is 30,181,540 with a par value
of $.01 per share. 1,000,000 shares of Preferred Stock are designated Series
A Preferred Stock ("Series A Preferred"), 666,667 shares of Preferred Stock
are designated Series B Preferred Stock ("Series B Preferred"), 4,261,467
shares are designated Series C Preferred Stock ("Series C Preferred"),
7,553,406 shares are designated Series D Preferred Stock ("Series D
Preferred"), and 11,700,000 shares are designated Series E Preferred Stock
("Series E Preferred").
The remaining 5,000,000 shares shall be undesignated Preferred Stock and
may be issued from time to time in one or more series pursuant to a resolution
or resolutions providing for such issue duly adopted by the board of directors
(authority to do so being hereby expressly vested in the board).
<PAGE>
The board of directors is further authorized to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon
any wholly unissued series of Preferred Stock and to fix the number of shares
of any series of Preferred Stock and the designation of any such series of
Preferred Stock. The board of directors, within the limits and restrictions
stated in any resolution or resolutions of the board of directors originally
fixing the number of shares constituting any series, may increase or decrease
(but not below the number of shares in any such series then outstanding) the
number of shares of any series subsequent to the issue of shares of that
series.
The authority of the board of directors with respect to each such class or
series shall include, without limitation of the foregoing, the right to
determine and fix:
(i) the distinctive designation of such class or series and the number
of shares to constitute such class or series;
(ii) the rate at which dividends on the shares of such class or series
shall be declared and paid, or set aside for payment, whether dividends at the
rate so determined shall be cumulative or accruing, and whether the shares of
such class or series shall be entitled to any participating or other dividends
in addition to dividends at the rate so determined, and if so, on what terms;
(iii) the right or obligation, if any, of the Corporation to redeem
shares of the particular class or series of Preferred Stock and, if redeemable,
the price, terms and manner of such redemption;
(iv) the special and relative rights and preferences, if any, and the
amount or amounts per share, which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(v) the terms and conditions, if any, upon which shares of such class or
series shall be convertible into, or exchangeable for, shares of capital stock
of any other class or series, including the price or prices or the rate or rates
of conversion or exchange and the terms of adjustment, if any;
(vi) the obligation, if any, of the Corporation to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund of a
similar nature or otherwise, and the terms and conditions of such obligation;
(vii) voting rights, if any, on the issuance of additional shares of
such class or series or any shares of any other class or series of Preferred
Stock;
(viii) limitations, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred Stock;
and
(ix) such other preferences, powers, qualifications, special or relative
rights and privileges thereof as the board of directors of the Corporation,
acting in accordance with this Certificate of Incorporation, may deem advisable
and are not inconsistent with law and the provisions of this Certificate of
Incorporation.
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The corporation shall from time to time in accordance with the laws of the
State of Delaware increase the authorized amount of its Common Stock if at any
time the number of shares of Common Stock remaining unissued and available for
issuance shall not be sufficient to permit conversion of the Preferred Stock.
The relative powers, preferences, special rights, qualifications,
limitations and restrictions granted to or imposed on the respective classes of
the shares of capital stock or the holders thereof are as follows:
1. Dividends. The holders of the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, and Series E Preferred
shall be entitled, when and if declared by the Board of Directors of the
corporation, to dividends out of the corporation's assets legally available
therefor at the rate of $0.04, $0.06, $0.174, $0.296, and $0.139 per share
per annum, respectively. Dividends on the Preferred Stock shall be payable in
preference and prior to any payment of any dividend on the Common Stock of
the corporation. Thereafter, the holders of Preferred Stock and Common Stock
shall be entitled, when and if declared by the Board of Directors, to
dividends out of the corporation's assets legally available therefor;
provided, however, that no such dividends may be declared or paid on any
shares of Common Stock or Preferred Stock unless at the same time an
equivalent dividend is declared and paid on all outstanding shares of Common
Stock and Preferred Stock; and provided further that the dividend on any
series of any Preferred Stock shall be payable at the same rate per share as
would be payable on the shares of Common Stock or other securities into which
such series of Preferred Stock is convertible immediately prior to the record
date for such dividend. The right to such dividends on shares of the Common
Stock or Preferred Stock shall not be cumulative, and no right shall accrue
to holders of Common Stock or Preferred Stock by reason of the fact that
dividends on said shares are not declared in any prior period.
2. Liquidation Preference.
(a) Preference. In the event of any liquidation, dissolution or
winding up of the corporation, either voluntarily or involuntarily, the
holders of Preferred Stock shall be entitled to receive prior, and in
preference, to any distribution of any of the assets or surplus funds of the
corporation to the holders of Common Stock of the corporation, an amount
equal to (i) $0.50 per share for each share of Series A Preferred then so
held, (ii) $0.75 per share for each share of Series B Preferred then so held,
(iii) $2.18 per share for each share of Series C Preferred then so held,
(iv) $3.70 per share for each share of Series D Preferred then so held, and
(v) $1.74 per share for each share of Series E Preferred then so held, plus a
further amount equal to any dividends declared but unpaid on such shares.
All of the preferential amounts to be paid to the holders of the
Preferred Stock under this Section 2 shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any assets of this corporation to, the holders of the Common
Stock in connection with such liquidation, dissolution or winding up.
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If, upon such liquidation, dissolution or winding up of the
corporation, the assets of the corporation are insufficient to provide for
the cash payment of the full aforesaid preferential amount to the holders of
Preferred Stock, such assets as are available shall be distributed ratably
among the holders of Preferred Stock in proportion to the full preferential
amount each such holder is otherwise entitled to receive.
After the payment or the setting apart of payment to the holders of
the Preferred Stock of the preferential amounts so payable to them, the
holders of Common Stock and Preferred Stock shall be entitled to receive all
remaining assets of this corporation in proportion to the shares of Common
Stock then held by them and the shares of Common Stock which they have the
right to acquire upon conversion of the shares of Preferred Stock then held
by them.
(b) Consolidation or Merger. A merger, consolidation or sale of
all or substantially all of the assets of the corporation which will result
in the corporation's stockholders immediately prior to such transaction not
holding (by virtue of such shares or securities issued solely with respect
thereto) at least 50% of the voting power of the surviving, continuing or
purchasing entity, shall be deemed to be a liquidation, dissolution or
winding up within the meaning of this Section 2; provided, however, that the
foregoing shall not limit the provisions of Section 4(e)(v) below; provided,
further, that any payments made may be made in cash or in securities or other
property received from the acquiring entity or in a combination thereof, on
the closing of such transaction.
(c) Noncash Distributions. If any of the assets of the corporation
are to be distributed other than in cash under this Section 2 or for any
purpose, then the Board of Directors of the corporation shall promptly engage
independent competent appraisers to determine the value of the assets to be
distributed to the holders of Preferred Stock or Common Stock. The
corporation shall, upon receipt of such appraiser's valuation, give prompt
written notice to each holder of shares of Preferred Stock or Common Stock of
the appraiser's valuation. Notwithstanding the above, any securities to be
distributed to the stockholders shall be valued as follows:
(i) If traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange over the 30-day period ending three (3) business days prior to the
closing;
(ii) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid prices over the 30-day period
ending three (3) business days prior to the closing; and
(iii) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the corporation and
the holders of not less than sixty percent (60%) of the outstanding shares of
Preferred Stock, provided that if the corporation and the holders of sixty
percent (60%) of the outstanding shares of Preferred Stock are unable to
reach agreement, then by independent appraisal by an investment banker hired
and paid by the corporation, but acceptable to the holders of at least sixty
percent (60%) of the outstanding shares of Preferred Stock.
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3. Voting Rights.
(a) Preferred Stock. Except as otherwise provided herein or required
by law, the holder of each share of Preferred Stock shall be entitled to vote on
all matters and shall be entitled to the number of votes equal to the number of
shares of Common Stock into which each share of Preferred Stock could be
converted pursuant to Section 4 hereof at the record date for the determination
of the stockholders entitled to vote on such matters or, if no such record date
is established, at the date such vote is taken. Except as otherwise provided
herein or required by law, the Preferred Stock shall have voting rights and
powers equal to the voting rights and powers of the Common Stock. Fractional
votes shall not, however, be permitted and any fractional voting rights
resulting from the above formula shall be rounded to the nearest whole number
(with one-half rounded upward to one).
(b) Common Stock. Each holder of shares of Common Stock shall be
entitled to one vote for each share thereof held.
(c) Election of Directors. Except as set forth below, at each
election of directors in which there are an aggregate of at least 100,000 shares
of Series E Preferred Stock outstanding (as adjusted to reflect stock dividends,
splits, combinations and other recapitalizations), the holders of Series E
Preferred Stock, voting as a separate series, shall be entitled to elect one
member to the board of directors. All other directors shall be elected by the
holders of Common Stock and Preferred Stock voting together on an as-converted
basis in accordance with the provision set forth in Section 3(a) above.
Vacancies in the board of directors may be filled by a majority of the remaining
directors originally elected by the same series, class or classes of shares who
could elect an individual to fill such vacancy on the board of directors, though
less than a quorum, except that a vacancy created by the removal of a director
by the vote or written consent of the stockholders or by court order may be
filled by only the vote of a majority of the outstanding shares entitled to vote
thereon represented at a duly held meeting at which a quorum is present, or by
unanimous written consent of all shares entitled to vote thereon. Each director
so elected shall hold office until the next annual meeting of stockholders and
until a successor has been elected and qualified. The stockholders entitled to
vote thereon may elect a director or directors at any time to fill any vacancy
or vacancies not filled by the directors, but any such election other than to
fill a vacancy created by removal, if by written consent, shall require the
consent of the holders of a majority of the outstanding shares entitled to vote
thereon.
(d) Election by Ballot. The election of directors need not be by
written ballot unless the Bylaws of the corporation shall so provide.
(e) Cumulative Voting. At the election of directors of the
corporation, each holder of stock or of any class or classes or of a series or
series thereof shall be entitled to as many votes as shall equal the number of
votes which (except for such provision as to cumulative voting) he would be
entitled to cast for the election of directors with respect to his shares of
stock multiplied by the number of directors to be elected by him, and he may
cast all of such votes for a single director or
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may distribute them among the number to be voted for, or for any two or more of
them as he may see fit.
4. Conversion. The holders of Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the corporation or any transfer agent
for such Preferred Stock. Each share of Preferred Stock shall be convertible
into the number of shares of Common Stock which results from dividing the
"Conversion Price" per share in effect for such series of Preferred Stock at the
time of conversion into the "Conversion Value" per share of such series of
Preferred Stock. The number of shares of Common Stock into which each series of
Preferred Stock is convertible is hereinafter collectively referred to as the
"Conversion Rate" for such series. The Conversion Price per share of
(i) Series A Preferred shall be $0.50 (ii) Series B Preferred shall be $0.75,
(iii) Series C Preferred shall be $2.02 (iv) Series D Preferred shall be
$2.9871, and (v) Series E Preferred shall be $1.74. The Conversion Value per
share of (i) Series A Preferred shall be $0.50, (ii) Series B Preferred shall be
$0.75, (iii) Series C Preferred shall be $2.18, (iv) Series D Preferred shall be
$3.70 and (v) Series E Preferred shall be $1.74. The Conversion Price of each
series of Preferred Stock shall be subject to adjustment as hereinafter
provided.
(b) Automatic Conversion. Each share of Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Rate immediately upon (i) the closing of an underwritten public
offering of Common Stock pursuant to an effective registration statement under
the Securities Act of 1933, as amended, with (x) managing underwriters approved
in advance by the affirmative vote or written consent of the holders of a
majority of the outstanding shares of Preferred Stock, and (y) net proceeds
(after deducting underwriting discounts and offering expenses) of at least
$20,000,000 or (ii) the affirmative vote or written consent of the holders of at
least 70% of the outstanding shares of Preferred Stock of the corporation,
voting together as a single class.
(c) Mechanics of Conversion. Before any holder of Preferred Stock
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the corporation or of any transfer agent for such Preferred Stock and shall
give written notice to the corporation at such office that he elects to convert
the same. The corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on (i) the date such written notice
is given (provided that such holder's certificate or certificates are delivered
to the corporation within two business days after such notice is given) or (ii)
in any other case, on the date of such surrender of the shares of Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock on such date.
Notwithstanding the foregoing, no written notice of election
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to convert or surrender of certificates shall be required in the event of an
automatic conversion pursuant to Section 4(b).
(d) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Preferred Stock. In lieu of any fractional shares
to which the holder would otherwise be entitled, the corporation shall pay cash
equal to such fraction multiplied by the applicable Conversion Price. Promptly
upon conversion, the corporation shall pay to the holders of shares of Preferred
Stock so converted an amount in cash equal to any declared but unpaid dividends
on the shares of Preferred Stock surrendered for conversion. Notwithstanding
the foregoing, in the event of an automatic conversion pursuant to Section 4(b)
hereof, any fractional shares resulting from such conversion shall be cancelled.
(e) Adjustment of Conversion Price. The Conversion Price of each
series of Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) If the corporation shall issue any Common Stock (other than
"Excluded Stock", as defined below, or stock dividends, subdivisions, split-ups,
combinations or dividends, which are covered by Sections 4(e)(iii), (iv), and
(v)), for a consideration per share less than the Conversion Price for any
series of Preferred Stock in effect immediately prior to the issuance of such
Common Stock, the Conversion Price for such series of Preferred Stock in effect
immediately after each such issuance shall forthwith be adjusted, if shares of
such series of Preferred Stock are outstanding, to a price equal to the quotient
obtained by dividing:
(A) an amount equal to the sum of
(w) the total number of shares of Common Stock
outstanding (including any shares of Common Stock deemed to have been issued
pursuant to subdivision (3) of this Section 4(e)(i) and to Section 4(e)(ii)
below and all shares of Excluded Stock) immediately prior to such issuance
multiplied by the Conversion Price for such series of Preferred Stock in effect
immediately prior to such issuance, plus
(x) the consideration received by the corporation upon
such issuance, by
(B) the total number of shares of Common Stock outstanding
(including any shares of Common Stock deemed to have been issued pursuant to
subdivision (3) of this Section 4(e)(i) and to Section 4(e)(ii) below and all
shares of Excluded Stock) immediately after the issuance of such Common Stock.
For the purposes of any adjustment of a Conversion Price pursuant to this
Section 4(e)(i), the following provisions shall be applicable:
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(1) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
without deducting any discounts or commissions paid or incurred by the
corporation in connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors of the corporation, in accordance with generally accepted
accounting treatment; provided, however, that if, at the time of such
determination, the corporation's Common Stock is traded in the
over-the-counter market or on a national or regional securities exchange,
such fair market value as determined by the Board of Directors of the
corporation shall not exceed the aggregate "Current Market Price" (as defined
below) of the shares of Common Stock being issued.
(3) In the case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock (other than Excluded Stock),
(ii) securities by their terms convertible into or exchangeable for Common
Stock (other than Excluded Stock), or (iii) options to purchase or rights to
subscribe for securities by their terms convertible into or exchangeable for
Common Stock (other than Excluded Stock):
(A) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase or rights
to subscribe for Common Stock shall be deemed to have been issued at the time
such options or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in subdivisions (1) and (2)
above), if any, received by the corporation upon the issuance of such options
or rights plus the minimum purchase price provided in such options or rights
for the Common Stock covered thereby;
(B) the aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities, or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange thereof, shall be deemed to
have been issued at the time such securities were issued or such options or
rights were issued and for a consideration equal to the consideration
received by the corporation for any such securities and related options or
rights (excluding any cash received on account of accrued interest or accrued
dividends), plus the additional consideration, if any, to be received by the
corporation upon the conversion or exchange of such securities or the
exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in subdivisions (1) and (2) above);
(C) on any change in the number of shares of
Common Stock deliverable upon exercise of any such options or rights or
conversion of or exchange for such convertible or exchangeable securities, or
on any change in the minimum purchase price of such options, rights or
securities, other than a change resulting from the antidilution provisions of
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such options, rights or securities, the Conversion Price for such series
shall forthwith be readjusted to such Conversion Price as would have obtained
had the adjustment made upon (x) the issuance of such options, rights or
securities not exercised, converted or exchanged prior to such change, as the
case may be, been made upon the basis of such change or (y) the options or
rights related to such securities not converted or exchanged prior to such
change, as the case may be, been made upon the basis of such change; and
(D) on the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price for such series shall forthwith
be readjusted to such Conversion Price as would have obtained had the
adjustment made upon the issuance of such options, rights, convertible or
exchangeable securities or options or rights related to such convertible or
exchangeable securities, as the case may be, been made upon the basis of the
issuance of only the number of shares of Common Stock actually issued upon
the exercise of such options or rights, upon the conversion or exchange of
such convertible or exchangeable securities or upon the exercise of the
options or rights related to such convertible or exchangeable securities, as
the case may be.
(ii) "Excluded Stock" shall mean:
(A) all shares of Common Stock and Preferred Stock issued
and outstanding on the date hereof;
(B) all shares of Common Stock into which the shares of
Preferred Stock are convertible;
(C) 6,488,000 shares of Common Stock issued or issuable
to employees, officers, consultants or directors of, or licensors of
technology to, the corporation, under any agreement, arrangement or plan,
including any incentive stock plan, approved by the board of directors of the
corporation;
(D) all warrants issued or issuable to the placement
agent(s) in connection with the corporation's Series E Preferred Stock
financing, the securities issuable upon exercise of such warrants and any
Common Stock issuable upon conversion of any convertible securities issuable
upon exercise of such warrants;
(E) all shares of Common Stock issued in the Company's
initial firm commitment underwritten public offering of Common Stock,
provided that such offering results in the conversion of all outstanding
Preferred Stock into Common Stock pursuant to this Certificate of
Incorporation, as now in effect or as may hereafter be amended.
All shares of Excluded Stock shall be deemed to be outstanding for all
purposes of the computations provided for in Section 4(e)(i) above as well as
for purposes of stock dividends,
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subdivisions, split-ups, combinations or dividends which are covered by
Sections 4(e)(iii), (iv) and (v).
(iii) If the number of shares of Common Stock outstanding at
any time after the date hereof is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, on the date such payment is made or such change is effective,
the Conversion Price for the Preferred Stock shall be appropriately decreased
so that the number of shares of Common Stock issuable on conversion of any
shares of the Preferred Stock shall be increased in proportion to such
increase of outstanding shares.
(iv) If the number of shares of Common Stock outstanding at
any time after the date hereof is decreased by a combination of the
outstanding shares of Common Stock, then, on the effective date of such
combination, the Conversion Price for such series shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion
of shares of the Preferred Stock shall be decreased in proportion to such
decrease in outstanding shares.
(v) In case, at any time after the date hereof, of any
capital reorganization, or any reclassification of the stock of the
corporation (other than a change in par value or as a result of a stock
dividend or subdivision, split-up or combination of shares), or the
consolidation or merger of the corporation with or into another person (other
than a consolidation or merger in which the corporation is the continuing
entity and which does not result in any change in the Common Stock), or of
the sale or other disposition of all or substantially all the properties and
assets of the corporation as an entirety to any other person, the shares of
Preferred Stock shall, after such reorganization, reclassification,
consolidation, merger, sale or other disposition, be convertible into the
kind and number of shares of stock or other securities or property or cash of
the corporation or of the entity resulting from such consolidation or
surviving such merger or to which such properties and assets shall have been
sold or otherwise disposed to which such holder would have been entitled if
immediately prior to such reorganization, reclassification, consolidation,
merger, sale or other disposition he had converted his shares of Preferred
Stock into Common Stock. The provisions of this Section 4(e)(v) shall
similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales or other dispositions.
(vi) All calculations under this Section 4 shall be made to
the nearest cent or to the nearest one hundredth (1/100) of a share, as the
case may be.
(vii) For the purpose of any computation pursuant to this
Section 4(e), the "Current Market Price" at any date of one share of Common
Stock shall be deemed to be the average of the highest reported bid and the
lowest reported offer prices on the preceding business day as furnished by
the National Quotation Bureau, Incorporated (or equivalent recognized source
of quotations); provided, however, that if the Common Stock is not traded in
such manner that the quotations referred to in this Section 4(e) are
available for the period required hereunder, Current Market Price shall be
determined in good faith by the Board of Directors of the corporation, but if
challenged by the holders of more than forty percent (40%) of the outstanding
Preferred Stock, then as determined
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by an independent appraiser selected by the Board of Directors of the
corporation, the cost of such appraisal to be borne by the challenging parties.
(f) Minimal Adjustments. No adjustment in a Conversion Price need be
made if such adjustment would result in a change in a Conversion Price of less
than $0.01. Any adjustment of less than $0.01 which is not made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment which, on a cumulative basis, amounts to an adjustment of
$0.01 or more in a Conversion Price.
(g) No Impairment. The corporation will not, through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to be observed or performed
hereunder by the corporation, but will at all times in good faith assist in
the carrying out of all the provisions of this Section 4 and in the taking of
all such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Preferred Stock against impairment. This
provision shall not restrict the corporation from amending its Certificate of
Incorporation in accordance with the General Corporation Law of the State of
Delaware.
(h) Certificate as to Adjustments. Upon the occurrence of each
event requiring adjustment or readjustment of the Conversion Rate pursuant to
this Section 4, the corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare
and furnish to each holder of Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The corporation shall, upon
written request at any time of any holder of Preferred Stock, furnish or
cause to be furnished to such holder a like certificate setting forth (i)
such adjustments and readjustments, (ii) the Conversion Rate at the time in
effect, and (iii) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the
conversion of the Preferred Stock held by such holder.
(i) Notices of Record Date. In the event of any taking by the
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution or to vote on any
merger, consolidation, or sale of assets, the corporation shall mail to each
holder of Preferred Stock and to each holder of outstanding warrants, options
or other rights to acquire Preferred Stock at least twenty (20) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or vote.
(j) Reservation of Stock Issuable Upon Conversion. The corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock solely for the purpose of effecting the
conversion of the outstanding shares of Preferred Stock and all shares of
Preferred Stock issuable upon exercise of outstanding warrants and options
such number of its shares of
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Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Preferred Stock and all shares of
Preferred Stock issuable upon exercise of outstanding warrants and options;
and if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then
outstanding shares of Preferred Stock and all shares of Preferred Stock
issuable upon exercise of outstanding warrants and options, the corporation
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
(k) Notices. Any notice required by the provisions of this Section
4 to be given to the holder of shares of Preferred Stock or warrants, options
or other rights to acquire Preferred Stock shall be deemed given if deposited
in the United States mail, postage prepaid, and addressed to each such holder
of record at his address appearing on the books of the corporation.
5. Protective Provisions. So long as 500,000 shares of the Preferred
Stock shall be outstanding the corporation shall not, without first obtaining
the approval (by vote or written consent, as provided by law) of the holders
of more than sixty percent (60%) of the outstanding shares of Preferred Stock:
(a) Authorized Number. Increase the authorized number of shares of
Common Stock, Preferred Stock or any series of Preferred Stock; or
(b) No Adverse Change. Adversely alter or change the rights,
preferences or privileges of any series of Preferred Stock; or
(c) Create Any New Class or Series. Create any new class or series
of shares having any powers, preferences, or special rights superior to or on a
parity with any series of Preferred Stock as to dividends or assets; or
(d) Dividends. Pay or declare any dividend on any shares of
Preferred Stock or Common Stock; or
(e) Merger or Consolidation. Merge or consolidate with or into any
other corporation, except into or with a wholly owned subsidiary of the
corporation with the requisite stockholder approval; or
(f) Sale of Assets. Sell, convey, or otherwise dispose of, all or
substantially all of the property or business of the corporation;
(g) Section 305. Do any act or thing which would result in the
taxation of the holders of the Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any successor provision); or
(h) Board of Directors. Change the authorized number of directors of
the corporation.
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Notwithstanding the foregoing, the provisions of Section 4(b) hereof shall
not be amended without the approval (by vote or written consent, as provided by
law) of the holders of more than seventy percent (70%) of the outstanding shares
of Preferred Stock.
FIVE. The corporation is to have perpetual existence.
SIX. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend
or repeal the Bylaws of the corporation.
SEVEN. The number of directors which constitute the whole Board of
Directors of the corporation shall be as specified in the Bylaws of the
corporation.
EIGHT. Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provisions contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
NINE. To the fullest extent permitted by the Delaware General
Corporation Law, a director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. Neither any amendment nor repeal of this
Article NINE, nor the adoption of any provision of this Certificate of
Incorporation inconsistent with this Article NINE, shall eliminate or reduce
the effect of this Article NINE in respect of any matter occurring, or any
cause of action, suit or claim that, but for this Article NINE, would accrue
or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
TEN: (a) The corporation shall indemnify each of the corporation's
directors and officers in each and every situation where, under Section 145
of the General Corporation Law of the State of Delaware, as amended from time
to time ("Section 145"), the corporation is permitted or empowered to make
such indemnification. The corporation may, in the sole discretion of the
Board of Directors of the corporation, indemnify any other person who may be
indemnified pursuant to Section 145 to the extent the Board of Directors
deems advisable, as permitted by Section 145. The corporation shall promptly
make or cause to be made any determination required to be made pursuant to
Section 145.
(b) No person shall be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided, however, that the foregoing shall not eliminate or limit the
liability of a director (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 General Corporation Law of the State of
Delaware or (iv) for any transaction from which the director derived an
improper personal benefit. If the General Corporation Law of the State of
Delaware is subsequently amended to further eliminate or limit the liability
of a director, then a director of the corporation, in addition to the
circumstances in which a director is not personally liable as set forth in
the preceding sentence, shall not be liable to the fullest extent permitted
by the amended General
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<PAGE>
Corporation Law of the State of Delaware. For purposes of this Article TEN,
"fiduciary duty as a director" shall include any fiduciary duty arising out
of serving at the corporation's request as a director of another corporation,
partnership, joint venture or other enterprise, and "personal liability to
the corporation or its stockholders" shall include any liability to such
other corporation, partnership, joint venture, trust or other enterprise, and
any liability to the corporation in its capacity as a security holder, joint
venturer, partner, beneficiary, creditor or investor of or in any such other
corporation, partnership, joint venture, trust or other enterprise.
ELEVEN. Advance notice of new business and stockholder nominations for
the election of directors shall be given in the manner and to the extent
provided in the Bylaws of the corporation.
TWELVE. The corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Certificate, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
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<PAGE>
IN WITNESS WHEREOF, the corporation has caused this Certificate to be
signed by David Clapper, its President, and attested by Christopher D.
Mitchell, its Assistant Secretary, this 16 day of October, 1997.
--
FOCAL, INC.
By: /s/ David Clapper
-----------------------------
David Clapper, President
ATTEST:
/s/ Christopher D. Mitchell
- ---------------------------
Christopher D. Mitchell,
Assistant Secretary
<PAGE>
EXHIBIT 3.2
RESTATED CERTIFICATE OF INCORPORATION OF FOCAL, INC.
Focal, Inc., a corporation organized and existing under the laws of the
State of Delaware, hereby certifies as follows:
A. The name of the corporation is Focal, Inc. The corporation was
originally incorporated under the name Pegas Pharmaceuticals, Inc. and the
original Certificate of Incorporation of the corporation was filed with the
Secretary of State of the State of Delaware on June 27, 1991.
B. Pursuant to Sections 228, 242 and 245 of the General Corporation Law
of the State of Delaware, this Restated Certificate of Incorporation restates
and integrates and further amends the provisions of the Certificate of
Incorporation of this corporation.
C. The text of the Certificate of Incorporation as heretofore amended or
supplemented is hereby amended and restated in its entirety to read as follows:
ARTICLE I
The name of this corporation is Focal, Inc.
ARTICLE II
The address of the corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such office is The Corporation
Trust Company.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
This corporation is authorized to issue two classes of stock to be
designated Common Stock and Preferred Stock. The total number of shares of
Common Stock which this corporation has authority to issue is 50,000,000 with
par value of $.01 per share. The total number of shares of Preferred Stock
which this corporation has authority to issue is 5,000,000 with a par value
of $.01 per share.
The shares of Preferred Stock shall be undesignated Preferred Stock and
may be issued from time to time in one or more series pursuant to a
resolution or resolutions providing for such issue duly
<PAGE>
adopted by the board of directors (authority to do so being hereby expressly
vested in the board). The board of directors is further authorized to
determine or alter the rights, preferences, privileges and restrictions
granted to or imposed upon any wholly unissued series of Preferred Stock and
to fix the number of shares of any series of Preferred Stock and the
designation of any such series of Preferred Stock. The board of directors,
within the limits and restrictions stated in any resolution or resolutions of
the board of directors originally fixing the number of shares constituting
any series, may increase or decrease (but not below the number of shares in
any such series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series.
The authority of the board of directors with respect to each such class
or series shall include, without limitation of the foregoing, the right to
determine and fix:
i. the distinctive designation of such class or series and the number
of shares to constitute such class or series;
ii. the rate at which dividends on the shares of such class or series
shall be declared and paid, or set aside for payment, whether dividends at
the rate so determined shall be cumulative or accruing, and whether the
shares of such class or series shall be entitled to any participating or
other dividends in addition to dividends at the rate so determined, and if
so, on what terms;
iii. the right or obligation, if any, of the Corporation to redeem
shares of the particular class or series of Preferred Stock and, if
redeemable, the price, terms and manner of such redemption;
iv. the special and relative rights and preferences, if any, and the
amount or amounts per share, which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
v. the terms and conditions, if any, upon which shares of such class
or series shall be convertible into, or exchangeable for, shares of capital
stock of any other class or series, including the price or prices or the rate
or rates of conversion or exchange and the terms of adjustment, if any;
vi. the obligation, if any, of the Corporation to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund of
a similar nature or otherwise, and the terms and conditions of such
obligation;
vii. voting rights, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred Stock;
viii. limitations, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred
Stock; and
ix. such other preferences, powers, qualifications, special or relative
rights and privileges thereof as the board of directors of the Corporation,
acting in accordance with this Certificate of
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<PAGE>
Incorporation, may deem advisable and are not inconsistent with law and the
provisions of this Certificate of Incorporation.
ARTICLE V
The corporation is to have perpetual existence.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the corporation.
ARTICLE VII
The number of directors which constitute the whole Board of Directors of
the corporation shall be as specified in the Bylaws of the corporation.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be
kept (subject to any provisions contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the Bylaws of the corporation.
ARTICLE IX
Holders of stock of any class or series of the corporation shall not be
entitled to cumulate their votes for the election of directors or any other
matter submitted to a vote of the stockholders.
ARTICLE X
No action shall be taken by the stockholders of the corporation except at
an annual or special meeting of the stockholders called in accordance with
the Bylaws and no action shall be taken by the stockholders by written
consent. The affirmative vote of sixty-six and two thirds percent (662/3%)
of the then outstanding voting securities of the corporation, voting together
as a single class, shall be required for the amendment, repeal or
modification of the provisions of Article IX or X of this Amended and
Restated Certificate of Incorporation or Sections 2.3, 2.5 and 3.2(b) of the
corporation's Bylaws.
ARTICLE XI
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<PAGE>
To the fullest extent permitted by the Delaware General Corporation Law,
a director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. Neither any amendment nor repeal of this Article X nor
the adoption of any provision of this Certificate of Incorporation
inconsistent with this Article X, shall eliminate or reduce the effect of
this Article X in respect of any matter occurring, or any cause of action,
suit or claim that, but for this Article X, would accrue or arise, prior to
such amendment, repeal or adoption of an inconsistent provision.
ARTICLE XII
1. The corporation shall indemnify each of the corporation's directors
and officers in each and every situation where, under Section 145 of the
General Corporation Law of the State of Delaware, as amended from time to
time ("Section 145"), the corporation is permitted or empowered to make such
indemnification. The corporation may, in the sole discretion of the Board of
Directors of the corporation, indemnify any other person who may be
indemnified pursuant to Section 145 to the extent the Board of Directors
deems advisable, as permitted by Section 145. The corporation shall promptly
make or cause to be made any determination required to be made pursuant to
Section 145.
2. No person shall be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided, however, that the foregoing shall not eliminate or limit the
liability of a director (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 General Corporation Law of the State of
Delaware or (iv) for any transaction from which the director derived an
improper personal benefit. If the General Corporation Law of the State of
Delaware is subsequently amended to further eliminate or limit the liability
of a director, then a director of the corporation, in addition to the
circumstances in which a director is not personally liable as set forth in
the preceding sentence, shall not be liable to the fullest extent permitted
by the amended General Corporation Law of the State of Delaware. For
purposes of this Article XI, "fiduciary duty as a director" shall include any
fiduciary duty arising out of serving at the corporation's request as a
director of another corporation, partnership, joint venture or other
enterprise, and "personal liability to the corporation or its stockholders"
shall include any liability to such other corporation, partnership, joint
venture, trust or other enterprise, and any liability to the corporation in
its capacity as a security holder, joint venturer, partner, beneficiary,
creditor or investor of or in any such other corporation, partnership, joint
venture, trust or other enterprise.
ARTICLE XIII
Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided
in the Bylaws of the corporation.
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<PAGE>
ARTICLE XIV
The corporation reserves the right to amend, alter, change or repeal any
provisions contained in this Certificate, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
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<PAGE>
IN WITNESS WHEREOF, the corporation has caused this Certificate to be
signed by David Clapper, its President, and attested by Christopher D.
Mitchell, its Assistant Secretary, this 16 day of October, 1997.
--
FOCAL, INC.
By: /s/ David Clapper
----------------------------------
David Clapper, President
ATTEST:
/s/ Christopher D. Mitchell
- ---------------------------------
Christopher D. Mitchell,
Assistant Secretary
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<PAGE>
Exhibit 3.3
BYLAWS
OF
FOCAL, INC.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
CORPORATE OFFICES........................................................1
1.1 REGISTERED OFFICE...................................................1
1.2 OTHER OFFICES.......................................................1
ARTICLE II
MEETINGS OF STOCKHOLDERS.................................................1
2.1 PLACE OF MEETINGS...................................................1
2.2 ANNUAL MEETING......................................................1
2.3 SPECIAL MEETING.....................................................2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS....................................2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE........................2
2.6 QUORUM..............................................................3
2.7 ADJOURNED MEETING; NOTICE...........................................3
2.8 CONDUCT OF BUSINESS.................................................3
2.9 VOTING..............................................................4
2.10 WAIVER OF NOTICE....................................................4
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.............5
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.........5
2.13 PROXIES.............................................................6
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE...............................7
ARTICLE III
DIRECTORS................................................................7
3.1 POWERS..............................................................7
3.2 NUMBER OF DIRECTORS.................................................7
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.............8
3.4 RESIGNATION AND VACANCIES...........................................8
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE............................9
3.6 REGULAR MEETINGS...................................................10
3.7 SPECIAL MEETINGS; NOTICE...........................................10
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<PAGE>
3.8 QUORUM.............................................................11
3.9 WAIVER OF NOTICE...................................................11
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING..................11
3.11 FEES AND COMPENSATION OF DIRECTORS.................................12
3.12 APPROVAL OF LOANS TO OFFICERS......................................12
3.13 REMOVAL OF DIRECTORS...............................................12
ARTICLE IV
COMMITTEES..............................................................13
4.1 COMMITTEES OF DIRECTORS............................................13
4.2 COMMITTEE MINUTES..................................................14
4.3 MEETINGS AND ACTION OF COMMITTEES..................................14
ARTICLE V
OFFICERS................................................................14
5.1 OFFICERS...........................................................14
5.2 APPOINTMENT OF OFFICERS............................................15
5.3 SUBORDINATE OFFICERS...............................................15
5.4 REMOVAL AND RESIGNATION OF OFFICERS................................15
5.5 VACANCIES IN OFFICES...............................................15
5.6 CHAIRMAN OF THE BOARD..............................................16
5.7 PRESIDENT..........................................................16
5.8 VICE PRESIDENTS....................................................16
5.9 SECRETARY..........................................................17
5.10 CHIEF FINANCIAL OFFICER............................................17
5.11 ASSISTANT SECRETARY................................................18
5.12 ASSISTANT TREASURER................................................18
5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.....................18
5.14 AUTHORITY AND DUTIES OF OFFICERS...................................19
ARTICLE VI
INDEMNITY...............................................................19
6.1 THIRD PARTY ACTIONS................................................19
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION......................20
6.3 SUCCESSFUL DEFENSE.................................................20
6.4 DETERMINATION OF CONDUCT...........................................21
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<PAGE>
6.5 PAYMENT OF EXPENSES IN ADVANCE.....................................21
6.6 INDEMNITY NOT EXCLUSIVE............................................21
6.7 INSURANCE INDEMNIFICATION..........................................22
6.8 THE CORPORATION....................................................22
6.9 EMPLOYEE BENEFIT PLANS.............................................22
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES........23
ARTICLE VII
RECORDS AND REPORTS.....................................................23
7.1 MAINTENANCE AND INSPECTION OF RECORDS..............................23
7.2 INSPECTION BY DIRECTORS............................................24
7.3 ANNUAL STATEMENT TO STOCKHOLDERS...................................24
ARTICLE VIII
GENERAL MATTERS.........................................................25
8.1 CHECKS.............................................................25
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS...................25
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.............................25
8.4 SPECIAL DESIGNATION ON CERTIFICATES................................26
8.5 LOST CERTIFICATES..................................................26
8.6 CONSTRUCTION; DEFINITIONS..........................................27
8.7 DIVIDENDS..........................................................27
8.8 FISCAL YEAR........................................................27
8.9 SEAL...............................................................28
8.10 TRANSFER OF STOCK..................................................28
8.11 STOCK TRANSFER AGREEMENTS..........................................28
8.12 REGISTERED STOCKHOLDERS............................................28
ARTICLE IX
AMENDMENTS..............................................................29
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<PAGE>
BYLAWS
OF
FOCAL, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such designation
the annual meeting of shareholders shall be held on the second Monday of May of
each year at 10:00 a.m. However, if such day falls on a legal holiday, then
the meeting shall be held at the same time and place on the next
<PAGE>
succeeding business day. At the meeting, directors shall be elected and any
other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more stockholders holding shares in the aggregate entitled to cast not
less than ten percent of the votes at that meeting.
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 time of such
meeting and 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, the president or the
secretary of the corporation. No business may be transacted at such special
meeting otherwise than specified in such notice. The officer receiving the
request shall cause notice to be promptly given to the stockholders entitled to
vote, in accordance with the provisions of Sections 2.4 and 2.5 of this
Article II, that a meeting will be held at the time requested by the person or
persons calling the meeting, not less than ten (10) nor more than sixty (60)
days after the receipt of the request. Nothing contained in this paragraph of
this Section 2.3 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.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these bylaws 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. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
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<PAGE>
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the Secretary or an Assistant Secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 QUORUM
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then either (i) the Chairman of the meeting or (ii) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.8 CONDUCT OF BUSINESS
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including
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<PAGE>
such regulation of the manner of voting and the conduct of business.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.12 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.9, or as may be
otherwise provided in the certificate of incorporation, each stockholder shall
be entitled to one vote for each share of capital stock held by such
stockholder.
At a stockholders' meeting at which directors are to be elected, each
stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such stockholder normally
is entitled to cast) if the candidates' names have been properly placed in
nomination (in accordance with these bylaws) prior to commencement of the voting
and the stockholder requesting cumulative voting or any other stockholder voting
at the meeting in person or by proxy has given notice prior to commencement of
the voting of the stockholder's intention to cumulate votes. If cumulative
voting is properly requested, each holder of stock, or of any class or classes
or of a series or series thereof, who elects to cumulate votes shall be entitled
to as many votes as equals the number of votes which (absent this provision as
to cumulative voting) he would be entitled to cast for the election of directors
with respect to his shares of stock multiplied by the number of directors to be
elected by him, and he may cast all of such votes for a single director or may
distribute them among the number to be voted for, or for any two or more of
them, as he may see fit.
2.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by
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<PAGE>
the person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the certificate of incorporation or these
bylaws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any action
required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. 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 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 notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corpo-
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<PAGE>
rate action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action.
If the board of directors does not so fix a record date:
(i) 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.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the day on which the
first written consent is expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
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.
2.13 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual
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<PAGE>
signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(c) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. Such list shall
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
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The number of directors of the corporation shall be not less than three (3)
nor more than five (5). The exact number of directors shall be three (3) until
changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the stockholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number by a duly adopted amendment to the
certificate of incorporation or by an amendment to this bylaw duly adopted by
the vote or written consent of the holders of a majority of the stock issued and
outstanding and entitled to vote.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his successor is elected and qualified
or until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the attention of
the Secretary of the corporation. When one or more directors so resigns and the
resignation is 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 as provided in this section in the filling of other vacancies.
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Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent 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 office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
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The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
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3.8 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A 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 or committee, as the case may be, consent thereto in
writing and
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the writing or writings are filed with the minutes of proceedings of the board
or committee.
3.11 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.
3.12 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.13 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors; provided, however, that, so long
as shareholders of the corporation are entitled to cumulative voting, if less
than the entire board is to be removed, no director may be removed without cause
if the votes cast against his removal would be sufficient to elect him if then
cumulatively voted at an election of the entire board of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
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ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a 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. Any such committee, to the extent provided in the resolution of the
board of directors or in the bylaws of the corporation, 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 that may require it; but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series), (ii) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the General Corporation Law of
Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all
or substantially all of the corporation's property and assets, (iv) recommend to
the stockholders a dissolution of the corporation or a revocation of a
dissolution, or (v) amend the bylaws of the corporation; and, unless the board
resolution establishing the
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committee, the bylaws or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.6 (regular meetings),
Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9
(waiver of notice), and Section 3.10 (action without a meeting), with such
changes in the context of those bylaws as are necessary to substitute the
committee and its members for the board of directors and its members; provided,
however, that the time of regular meetings of committees may be determined
either by resolution of the board of directors or by resolution of the
committee, that special meetings of committees may also be called by resolution
of the board of directors and that notice of special meetings of committees
shall also be given to all alternate members, who shall have the right to attend
all meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, a secretary, and a
chief financial officer. The corporation may also have, at the discretion of
the board of directors, a chairman of the board, one or more vice presidents,
one or more assistant vice
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presidents, one or more assistant secretaries, one or more assistant treasurers,
and any such other officers as may be appointed in accordance with the
provisions of Section 5.3 of these bylaws. Any number of offices may be held by
the same person.
5.2 APPOINTMENT OF OFFICERS
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be appointed by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
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Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
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5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at stockholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the board of directors.
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He shall disburse the funds of the corporation as may be ordered by the board of
directors, shall render to the president and directors, whenever they request
it, an account of all his transactions as chief financial officer and of the
financial condition of the corporation, and shall have other powers and perform
such other duties as may be prescribed by the board of directors or these
bylaws.
The chief financial officer shall be the treasurer of the corporation.
5.11 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as may be
prescribed by the board of directors or these bylaws.
5.12 ASSISTANT TREASURER
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the chief financial officer or in the event of his or
her inability or refusal to act, perform the duties and exercise the powers of
the chief financial officer and shall perform such other duties and have such
other powers as may be prescribed by the board of directors or these bylaws.
5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or
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corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
5.14 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 THIRD PARTY ACTIONS
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement (if such
settlement is approved in advance by the corporation, which approval shall
not be unreasonably withheld) actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, create a presumption that the person did not act in good faith and
in a manner which he reasonably believed to be in or not opposed to the
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best interest of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee
or agent of corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) and amounts paid in settlement (if such
settlement is approved in advance by the corporation, which approval shall
not be unreasonably withheld) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
in good faith and in manner he reasonably believed to be in or not opposed to
the best interests of the corporation, except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to
the extent that the Delaware Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Delaware Court of Chancery or such other court shall deem proper.
Notwithstanding any other provision of this Article VI, no person shall be
indemnified hereunder for any expenses or amounts paid in settlement with
respect to any action to recover short-swing profits under Section 16(b) of
the Securities Exchange Act of 1934, as amended.
6.3 SUCCESSFUL DEFENSE
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including
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attorneys' fees) actually and reasonably incurred by him in connection
therewith.
6.4 DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court)
shall be made by the corporation only as authorized in the specific case upon a
determination that the indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in Sections 6.1 and 6.2. Such determination shall be made
(1) by the Board of Directors or the Executive Committee by a majority vote of a
quorum consisting of directors who were not parties to such action, suit or
proceeding or (2) or 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, or (3) by the stockholders. Notwithstanding the foregoing, a
director, officer, employee or agent of the Corporation shall be entitled to
contest any determination that the director, officer, employee or agent has not
met the applicable standard of conduct set forth in Sections 6.1 and 6.2 by
petitioning a court of competent jurisdiction.
6.5 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending a civil or criminal action, suit or
proceeding, by an individual who may be entitled to indemnification pursuant to
Section 6.1 or 6.2, shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided by or granted
pursuant to the other sections of this Article VI shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested direc-
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tors or otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office.
6.7 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article VI.
6.8 THE CORPORATION
For purposes of this Article VI, references to "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 and subject to the provisions of this Article VI (including,
without limitation the provisions of Section 6.4) with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, 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
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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 Article VI.
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive officer or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent so to act on
behalf of the stockholder. The demand under oath shall be directed to the
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<PAGE>
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
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<PAGE>
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the board
of directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the chief
financial officer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signa-
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<PAGE>
tures on the certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate has ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent
or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
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<PAGE>
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained in
(i) the General Corporation Law of Delaware or (ii) the certificate of
incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
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<PAGE>
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The corporation may adopt a corporate seal, which shall be adopted and
which may be altered by the board of directors, and may use the same by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
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.
8.12 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, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another 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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<PAGE>
ARTICLE IX
AMENDMENTS
The bylaws of the corporation may be adopted, amended or repealed by the
stockholders entitled to vote; provided, however, that the corporation may, in
its certificate of incorporation, confer the power to adopt, amend or repeal
bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal bylaws.
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<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
PEGASUS PHARMACEUTICALS, INC.
Adoption by Incorporator
The undersigned person appointed in the Certificate of Incorporation to act
as the Incorporator of Pegasus Pharmaceuticals, Inc. hereby adopts the foregoing
Bylaws, comprising twenty-five (25) pages, as the Bylaws of the corporation.
Executed this 28th day of June, 1991.
/s/Stephen C. Rowe
-------------------
Stephen C. Rowe, Incorporator
Certificate by Secretary of Adoption by Incorporator
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of Pegasus Pharmaceuticals, Inc. and that the foregoing
Bylaws, comprising twenty-five (25) pages, were adopted as the Bylaws of the
corporation on June 28 , 1991, by the person appointed in the Certificate of
Incorporation to act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this 28th day of June, 1991.
/s/ Mario M. Rosati
-------------------
Mario M. Rosati, Secretary
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<PAGE>
EXHIBIT 3.4
BYLAWS
OF
FOCAL, INC.
(a Delaware corporation)
As amended and restated effective , 1997
------------
<PAGE>
BYLAWS OF
FOCAL, INC.
(a Delaware corporation)
TABLE OF CONTENTS
Page
ARTICLE I - CORPORATE OFFICES............................................ 1
1.1 Registered Office................................................. 1
1.2 Other Offices..................................................... 1
ARTICLE II - MEETINGS OF STOCKHOLDERS.................................... 1
2.1 Place of Meetings................................................. 1
2.2 Annual Meeting.................................................... 1
2.3 Special Meeting................................................... 1
2.4 Notice of Stockholders' Meetings.................................. 2
2.5 Advance Notice of Stockholder Nominees and Stockholder Business... 2
2.6 Manner of Giving Notice; Affidavit of Notice...................... 3
2.7 Quorum............................................................ 4
2.8 Adjourned Meeting; Notice......................................... 4
2.9 Voting............................................................ 4
2.10 Stockholder Action by Written Consent Without a Meeting........... 5
2.11 Record Date for Stockholder Notice; Voting........................ 5
2.12 Proxies........................................................... 6
2.13 Organization...................................................... 6
2.14 List of Stockholders Entitled to Vote............................. 6
2.15 Waiver of Notice.................................................. 7
ARTICLE III - DIRECTORS.................................................. 7
3.1 Powers............................................................ 7
3.2 Number of Directors............................................... 7
3.3 Election and Term of Office of Directors.......................... 7
3.4 Resignation and Vacancies......................................... 8
3.5 Removal of Directors.............................................. 9
3.6 Place of Meetings; Meetings by Telephone.......................... 9
3.7 First Meetings.................................................... 9
3.8 Regular Meetings.................................................. 9
3.9 Special Meetings; Notice.......................................... 10
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<PAGE>
TABLE OF CONTENTS
(Continued)
Page
3.10 Quorum............................................................ 10
3.11 Waiver of Notice.................................................. 10
3.12 Adjournment....................................................... 10
3.13 Notice of Adjournment............................................. 11
3.14 Board Action by Written Consent Without a Meeting................. 11
3.15 Fees and Compensation of Directors................................ 11
3.16 Approval of Loans to Officers..................................... 11
3.17 Sole Director Provided by Certificate of Incorporation ........... 11
ARTICLE IV COMMITTEES................................................... 12
4.1 Committees of Directors........................................... 12
4.2 Meetings and Action of Committees................................. 12
4.3 Committee Minutes................................................. 13
ARTICLE V OFFICERS...................................................... 13
5.1 Officers.......................................................... 13
5.2 Election of Officers.............................................. 13
5.3 Subordinate Officers.............................................. 13
5.4 Removal and Resignation of Officers............................... 13
5.5 Vacancies in Offices.............................................. 14
5.6 Chairman of the Board............................................. 14
5.7 President......................................................... 14
5.8 Vice Presidents................................................... 14
5.9 Secretary......................................................... 15
5.10 Chief Financial Officer........................................... 15
5.11 Assistant Secretary............................................... 15
5.12 Administrative Officers........................................... 16
5.13 Authority and Duties of Officers.................................. 16
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS............................................ 16
6.1 Indemnification of Directors and Officers......................... 16
6.2 Indemnification of Others......................................... 17
6.3 Insurance......................................................... 17
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<PAGE>
TABLE OF CONTENTS
(Continued)
Page
ARTICLE VII - RECORDS AND REPORTS........................................ 18
7.1 Maintenance and Inspection of Records............................. 18
7.2 Inspection by Directors........................................... 18
7.3 Annual Statement to Stockholders.................................. 18
7.4 Representation of Shares of Other Corporations.................... 18
7.5 Certification and Inspection of Bylaws............................ 19
ARTICLE VIII - GENERAL MATTERS........................................... 19
8.1 Record Date for Purposes Other than Notice and Voting ............ 19
8.2 Checks; Drafts; Evidences of Indebtedness......................... 19
8.3 Corporate Contracts and Instruments: How Executed................ 19
8.4 Stock Certificates; Transfer; Partly Paid Shares.................. 20
8.5 Special Designation on Certificates............................... 21
8.6 Lost Certificates................................................. 21
8.7 Transfer Agents and Registrars.................................... 21
8.8 Construction; Definitions......................................... 21
ARTICLE IX - AMENDMENTS.................................................. 22
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<PAGE>
BYLAWS
OF
FOCAL, INC.
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the
certificate of incorporation of the corporation.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside
the State of Delaware designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the third
Wednesday in November in each year at 9:00 a.m. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on the
next succeeding full business day. At the meeting, directors shall be elected,
and any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more stockholders holding shares in
<PAGE>
the aggregate entitled to cast not less than ten percent (10%) of the votes at
that meeting. No other person or persons are permitted to call a special
meeting.
If a special meeting is called by any person or persons other than the
board of directors, then the request shall be in writing, specifying the time of
such meeting and 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, the president, or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the stockholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.6 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 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.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be sent or otherwise
given in accordance with Section 2.6 of these bylaws not less than ten (10) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date and hour of the meeting and (i) in the case of a special
meeting, the purpose or purposes for which the meeting is called (no business
other than that specified in the notice may be transacted) or (ii) in the case
of the annual meeting, those matters which the board of directors, at the time
of giving the notice, intends to present for action by the stockholders (but any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
Subject to the rights of holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation,
(a) nominations for the election of directors, and
(b) business proposed to be brought before any stockholder meeting
may be made by the board of directors or proxy committee appointed by the board
of directors or by any stockholder entitled to vote in the election of directors
generally if such nomination or business proposed is otherwise proper business
before such meeting. However, any such stockholder may nominate one or more
persons for election as directors at a meeting or propose business to be brought
before a meeting, or both, only if such stockholder has given timely notice in
proper written form of their intent to make such nomination or nominations or to
propose such business. To be timely, such stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation not less than one hundred
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<PAGE>
twenty (120) calendar days in advance of the date specified in the corporation's
proxy statement released to stockholders in connection with the previous year's
annual meeting of stockholders; provided, however, that in the event that no
annual meeting was held in the previous year or the date of the annual meeting
has been changed by more than thirty (30) days from the date contemplated at the
time of the previous year's proxy statement, notice by the stockholder to be
timely must be so received a reasonable time before the solicitation is made.
To be in proper form, a stockholder's notice to the secretary shall set forth:
(i) the name and address of the stockholder who
intends to make the nominations or propose the business and, as the
case may be, of the person or persons to be nominated or of the
business to be proposed;
(ii) a representation that the stockholder is a holder
of record of stock of the corporation entitled to vote at such meeting
and, if applicable, intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or
each matter of business to be proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission had the nominee
been nominated, or intended to be nominated, or the matter been
proposed, or intended to be proposed by the board of directors; and
(v) if applicable, the consent of each nominee to
serve as director of the corporation if so elected.
The chairman of the meeting shall refuse to acknowledge the nomination of
any person or the proposal of any business not made in compliance with the
foregoing procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. Notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
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<PAGE>
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 QUORUM
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting in accordance
with Section 2.7 of these bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the certificate of incorporation or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of the question.
If a quorum be initially present, the stockholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time and place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of
incorporation or these bylaws, each stockholder shall be entitled to one vote
for each share of capital stock held by such stockholder and stockholders shall
not be entitled to cumulate their votes in the election of directors or with
respect to any matter submitted to a vote of the stockholders.
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<PAGE>
Notwithstanding the foregoing, if the stockholders of the corporation
are entitled, pursuant to Sections 2115 and 301.5 of the California Corporations
Code, to cumulate their votes in the election of directors, each such
stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes that such stockholder normally
is entitled to cast) only if the candidates' names have been properly placed in
nomination (in accordance with these bylaws) prior to commencement of the
voting, and the stockholder requesting cumulative voting has given notice prior
to commencement of the voting of the stockholder's intention to cumulate votes.
If cumulative voting is properly requested, each holder of stock, or of any
class or classes or of a series or series thereof, who elects to cumulate votes
shall be entitled to as many votes as equals the number of votes that (absent
this provision as to cumulative voting) he or she would be entitled to cast for
the election of directors with respect to his or her shares of stock multiplied
by the number of directors to be elected by him, and he or she may cast all of
such votes for a single director or may distribute them among the number to
be voted for, or for any two or more of them, as he or she may see fit.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the Certificate of Incorporation, any
action required or permitted to be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents 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. Such consents shall be delivered to the corporation by delivery to it
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.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.
If the board of directors does not so fix a record date, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new
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<PAGE>
record date for the adjourned meeting, but the board of directors shall fix a
new record date if the meeting is adjourned for more than thirty (30) days from
the date set for the original meeting.
The record date for any other purpose shall be as provided in Section
8.1 of these bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation, but no such proxy shall be voted or acted upon after three
(3) years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission, telefacsimile or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the General Corporation Law of
Delaware.
2.13 ORGANIZATION
The president, or in the absence of the president, the chairman of the
board, or, in the absence of the president and the chairman of the board, one of
the corporation's vice presidents, shall call the meeting of the stockholders to
order, and shall act as chairman of the meeting. In the absence of the
president, the chairman of the board, and all of the vice presidents, the
stockholders shall appoint a chairman for such meeting. The chairman of any
meeting of stockholders shall determine the order of business and the procedures
at the meeting, including such matters as the regulation of the manner of voting
and the conduct of business. The secretary of the corporation shall act as
secretary of all meetings of the stockholders, but in the absence of the
secretary at any meeting of the stockholders, the chairman of the meeting may
appoint any person to act as secretary of the meeting.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
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2.15 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and to any limitations in the certificate of incorporation or these bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
3.2 NUMBER OF DIRECTORS
(a) The board of directors shall consist of eight (8) members. The
number of directors may be changed by an amendment to this bylaw, duly adopted
by the board of directors or by the stockholders, or by a duly adopted amendment
to the certificate of incorporation.
(b) Upon the closing of the first sale of the corporation's common
stock pursuant to a firmly underwritten registered public offering (the "IPO"),
the directors shall be divided into three classes, with the term of office of
the first class, which class shall initially consist of two directors, to expire
at the first annual meeting of stockholders held after the IPO; the term of
office of the second class, which class shall initially consist of two
directors, to expire at the second annual meeting of stockholders held after the
IPO; the term of office of the third class, which class shall initially consist
of three directors, to expire at the third annual meeting of stockholders held
after the IPO; and thereafter for each such term to expire at each third
succeeding annual meeting of stockholders held after such election.
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3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office as provided in
Section 3.2 of these bylaws. Each director, including a director elected or
appointed to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the resignation
becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote of
the stockholders or by court order may be filled only by the affirmative vote of
a majority of the shares represented and voting at a duly held meeting at which
a quorum is present (which shares voting affirmatively also constitute a
majority of the required quorum). Each director so elected shall hold office
for a term expiring at the next annual meeting of the stockholders at which the
term of office of the class to which such director has been elected expires.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding
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at least ten (10) percent 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 office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that, if and so long as stockholders of the corporation are entitled to
cumulative voting, if less than the entire board is to be removed, no director
may be removed without cause if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the entire
board of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of Delaware that has been designated from time to
time by resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of Delaware that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting of the board, regular or special, may be held by
conference telephone or similar communication equipment, so long as all
directors participating in the meeting can hear one another; and all such
participating directors shall be deemed to be present in person at the meeting.
3.7 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be
held at such time and place as shall be fixed by the vote of the stockholders at
the annual meeting. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.8 REGULAR MEETINGS
Regular meetings of the board of directors may be held without
notice at such time as shall from time to time be determined by the board of
directors. If any regular meeting day shall fall on a legal
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holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day.
3.9 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telecopy or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, telecopy or telegram, it shall be
delivered personally or by telephone or to the telegraph company at least
forty-eight (48) hours before the time of the holding of the meeting. Any oral
notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or the place of the meeting, if the meeting
is to be held at the principal executive office of the corporation.
3.10 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in
Section 3.12 of these bylaws. Every act or decision done or made by a majority
of the directors present at a duly held meeting at which a quorum is present
shall be regarded as the act of the board of directors, subject to the
provisions of the certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the quorum for that meeting.
3.11 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice, whether before or after the meeting, or (ii) who attends the
meeting other than for the express purposed of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. All such waivers shall be filed with the corporate records
or made part of the minutes of the meeting. A waiver of notice need not specify
the purpose of any regular or special meeting of the board of directors.
3.12 ADJOURNMENT
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A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting of the board to another time and place.
3.13 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting of the
board need not be given unless the meeting is adjourned for more than
twenty-four (24) hours. If the meeting is adjourned for more than twenty-four
(24) hours, then notice of the time and place of the adjourned meeting shall be
given before the adjourned meeting takes place, in the manner specified in
Section 3.9 of these bylaws, to the directors who were not present at the time
of the adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board of directors.
3.15 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.16 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION
In the event only one director is required by these bylaws or the
certificate of incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the directors
shall be deemed to refer to such notice, waiver, etc., by such sole
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director, who shall have all the rights and duties and shall be entitled to
exercise all of the powers and shall assume all the responsibilities otherwise
herein described as given to the board of directors.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of
the authorized number of directors, designate one (1) or more committees,
each consisting of two or more directors, to serve at the pleasure of the
board. The board may designate one (1) or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. The appointment of members or alternate members of
a committee requires the vote of a majority of the authorized number of
directors. Any committee, to the extent provided in the resolution of the
board, shall have and may exercise all the powers and authority of the board,
but no such committee shall have the power or authority to (i) amend the
certificate of incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the board of directors as provided in Section
151(a) of the General Corporation Law of Delaware, fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other class or
classes of stock of the corporation), (ii) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the General Corporation Law of
Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a
revocation of a dissolution or (v) amend the bylaws of the corporation; and,
unless the board resolution establishing the committee, the bylaws or the
certificate of incorporation expressly so provide, no such committee shall
have the power or authority to declare a dividend, to authorize the issuance
of stock, or to adopt a certificate of ownership and merger pursuant to
Section 253 of the General Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held
and taken in accordance with, the following provisions of Article III of
these bylaws: Section 3.6 (place of meetings; meetings by telephone), Section
3.8 (regular meetings), Section 3.9 (special meetings; notice), Section 3.10
(quorum), Section 3.11 (waiver of notice), Section 3.12 (adjournment),
Section 3.13 (notice of adjournment) and Section 3.14 (board action by
written consent without meeting), with such changes in the context of those
bylaws as are necessary to substitute the committee and its members for the
board of directors and its members; provided, however, that the time of
regular meetings of committees may be determined either by resolution of the
board of directors or by resolution of the committee, that special meetings
of committees may also be called by resolution of the board of directors, and
that notice of special meetings of committees shall also be given to all
alternate members, who shall have the right to
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attend all meetings of the committee. The board of directors may adopt rules
for the government of any committee not inconsistent with the provisions of
these bylaws.
4.3 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
ARTICLE V
OFFICERS
5.1 OFFICERS
The Corporate Officers of the corporation shall be a president, a
secretary and a chief financial officer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more vice
presidents (however denominated), one or more assistant secretaries, a treasurer
and one or more assistant treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 5.3 of these bylaws. Any
number of offices may be held by the same person.
In addition to the Corporate Officers of the Company described above,
there may also be such Administrative Officers of the corporation as may be
designated and appointed from time to time by the president of the corporation
in accordance with the provisions of Section 5.12 of these bylaws.
5.2 ELECTION OF OFFICERS
The Corporate Officers of the corporation, except such officers as may
be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board of directors, subject to the rights,
if any, of an officer under any contract of employment, and shall hold their
respective offices for such terms as the board of directors may from time to
time determine.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other Corporate Officers as the business of the corporation may
require, each of whom shall hold office for such period, have such power and
authority, and perform such duties as are provided in these bylaws or as the
board of directors may from time to time determine.
The president may from time to time designate and appoint
Administrative Officers of the corporation in accordance with the provisions of
Section 5.12 of these bylaws.
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5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of a Corporate Officer under any
contract of employment, any Corporate Officer may be removed, either with or
without cause, by the board of directors at any regular or special meeting of
the board or, except in case of a Corporate Officer chosen by the board of
directors, by any Corporate Officer upon whom such power of removal may be
conferred by the board of directors.
Any Corporate Officer may resign at any time by giving written notice
to the corporation. Any resignation shall take effect at the date of the
receipt of that notice or at any later time specified in that notice; and,
unless otherwise specified in that notice, the acceptance of the resignation
shall not be necessary to make it effective. Any resignation is without
prejudice to the rights, if any, of the corporation under any contract to which
the Corporate Officer is a party.
Any Administrative Officer designated and appointed by the president
may be removed, either with or without cause, at any time by the president. Any
Administrative Officer may resign at any time by giving written notice to the
president or to the secretary of the corporation.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise such other
powers and perform such other duties as may from time to time be assigned to him
by the board of directors or as may be prescribed by these bylaws. If there is
no president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction and control of the business and the officers of the corporation. He
or she shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He or she shall have the general powers and duties of management
usually vested in the office of president of a corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.
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5.8 VICE PRESIDENTS
In the absence or disability of the president, and if there is no
chairman of the board, the vice presidents, if any, in order of their rank as
fixed by the board of directors or, if not ranked, a vice president designated
by the board of directors, shall perform all the duties of the president and
when so acting shall have all the powers of, and be subject to all the
restrictions upon, the president. The vice presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them respectively by the board of directors, these bylaws, the president or the
chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of the board
of directors, committees of directors and stockholders. The minutes shall show
the time and place of each meeting, whether regular or special (and, if special,
how authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable
times be open to inspection by any director for a purpose reasonably related to
his position as a director.
The chief financial officer shall deposit all money and other
valuables in the name and to the credit of the corporation with such
depositaries as may be designated by the board of directors. He or she shall
disburse the funds of the corporation as may be ordered by the board of
directors, shall render to the president and directors, whenever they request
it, an account of all of his or her transactions
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as chief financial officer and of the financial condition of the corporation,
and shall have such other powers and perform such other duties as may be
prescribed by the board of directors or these bylaws.
5.11 ASSISTANT SECRETARY
The assistant secretary, if any, or, if there is more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
5.12 ADMINISTRATIVE OFFICERS
In addition to the Corporate Officers of the corporation as provided
in Section 5.1 of these bylaws and such subordinate Corporate Officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be such
Administrative Officers of the corporation as may be designated and appointed
from time to time by the president of the corporation. Administrative Officers
shall perform such duties and have such powers as from time to time may be
determined by the president or the board of directors in order to assist the
Corporate Officers in the furtherance of their duties. In the performance of
such duties and the exercise of such powers, however, such Administrative
Officers shall have limited authority to act on behalf of the corporation as the
board of directors shall establish, including but not limited to limitations on
the dollar amount and on the scope of agreements or commitments that may be made
by such Administrative Officers on behalf of the corporation, which limitations
may not be exceeded by such individuals or altered by the president without
further approval by the board of directors.
5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing powers, authority and duties, all
officers of the corporation shall respectively have such authority and powers
and perform such duties in the management of the business of the corporation as
may be designated from time to time by the board of directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware as the same now exists or
may hereafter be amended, indemnify any person against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred in connection with any threatened, pending or completed
action, suit, or proceeding in which such person was or is a party or is
threatened to be made a party by reason of the fact that such
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person is or was a director or officer of the corporation. For purposes of this
Section 6.1, a "director" or "officer" of the corporation shall mean any person
(i) who is or was a director or officer of the corporation, (ii) who is or was
serving at the request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, or (iii) who
was a director or officer of a corporation which was a predecessor corporation
of the corporation or of another enterprise at the request of such predecessor
corporation.
The corporation shall be required to indemnify a director or officer
in connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
Board of Directors of the corporation.
The corporation shall pay the expenses (including attorney's fees)
incurred by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it should ultimately be determined that the director of officer is
not entitled to be indemnified under this Section 6.1 or otherwise.
The rights conferred on any person by this Article shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the corporation's Certificate of Incorporation,
these bylaws, agreement, vote of the stockholders or disinterested directors or
otherwise.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit, or
proceeding, in which such person was or is a party or is threatened to be made a
party by reason of the fact that such person is or was an employee or agent of
the corporation. For purposes of this Section 6.2, an "employee" or "agent" of
the corporation (other than a director or officer) shall mean any person (i) who
is or was an employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
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6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine (and to make copies of)
the corporation's stock ledger, a list of its stockholders and its other books
and records for a purpose reasonably related to his or her position as a
director.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at
any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
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<PAGE>
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, if any, the president, any vice president,
the chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of the
stock of any other corporation or corporations standing in the name of this
corporation. The authority herein granted may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
7.5 CERTIFICATION AND INSPECTION OF BYLAWS
The original or a copy of these bylaws, as amended or otherwise
altered to date, certified by the secretary, shall be kept at the corporation's
principal executive office and shall be open to inspection by the stockholders
of the corporation, at all reasonable times during office hours.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix, in advance, a record date, which shall not
precede the date upon which the resolution fixing the record date is adopted and
which shall not be more than sixty (60) days before any such action. In that
case, only stockholders of record at the close of business on the date so fixed
are entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided by law.
If the board of directors does not so fix a record date, then the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
applicable resolution.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
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<PAGE>
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize and empower any officer or officers, or agent or agents, to enter
into any contract or execute any instrument in the name of and on behalf of the
corporation; such power and authority may be general or confined to specific
instances. Unless so authorized or ratified by the board of directors or within
the agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not
apply to shares represented by a certificate until such certificate is
surrendered to the corporation. Notwithstanding the adoption of such a
resolution by the board of directors, every holder of stock represented by
certificates and, upon request, every holder of uncertificated shares, shall
be entitled to have a certificate signed by, or in the name of the
corporation by, the chairman or vice-chairman of the board of directors, or
the president or vice-president, and by the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of such corporation
representing the number of shares registered in certificate form. Any or all
of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be
issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
Certificates for shares shall be of such form and device as the board
of directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of transfer, if any; a statement as
to any applicable voting trust agreement; if the shares be assessable, or, if
assessments are collectible by personal action, a plain statement of such facts.
Upon surrender to the secretary or transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, or upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total
amount of the consideration to be
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<PAGE>
paid therefor and the amount paid thereon shall be stated. Upon the declaration
of any dividend on fully paid shares, the corporation shall declare a dividend
upon partly paid shares of the same class, but only upon the basis of the
percentage of the consideration actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.7 TRANSFER AGENTS AND REGISTRARS
The board of directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, each of which shall be an
incorporated bank or trust company -- either domestic or foreign, who shall be
appointed at such times and places as the requirements of the corporation may
necessitate and the board of directors may designate.
8.8 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules
of construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of
this provision, as used in these bylaws, the singular number includes the
plural, the plural number includes the singular, and the term "person" includes
both an entity and a natural person.
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<PAGE>
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted,
amended or repealed by the stockholders entitled to vote or by the board of
directors of the corporation. The fact that such power has been so conferred
upon the directors shall not divest the stockholders of the power, nor limit
their power to adopt, amend or repeal bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in
the book of bylaws with the original bylaws, in the appropriate place. If
any bylaw is repealed, the fact of repeal with the date of the meeting at
which the repeal was enacted or the filing of the operative written
consent(s) shall be stated in said book.
-22-
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
FOCAL, INC.
The undersigned hereby certifies that he is the duly elected,
qualified, and acting Assistant Secretary of Focal, Inc. and that the
foregoing Bylaws, comprising twenty-two (22) pages, were adopted as the
Bylaws of the corporation effective as of , 1997.
-----------------------
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal this day of 1997.
-------- ----------------
/s/ Christopher D. Mitchell
--------------------------------
Christopher D. Mitchell
Assistant Secretary
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<PAGE>
EXHIBIT 4.2
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OR CONVERSION HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE LAWS, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS COVERING ANY SUCH TRANSACTION OR SUCH TRANSACTION IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND LAWS.
COMMON STOCK PURCHASE WARRANT
Focal, Inc.
THIS CERTIFIES that, for value received, , is entitled,
------------
upon the terms and subject to the conditions hereinafter set forth, at any
time on or after the date hereof and at or prior to 11:59 p.m., Eastern time,
on April 12, 2000 (the "Expiration Time"), but not thereafter, to acquire
from Focal, Inc., a Delaware corporation (the "Company"), in whole or from
time to time in part, up to fully paid and nonassessable shares of
------
Common Stock of the Company ("Warrant Stock") at a purchase price per share
(the "Exercise Price") of $0.37. Such number of shares, type of security and
Exercise Price are subject to adjustment as provided herein, and all
references to "Warrant Stock" and "Exercise Price" herein shall be deemed to
include any such adjustment.
1. Exercise of Warrant
The purchase rights represented by this Warrant are exercisable by the
registered holder hereof, in whole or in part, at any time and from time to
time at or prior to the Expiration Time by the surrender of this Warrant and
the Notice of Exercise form attached hereto duly executed to the office of
the Company at 4 Maguire Road, Lexington, MA 02173 (or such other office or
agency of the Company as it may designate by notice in writing to the
registered holder hereof at the address of such holder appearing on the books
of the Company), and upon payment of the Exercise Price for the shares
thereby purchased (by cash or by check or bank draft payable to the order of
the Company or by cancellation of indebtedness of the Company to the holder
hereof, if any, at the time of exercise in an amount equal to the purchase
price of the shares thereby purchased); whereupon the holder of this Warrant
shall be entitled to receive from the Company a stock certificate in proper
form representing the number of shares of Warrant Stock so purchased.
2. Right to Convert Warrant
The registered holder hereof shall have the right to convert this
Warrant, in whole or in part, at any time and from time to time at or prior
to the Expiration Time, by the surrender of this Warrant and the Notice of
Conversion form attached hereto duly executed to the office of the Company at
the address set forth in Section 1 hereof (or such other office or agency of
the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company),
into shares of Warrant Stock as provided in this Section 2. Upon exercise of
this conversion right, the holder hereof shall be entitled to receive that
<PAGE>
number of shares of Warrant Stock of the Company equal to the quotient
obtained by dividing [(A -B)(X)] by (A), where:
A = the Fair Market Value (as defined below) of one share of
Warrant Stock on the date of conversion of this Warrant.
B = the Exercise Price for one share of Warrant Stock under
this Warrant.
X = the number of shares of Warrant Stock as to which this
Warrant is being converted.
If the above calculation results in a negative number, then no shares of
Warrant Stock shall be issued or issuable upon conversion of this Warrant.
"Fair Market Value" of a share of Warrant Stock shall mean:
(a) if the conversion right is being exercised in connection with a
transaction specified in Section 10 hereof, the value of the consideration
(determined, in the case of noncash consideration, in good faith by the Board
of Directors of the Company) to be received pursuant to such transaction by
the holder of one share of Warrant Stock;
(b) if the conversion right is being exercised after the occurrence of
an initial public offering of common stock of the Company ("Common Stock"),
the average of the high and low trading prices of a share of Common Stock as
reported by the Nasdaq National Market (or equivalent recognized source of
quotations) for the previous five trading days; or
(c) in all other cases, the fair value as determined in good faith by
the Company's Board of Directors.
In the event that this Warrant has not been exercised or converted by the
Expiration Time or in the event that the Company gives notice to the holder
hereof that this Warrant will expire due to anticipated completion by the
Company of a transaction described in Section 10 hereof, and, as of the
Expiration Time or completion of a Section 10 transaction the holder has not
exercised or converted this Warrant, this Warrant shall be deemed to be
converted in accordance with this Section 2 at the Expiration Time or the
completion of a Section 10 transaction, as the case may be.
Upon conversion of this Warrant in accordance with this Section 2, the
registered holder hereof shall be entitled to receive a certificate for the
number of shares of Warrant Stock determined in accordance with the foregoing.
3. Issuance of Shares; No Fractional Shares or Scrip
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<PAGE>
Certificates for shares purchased hereunder or issuable upon conversion
hereof shall be delivered to the holder hereof within a reasonable time after
the date on which this Warrant shall have been exercised or converted in
accordance with the terms hereof. The Company hereby represents and warrants
that all shares of Warrant Stock which may be issued upon the exercise or
conversion of this Warrant will, upon such exercise or conversion, be duly
and validly authorized and issued, fully paid and nonassessable and free from
all taxes, liens and charges in respect of the issuance thereof (other than
liens or charges created by or imposed upon the holder of the Warrant Stock).
The Company agrees that the shares so issued shall be and be deemed to be
issued to such holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been exercised or
converted in accordance with the terms hereof. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise or
conversion of this Warrant. With respect to any fraction of a share called
for upon the exercise or conversion of this Warrant, an amount equal to such
fraction multiplied by the then current price at which each share may be
purchased hereunder shall be paid in cash to the holder of this Warrant.
4. Charges, Taxes and Expenses
Issuance of certificates for shares of Warrant Stock upon the exercise or
conversion of this Warrant shall be made without charge to the holder hereof
for any issue or transfer tax or other incidental expense in respect of the
issuance of such certificate, all of which taxes and expenses shall be paid
by the Company, and such certificates shall be issued in the name of the
holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
shares of Warrant Stock are to be issued in a name other than the name of the
holder of this Warrant, this Warrant when surrendered for exercise or
conversion shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof.
5. No Rights as Shareholders
This Warrant does not entitle the holder hereof to any voting rights or
other rights as a shareholder of the Company prior to the exercise or
conversion hereof.
6. Registration Rights. The Company hereby grants to the holder hereof,
with respect to the Warrant Stock, registration rights identical to those set
forth in that certain Restated Investor Rights Agreement dated as of April
12, 1996, as amended, among the Company and the parties listed on the
signature pages thereto, and the holder hereof and the Company hereby agree
to be bound by all the provisions of such Agreement which relate to
registration rights, including without limitation the definitions in Section
1 thereof and the registration rights provisions of Section 2 thereof
(consisting of subsections 2.5 through 2.16), as if the holder hereof was a
"Holder" of "Registrable Securities" as those terms are defined in such
Agreement.
7. Exchange and Registry of Warrant
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<PAGE>
This Warrant is exchangeable, upon the surrender hereof by the registered
holder at the above-mentioned office or agency of the Company, for a new
Warrant of like tenor and dated as of such exchange. The Company shall
maintain at the above-mentioned office or agency a registry showing the name
and address of the registered holder of this Warrant. This Warrant may be
surrendered for exchange, transfer, exercise or conversion, in accordance
with its terms, at such office or agency of the Company, and the Company
shall be entitled to rely in all respects, prior to written notice to the
contrary, upon such registry.
8. Loss, Theft, Destruction or Mutilation of Warrant
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and in case of
loss, theft or destruction of indemnity or security reasonably satisfactory
to it, and upon reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will make and deliver a new Warrant of like tenor and
dated as of such cancellation, in lieu of this Warrant.
9. Saturdays, Sundays and Holidays
If the last or appointed day for the taking of any action or the
expiration of any right required or granted herein shall be a Saturday or a
Sunday or shall be a legal holiday, then such action may be taken or such
right may be exercised on the next succeeding day not a legal holiday.
10. Initial Public Offering, Merger, Sale of Assets, Etc.
If at any time the Company proposes (i) to effect an initial firm
commitment underwritten public offering of its equity securities or (ii) to
merge or consolidate with or into any other corporation, effect any
reorganization, or sell or convey all or substantially all of its assets to
any other entity, in a transaction in which the shareholders of the Company
immediately before the transaction will own immediately after the transaction
less than a majority of the outstanding voting securities of the entity (or
its parent) succeeding to the business of the Company, then the Company shall
give the holder of this Warrant forty-five (45) days' prior written notice of
the proposed effective date of such initial public offering or business
combination transaction, and if this Warrant has not been exercised or
converted by or on the closing date of such initial public offering effective
date of such transaction, it shall terminate.
11. Reclassification, Conversion, Etc.
If the Company at any time shall, by reclassification of securities or
otherwise, change the Warrant Stock into the same or a different number of
securities of any class or classes, this Warrant shall thereafter entitle the
holder to acquire such number and kind of securities as would have been
issuable in respect of the Warrant Stock (or other securities which were
subject to the purchase rights under this Warrant immediately prior to such
subdivision, combination, reclassification or other change) as the result of
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<PAGE>
such change if this Warrant had been exercised in full for cash immediately
prior to such change. The Exercise Price hereunder shall be adjusted if and
to the extent necessary to reflect such change. If the Warrant Stock or
other securities issuable upon exercise or conversion hereof are subdivided
or combined into a greater or smaller number of shares of such security, the
number of shares issuable hereunder shall be proportionately increased or
decreased, as the case may be, and the Exercise Price shall be
proportionately reduced or increased, as the case may be, in both cases
according to the ratio which the total number of shares of such security to
be outstanding immediately after such event bears to the total number of
shares of such security outstanding immediately prior to such event. The
Company shall give the holder prompt written notice of any change in the type
of securities issuable hereunder, any adjustment of the Exercise Price for
the securities issuable hereunder, and any increase or decrease in the number
of shares issuable hereunder.
12. Transferability
Prior to the Expiration Time and subject to compliance with applicable
laws, this Warrant and all rights hereunder are transferable by the holder
hereof, in whole or in part, at the office or agency of the Company referred
to in Section 1 hereof. Any such transfer shall be made in person or by the
holder's duly authorized attorney, upon surrender of this Warrant together
with the Assignment Form attached hereto properly endorsed.
13. Representations and Warranties
The Company hereby represents and warrants to the holder hereof that:
(a) During the period this Warrant is outstanding, the Company will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Warrant Stock upon the exercise or
conversion of this Warrant;
(b) The issuance of this Warrant shall constitute full authority to the
Company's officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the shares
of Warrant Stock issuable upon exercise or conversion of this Warrant;
(c) The Company has all requisite legal and corporate power to execute
and deliver this Warrant, to sell and issue the Warrant Stock hereunder and
to carry out and perform its obligations under the terms of this Warrant; and
(d) All corporate action on the part of the Company, its directors and
shareholders necessary for the authorization, execution, delivery and
performance of this Warrant by the Company, the authorization, sale, issuance
and delivery of the Warrant Stock, the grant of registration rights as
provided herein and the performance of the Company's obligations hereunder
has been taken;
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<PAGE>
(e) The Warrant Stock, when issued in compliance with the provisions of
this Warrant and the Company's Certificate of Incorporation, will be validly
issued, fully paid and nonassessable, and free of any liens or encumbrances,
and will be issued in compliance with all applicable federal and state
securities laws; and
(f) The issuance of the Warrant Stock will not be subject to any
preemptive rights, rights of first refusal or similar rights.
14. Cooperation
The Company will not, by amendment of its Articles or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other action, avoid or seek
to avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may be necessary or appropriate in order to
protect the rights of the holder of the Warrant against impairment.
15. Governing Law
This Warrant shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
[remainder of this page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer.
Dated Effective as of: April 12, 1996
FOCAL, INC.
By:
-----------------------------
W. Bradford Smith,
Vice President and Chief
Financial Officer
ACCEPTED:
By:
-----------------------------------
Title:
--------------------------------
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<PAGE>
NOTICE OF EXERCISE
To: Focal, Inc.
(1) The undersigned hereby elects to purchase shares of Common
-----
Stock of Focal, Inc. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price in full, together with all
applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
---------------------------------
(Name)
---------------------------------
(Address)
(3) The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or
reselling such shares.
- ------------------------------------ --------------------------------------
(Date) (Signature)
<PAGE>
NOTICE OF CONVERSION
To: Focal, Inc.
(1) The undersigned hereby elects to convert the attached Warrant into
such number of shares of Common Stock of Focal, Inc. as is determined
pursuant to Section 3 of such Warrant, which conversion shall be effected
pursuant to the terms of the attached Warrant.
(2) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
--------------------------------
(Name)
--------------------------------
(Address)
(3) The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or
reselling such shares.
- ------------------------------------ --------------------------------------
(Date) (Signature)
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required
information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
- ------------------------------------------------------------------------------
(Please Print)
whose address is
--------------------------------------------------------------
(Please Print)
Dated:
--------------------------------------------
Holder's Signature:
----------------------------------
Holder's Address:
-----------------------------------
----------------------------------------------
Guaranteed Signature:
--------------------------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or
any change whatever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority to assign
the foregoing Warrant.
<PAGE>
EXHIBIT 10.1
FOCAL, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of this 9th
day of February, 1994, by and between Focal, Inc., a Delaware corporation
(the "Company") and ("Indemnitee").
-------------------
WHEREAS, the Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees, agents
and fiduciaries, the significant increases in the cost of such insurance and
the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same
time as the availability and coverage of liability insurance has been
severely limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and the Indemnitee and other
directors, officers, employees, agents and fiduciaries of the Company may not
be willing to continue to serve in such capacities without additional
protection;
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part,
in order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law; and
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified by the Company as set forth
herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Indemnification of Expenses. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending
or completed action, suit, proceeding or alternative dispute resolution
mechanism, or any hearing, inquiry or investigation that Indemnitee in good
faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil,
criminal, administrative, investigative or other (hereinafter a "Claim") by
reason of (or arising in part out of) any event or occurrence related to the
fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was
serving at the request of the Company as a director, officer, employee, agent
or fiduciary of another corporation,
<PAGE>
partnership, joint venture, trust or other enterprise, or by reason of any
action or inaction on the part of Indemnitee while serving in such capacity
(hereinafter an "Indemnifiable Event") against any and all expenses
(including attorneys' fees and all other costs, expenses and obligations
incurred in connection with investigating, defending, being a witness in or
participating in (including on appeal), or preparing to defend, be a witness
in or participate in, any such action, suit, proceeding, alternative dispute
resolution mechanism, hearing, inquiry or investigation), judgments, fines,
penalties and amounts paid in settlement (if such settlement is approved in
advance by the Company, which approval shall not be unreasonably withheld) of
such Claim and any federal, state, local or foreign taxes imposed on the
Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement (collectively, hereinafter "Expenses"), including all
interest, assessments and other charges paid or payable in connection with or
in respect of such Expenses. Such payment of Expenses shall be made by the
Company as soon as practicable but in any event no later than thirty (30)
days after written demand by Indemnitee therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 1(a) shall be subject to the
condition that the Reviewing Party (as described in Section 10(f) hereof)
shall not have determined (in a written opinion, in any case in which the
Independent Legal Counsel referred to in Section 1(c) hereof is involved)
that Indemnitee would not be permitted to be indemnified under applicable
law, and (ii) the obligation of the Company to make an advance payment of
Expenses to Indemnitee pursuant to Section 2(a) (an "Expense Advance") shall
be subject to the condition that, if, when and to the extent that the
Reviewing Party determines that Indemnitee would not be permitted to be so
indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all
such amounts theretofore paid; provided, however, that if Indemnitee has
commenced or thereafter commences legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee should be indemnified
under applicable law, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitee's obligation to reimburse the Company for
any Expense Advance shall be unsecured and no interest shall be charged
thereon. If there has not been a Change in Control (as defined in Section
10(c) hereof), the Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a
Change in Control which has been approved by a majority of the Company's
Board of Directors who were directors immediately prior to such Change in
Control), the Reviewing Party shall be the Independent Legal Counsel referred
to in Section 1(c) hereof. If there has been no determination by the
Reviewing Party or if the Reviewing Party determines that Indemnitee
substantively would not be permitted to be indemnified in whole or in part
under applicable law, Indemnitee shall have the right to commence litigation
seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the
legal or factual bases therefor, and the Company hereby consents to service
of process and to appear in any such proceeding. Any determination by the
Reviewing Party otherwise shall be conclusive and binding on the Company and
Indemnitee.
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(c) Change in Control. The Company agrees that if there is a
Change in Control of the Company (other than a Change in Control which has
been approved by a majority of the Company's Board of Directors who were
directors immediately prior to such Change in Control) then with respect to
all matters thereafter arising concerning the rights of Indemnitee to
payments of Expenses and Expense Advances under this Agreement or any other
agreement or under the Company's Certificate of Incorporation or Bylaws as
now or hereafter in effect, the Company shall seek legal advice only from
Independent Legal Counsel (as defined in Section 10(d) hereof) selected by
Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what
extent Indemnitee would be permitted to be indemnified under applicable law.
The Company agrees to pay the reasonable fees of the Independent Legal
Counsel referred to above and to fully indemnify such counsel against any and
all expenses (including attorneys' fees), claims, liabilities and damages
arising out of or relating to this Agreement or its engagement pursuant
hereto.
(d) Establishment of Trust. In the event of a Potential Change in
Control (as defined in Section 10(e) hereof), the Company shall, upon written
request by Indemnitee, create a trust for the benefit of Indemnitee and, from
time to time upon written request of Indemnitee, shall fund such trust in an
amount sufficient to satisfy any and all Expenses reasonably anticipated at
the time of each such request to be incurred in connection with
investigating, preparing for and defending any Claim relating to an
Indemnifiable Event, and any and all judgments, fines, penalties and
settlement amounts of any and all Claims relating to an Indemnifiable Event
from time to time actually paid or claimed, reasonably anticipated or
proposed to be paid. The amount or amounts to be deposited in the trust
pursuant to the foregoing funding obligation shall be determined by the
Reviewing Party, in any case in which the Independent Legal Counsel referred
to above is involved. The terms of the trust shall provide that upon a
Change or Control (i) the trust shall not be revoked or the principal thereof
invaded, without the written consent of Indemnitee, (ii) the trustee shall
advance, within five (5) business days of a request by Indemnitee, any and
all Expenses to Indemnitee (and Indemnitee hereby agrees to reimburse the
trust under the circumstances under which Indemnitee would be required to
reimburse the Company under Section 1(b) of this Agreement), (iii) the trust
shall continue to be funded by the Company in accordance with the funding
obligation set forth above, (iv) the trustee shall promptly pay to Indemnitee
all amounts for which Indemnitee shall be entitled to indemnification
pursuant to this Agreement or otherwise, and (v) all unexpended funds in such
trust shall revert to the Company upon a final determination by the Reviewing
Party or a court of competent jurisdiction, as the case may be, that
Indemnitee has been fully indemnified under the terms of this Agreement. The
trustee shall be chosen by Indemnitee. Nothing in this Section 1(d) shall
relieve the Company of any of its obligations under this Agreement.
(e) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section
(1)(a) hereof or in the defense of any claim, issue or matter therein,
Indemnitee shall be indemnified against all Expenses incurred by Indemnitee
in connection therewith.
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2. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all
Expenses incurred by Indemnitee. The advances to be made hereunder shall be
paid by the Company to Indemnitee as soon as practicable but in any event no
later than five (5) days after written demand by Indemnitee therefor to the
Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be
sought under this Agreement. Notice to the Company shall be directed to the
Chief Executive Officer of the Company at the address shown on the signature
page of this Agreement (or such other address as the Company shall designate
in writing to Indemnitee). In addition, Indemnitee shall give the Company
such information and cooperation as it may reasonably require and as shall be
within Indemnitee's power.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any claim, action, suit or proceeding, by
judgment, order, settlement (whether with or without court approval) or
conviction, or upon a plea of nolo contendere, or its equivalent, shall not
create a presumption that Indemnitee did not meet any particular standard of
conduct or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law. In addition, neither the
failure of the Reviewing Party to have made a determination as to whether
Indemnitee has met any particular standard of conduct or had any particular
belief, nor an actual determination by the Reviewing Party that Indemnitee
has not met such standard of conduct or did not have such belief, prior to
the commencement of legal proceedings by Indemnitee to secure a judicial
determination that Indemnitee should be indemnified under applicable law,
shall be a defense to Indemnitee's claim or create a presumption that
Indemnitee has not met any particular standard of conduct or did not have any
particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether the Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company
has liability insurance in effect which may cover such Claim, the Company
shall give prompt notice of the commencement of such Claim to the insurers in
accordance with the procedures set forth in the respective policies. The
Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of the Indemnitee, all amounts payable as a result
of such action, suit, proceeding, inquiry or investigation in accordance with
the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to pay the Expenses of any action, suit, proceeding,
inquiry or investigation, the Company, if appropriate, shall be entitled to
assume the defense of such action, suit, proceeding, inquiry or investigation
with counsel approved by Indemnitee, upon the delivery to Indemnitee of
written notice of its election so to do. After delivery of such notice,
approval of such counsel by Indemnitee and the
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retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred
by Indemnitee with respect to the same action, suit, proceeding, inquiry or
investigation; provided that, (i) Indemnitee shall have the right to employ
Indemnitee's counsel in any such action, suit, proceeding, inquiry or
investigation at Indemnitee's expense and (ii) if (A) the employment of
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such
defense, or (C) the Company shall not continue to retain such counsel to
defend such action, suit, proceeding, inquiry or investigation, then the fees
and expenses of Indemnitee's counsel shall be at the expense of the Company.
3. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify the Indemnitee
to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of
this Agreement, the Company's Certificate of Incorporation, the Company's
Bylaws or by statute. In the event of any change after the date of this
Agreement in any applicable law, statute or rule which expands the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, it is the intent of the parties hereto
that Indemnitee shall enjoy by this Agreement the greater benefits afforded
by such change. In the event of any change in any applicable law, statute or
rule which narrows the right of a Delaware corporation to indemnify a member
of its board of directors or an officer, employee, agent or fiduciary, such
change, to the extent not otherwise required by such law, statute or rule to
be applied to this Agreement, shall have no effect on this Agreement or the
parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
shall be in addition to any rights to which Indemnitee may be entitled under
the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested directors, the General Corporation Law
of the State of Delaware, or otherwise. The indemnification provided under
this Agreement shall continue as to Indemnitee for any action taken or not
taken while serving in an indemnified capacity even though Indemnitee may
have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any action, suit,
proceeding, inquiry or investigation made against Indemnitee to the extent
Indemnitee has otherwise actually received payment (under any insurance
policy, Certificate of Incorporation, Bylaw or otherwise) of the amounts
otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses in the investigation, defense, appeal or settlement of
any civil or criminal action, suit, proceeding, inquiry or investigation, but
not, however, for all of the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion of such Expenses to which
Indemnitee is entitled.
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6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may
prohibit the Company from indemnifying its directors, officers, employees,
agents or fiduciaries under this Agreement or otherwise. Indemnitee
understands and acknowledges that the Company has undertaken or may be
required in the future to undertake with the Securities and Exchange
Commission to submit the question of indemnification to a court in certain
circumstances for a determination of the Company's right under public policy
to indemnify Indemnitee.
7. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or
fiduciaries, Imdemnitee shall be covered by such policies in such a manner as
to provide Indemnitee the same rights and benefits as are accorded to the
most favorably insured of the Company's directors, if Indemnitee is a
director; or of the Company's officers, if Indemnitee is not a director of
the Company but is an officer; or of the Company's key employees, agents or
fiduciaries, if Indemnitee is not an officer or director but is a key
employee, agent or fiduciary.
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for
acts, omissions or transactions from which Indemnitee may not be relieved of
liability under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except (i) with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other agreement or insurance
policy or under the Company's Certificate of Incorporation or Bylaws now or
hereafter in effect relating to Claims for Indemnifiable Events, (ii) in
specific cases if the Board of Directors has approved the initiation or
bringing of such suit, or (iii) as otherwise as required under Section 145 of
the General Corporation Law of the State of Delaware, regardless of whether
Indemnitee ultimately is determined to be entitled to such indemnification,
advance expense payment or insurance recovery, as the case may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or
legal representatives after the expiration of two years from the date of
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accrual of such cause of action, and any claim or cause of action of the
Company shall be extinguished and deemed released unless asserted by the
timely filing of a legal action within such two-year period; provided,
however, that if any shorter period of limitations is otherwise applicable to
any such cause of action, such shorter period shall govern.
10. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the "Company"
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, employees,
agents or fiduciaries, so that if Indemnitee is or was a director, officer,
employee, agent or fiduciary of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee, agent or fiduciary of another corporation, partnership,
joint venture, employee benefit plan, trust or other enterprise, Indemnitee
shall stand in the same position under the provisions of this Agreement with
respect to the resulting or surviving corporation as Indemnitee would have
with respect to such constituent corporation if its separate existence had
continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on Indemnitee with respect to an
employee benefit plan; and references to "serving at the request of the
Company" shall include any service as a director, officer, employee, agent or
fiduciary of the Company which imposes duties on, or involves services by,
such director, officer, employee, agent or fiduciary with respect to an
employee benefit plan, its participants or its beneficiaries.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other
than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or a corporation owned directly or indirectly by
the stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company, is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing more than 20% of the total voting
power represented by the Company's then outstanding Voting Securities, (ii)
during any period of two consecutive years, individuals who at the beginning
of such period constitute the Board of Directors of the Company and any new
director whose election by the Board of Directors or nomination for election
by the Company's stockholders was approved by a vote of at least two thirds
(2/3) of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority
thereof, or (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation 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 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
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Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series
of transactions) all of substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel"
shall mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other
than with respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Potential Change in Control"
shall be deemed to have occurred if: (i) the Company enters into an
agreement, the consummation of which would result in the occurrence of a
Change in Control, (ii) any person (including the Company) publicly announces
an intention to take or to consider taking actions which, if consummated,
would constitute a Change in Control, or (iii) any person, other than a
trustee or other fiduciary holding securities under an employee benefit plan
of the Company acting in such capacity or a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, who is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 9.5% or more of the combined voting power of the Company's then
outstanding Voting Securities, increases his or her beneficial ownership of
such securities by five percentage points (5%) or more over the percentage so
owned by such person; or (iv) the Board of Directors adopts a resolution to
the effect that, for purposes of this Agreement, a Potential Change in
Control has occurred.
(f) For purposes of this Agreement, a "Reviewing Party" shall mean
any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the
Board of Directors who is not a party to the particular Claim for which
Indemnitee is seeking indemnification, or Independent Legal Counsel.
(g) For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of
directors.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses,
heirs, and personal and legal representatives. The Company shall require and
cause any successor (whether direct or indirect by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part,
of the business and/or assets of the Company, by written agreement in form
and substance satisfactory to Indemnitee, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place.
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This Agreement shall continue in effect regardless of whether Indemnitee
continues to serve as a director or officer of the Company or of any other
enterprise at the Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the
advancement of Expenses with respect to such action, unless as a part of such
action the court of competent jurisdiction over such action determines that
each of the material assertions made by Indemnitee as a basis for such action
were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled
to be paid all Expenses incurred by Indemnitee in defense of such action
(including costs and expenses incurred with respect to Indemnitee's
counterclaims and cross-claims made in such action), and shall be entitled to
the advancement Expenses with respect to such action, unless as a part of
such action the court having jurisdiction over such action determines that
each of Indemnitee's material defenses to such action were made in bad faith
or were frivolous.
14. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i)
if delivered by hand and receipted for by the party addressee, on the date of
such receipt, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked.
Addresses for notice to either party are as shown on the signature page of
this Agreement, or as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of
Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action
instituted under this Agreement shall be commenced, prosecuted and continued
only in the courts of the State of Delaware, which shall be the exclusive and
only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision
within a single section, paragraph or sentence) are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable, and
the remaining provisions shall remain enforceable to the fullest extent
permitted by law. Furthermore, to the fullest extent possible, the provisions
of this Agreement (including, without limitations, each portion of this
Agreement containing any provision held to be invalid, void or otherwise
unenforceable, that is not itself invalid, void or unenforceable) shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
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17. Choice of Law. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
Delaware, as applied to contracts between Delaware residents, entered into
and to be performed entirely within the State of Delaware, without regard to
the conflict of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required
and shall do all acts that may be necessary to secure such rights and to
enable the Company effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supercedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
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IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
FOCAL, INC.
By:
--------------------------------
Title:
----------------------------
AGREED TO AND ACCEPTED
INDEMNITEE:
- ---------------------------
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EXHIBIT 10.2
FOCAL, INC.
1992 INCENTIVE STOCK PLAN
1. Purposes of the Plan. The purposes of this Incentive Stock Plan are
to attract and retain the best available personnel, to provide additional
incentive to the Employees and Consultants of Focal, Inc. (the "Company") and
to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected
in the terms of the written option agreement. The Board also has the
discretion to grant Stock Purchase Rights.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Committee, if one has been appointed, or
the Board of Directors of the Company, if no Committee is appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with Section 4(a) of the Plan, if one is appointed.
(d) "Common Stock" shall mean the Common Stock of the Company.
(e) "Company" shall mean Focal, Inc., a Delaware corporation.
(f) "Consultant" shall mean any person who is engaged by the
Company or any Parent or Subsidiary to render consulting services and is
compensated for such consulting services, and any director of the Company
whether compensated for such services or not; provided that if and in the
event the Company registers any class of any equity security pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the term Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee by the
Company.
(g) "Continuous Status as an Employee or Consultant" shall mean the
absence of any interruption or termination of service as an Employee or
Consultant, as applicable. Continuous Status as an Employee or Consultant
shall not be considered interrupted in the case of sick leave, military
leave, or any other leave of absence approved by the Board; provided that
such leave is for a period of not more than 90 days or reemployment upon the
expiration of such leave is guaranteed by contract or statute.
(h) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the
Company. The payment of a director's fee by the Company shall not be
sufficient to constitute "employment" by the Company.
<PAGE>
(i) "Incentive Stock Option" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(j) "Nonstatutory Stock Option" shall mean an Option not intended
to qualify as an Incentive Stock Option.
(k) "Option" shall mean a stock option granted pursuant to the Plan.
(l) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(m) "Optionee" shall mean an Employee or Consultant who receives an
Option.
(n) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424 of the Code.
(o) "Plan" shall mean this 1992 Incentive Stock Plan.
(p) "Purchaser" shall mean an Employee or Consultant who exercises
a Stock Purchase Right.
(q) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(r) "Stock Purchase Right" shall mean a right to purchase Common
Stock pursuant to the Plan or the right to receive a bonus of Common Stock
for past services.
(s) "Subsidiary" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424 of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of shares under the Plan is
6,488,000 shares of Common Stock. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right should expire or become
unexercisable for any reason without having been exercised in full or if
Shares issued pursuant to Stock Purchase Rights are repurchased by the
Company, then the unpurchased Shares which were subject thereto or the
repurchased Shares, as the case may be, shall, unless the Plan shall have
been terminated, become available for future grant or sale under the Plan.
Notwithstanding any other provision of the Plan, shares issued upon exercise
of Options and later repurchased by the Company shall not become available
for future grant or sale under the Plan.
4. Administration of the Plan.
(a) Procedure. The Plan shall be administered by the Board of
Directors of the Company.
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(i) Subject to subparagraph (ii), the Board of Directors may
appoint a Committee consisting of not less than two members of the Board of
Directors to administer the Plan on behalf of the Board of Directors, subject
to such terms and conditions as the Board of Directors may prescribe. Once
appointed, the Committee shall continue to serve until otherwise directed by
the Board of Directors. Members of the Board who are either eligible for
Options and/or Stock Purchase Rights or have been granted Options and/or
Stock Purchase Rights may vote on any matters affecting the administration of
the Plan or the grant of any Options and/or Stock Purchase Rights pursuant to
the Plan, except that no such member shall act upon the granting of an Option
and/or Stock Purchase Right to such member, but any such member may be
counted in determining the existence of a quorum at any meeting of the Board
during which action is taken with respect to the granting of Options and/or
Stock Purchase Rights to the member.
(ii) Notwithstanding the foregoing subparagraph (i), if and in
any event the Company registers any class of any equity security pursuant to
Section 12 of the Exchange Act, from the effective date of such registration
until six months after the termination of such registration, any grants of
Options and/or Stock Purchase Rights to officers or directors shall only be
made by the Board of Directors; provided, however, that if a majority of the
Board of Directors is eligible to participate in this Plan or any other stock
option or other stock plan of the Company or any of its affiliates, or has
been eligible at any time during the prior one-year period (or, if shorter,
the period following the initial registration of the Company's equity
securities under Section 12 of the Exchange Act) any grants of Options and/or
Stock Purchase Rights to directors must be made by, or only in accordance
with the recommendation of, a Committee consisting of three or more persons,
who may but need not be directors or employees of the Company, appointed by
the Board of Directors and having full authority to act in the matter, none
of whom is eligible to participate in this Plan or any other stock option or
other stock plan of the Company or any of its affiliates, or has been
eligible at any time during the prior one-year period (or, if shorter, the
period following the initial registration of the Company's equity securities
under Section 12 of the Exchange Act). Any Committee administering the Plan
with respect to grants to officers who are not also directors shall conform
to the requirements of the preceding sentence. Once appointed, the Committee
shall continue to serve until otherwise directed by the Board of Directors.
(iii) Subject to the foregoing subparagraphs (i) and (ii),
from time to time the Board of Directors may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and
thereafter directly administer the Plan.
(b) Powers of the Board. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to grant Incentive Stock
Options, Nonstatutory Stock Options or Stock Purchase Rights; (ii) to determine,
upon review of relevant information and in accordance with Section 7 of the
Plan, the fair market value of the Common Stock; (iii) to determine the exercise
price per share of Options or Stock Purchase Rights, to be granted, which
exercise price shall be determined in accordance with Section 7 of the Plan;
(iv) to determine the Employees or Consultants to whom, and the time or times at
which, Options or Stock Purchase Rights shall be granted and the number of
shares to be represented by each Option or Stock Purchase Right; (v) to
interpret the Plan;
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(vi) to prescribe, amend and rescind rules and regulations relating to the
Plan; (vii) to determine the terms and provisions of each Option and Stock
Purchase Right granted (which need not be identical) and, with the consent of
the holder thereof, modify or amend any provisions (including provisions
relating to exercise price) of any Option or Stock Purchase Right; (viii) to
authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Option or Stock Purchase Right
previously granted by the Board; and (ix) to make all other determinations
deemed necessary or advisable for the administration of the Plan.
(c) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees,
Purchasers and any other holders of any Options or Stock Purchase Rights
granted under the Plan.
5. Eligibility.
(a) Options and Stock Purchase Rights may be granted to Employees
and Consultants, provided that Incentive Stock Options may only be granted to
Employees. An Employee or Consultant who has been granted an Option or Stock
Purchase Right may, if such Employee or Consultant is otherwise eligible, be
granted additional Option(s) or Stock Purchase Right(s).
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate fair
market value of the Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company) exceeds $100,000,
such Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Options shall be taken into
account in the order in which they were granted, and the fair market value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(d) The Plan shall not confer upon any Optionee or holder of a
Stock Purchase Right any right with respect to continuation of employment by
or the rendition of consulting services to the Company, nor shall it
interfere in any way with his or her right or the Company's right to
terminate his or her employment or services at any time, with or without
cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by vote of
the holders of a majority of the outstanding shares of the Company entitled
to vote on the adoption of the Plan. It shall continue in effect for a term
of ten (10) years unless sooner terminated under Section 14 of the Plan.
7. Exercise Price and Consideration.
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(a) The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option or Stock Purchase Right shall be such price
as is determined by the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110%
of the fair market value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise price
shall be no less than 100% of the fair market value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option or a Stock
Purchase Right
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the
fair market value per Share on the date of the grant.
(B) granted to any person, the per Share exercise price
shall be no less than 85% of the fair market value per Share on the date of
grant.
For purposes of this Section 7(a), in the event that an Option or Stock
Purchase Right is amended to reduce the exercise price, the date of grant of
such Option or Stock Purchase Right shall thereafter be considered to be the
date of such amendment.
(b) The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid
and asked prices (or the closing price per share if the Common Stock is
listed on the National Association of Securities Dealers Automated Quotation
("NASDAQ") National Market System of the Common Stock for the date of grant,
as reported in the Wall Street Journal (or, if not so reported, as otherwise
reported by the NASDAQ System) or, in the event the Common Stock is listed on
a stock exchange, the fair market value per Share shall be the closing price
on such exchange on the date of grant of the Option or Stock Purchase Right,
as reported in the Wall Street Journal.
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option or Stock Purchase Right, including the method of
payment, shall be determined by the Board and may consist entirely of:
(i) cash;
(ii) check (personal, cashier's or certified);
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(iii) money order;
(iv) promissory note;
(v) other Shares of Common Stock having a fair market value on
the date of surrender equal to the aggregate exercise price of the Shares as
to which the Option is being exercised;
(vi) if there is a public market for the Shares and they are
registered under the Securities Act of 1933, as amended, delivery of a
properly executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price;
(vii) delivery of an irrevocable subscription agreement for
the Shares which irrevocably obligates the Optionee to take and pay for the
Shares not more than twelve months after the date of delivery of such
subscription agreement;
(viii) or any combination of such methods of payment; or
(ix) such other consideration and method of payment for the
issuance of Shares to the extent permitted under Sections 152 and 153 of the
General Corporation Law of Delaware.
8. Options.
(a) Term of Option. The term of each Incentive Stock Option shall
be ten (10) years from the date of grant thereof or such shorter term as may
be provided in the Incentive Stock Option Agreement. The term of each Option
that is not an Incentive Stock Option shall be ten (10) years and one (1) day
from the date of grant thereof or such shorter term as may be provided in the
Stock Option Agreement. However, in the case of an Option granted to an
Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, (i) if the Option is an Incentive Stock
Option, the term of the Option shall be five (5) years from the date of grant
thereof or such shorter time as may be provided in the Stock Option
Agreement, or (ii) if the Option is a Nonstatutory Stock Option, the term of
the Option shall be five (5) years and one (1) day from the date of grant
thereof or such other term as may be provided in the Stock Option Agreement.
(b) Exercise of Option.
(i) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Board, including performance criteria with
respect to the Company and/or the Optionee, and as shall be permissible under
the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
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An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 7 of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Company shall issue
(or cause to be issued) such stock certificate promptly upon exercise of the
Option. In the event that the exercise of an Option is treated in part as
the exercise of an Incentive Stock Option and in part as the exercise of a
Nonstatutory Stock Option pursuant to Section 5(b), the Company shall issue a
separate stock certificate evidencing the Shares treated as acquired upon
exercise of an Incentive Stock Option and a separate stock certificate
evidencing the Shares treated as acquired upon exercise of a Nonstatutory
Stock Option and shall identify each such certificate accordingly in its
stock transfer records. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(ii) Termination of Status as an Employee or Consultant. In
the event of termination of an Optionee's Continuous Status as an Employee or
Consultant (as the case may be), such Optionee may, but only within thirty
(30) days (or such other period of time not exceeding three (3) months in the
case of an Incentive Stock Option or six (6) months in the case of a
Nonstatutory Stock Option, as is determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the time
of grant of the Option) after the date of such termination (but in no event
later than the date of expiration of the term of such Option as set forth in
the Option Agreement, exercise the Option to the extent that such Employee or
Consultant was entitled to exercise it at the date of such termination. To
the extent that such Employee or Consultant was not entitled to exercise the
Option at the date of such termination, or if such Employee or Consultant
does not exercise such Option (which such Employee or Consultant was entitled
to exercise) within the time specified herein, the Option shall terminate.
(iii) Disability of Optionee. Notwithstanding the provisions
of Section 8(b)(ii) above, in the event of termination of an Optionee's
Continuous Status as an Employee or Consultant as a result of such Employee's
or Consultant's total and permanent disability (as defined in Section
22(e)(3) of the Code), such Employee or Consultant may, but only within six
(6) months (or such other period of time not exceeding twelve (12) months as
is determined by the Board, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) from
the date of such termination (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement),
exercise the Option to the extent such Employee or Consultant was entitled to
exercise it at the date of such termination. To the extent that such
Employee or Consultant was not entitled to exercise the Option at the date of
termination, or if
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such Employee or Consultant does not exercise such Option (which such
Employee or Consultant was entitled to exercise) within the time specified
herein, the Option shall terminate.
(iv) Death of Optionee. In the event of the death of an
Optionee:
(i) during the term of the Option who is at the time of
his or her death an Employee or Consultant of the Company and who shall have
been in Continuous Status as an Employee or Consultant since the date of
grant of the Option, the Option may be exercised, at any time within six (6)
months (but in no event later than the date of expiration of the term of such
Option as set forth in the Option Agreement), by Optionees estate or by a
person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that would have
accrued had the Optionee continued living and remained in Continuous Status
as an Employee or Consultant six (6) months (or such other period of time as
is determined by the Board at the time of grant of the Option) after the date
of death; or
(ii) within thirty (30) days (or such other period of time
not exceeding three (3) months as is determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the time
of grant of the Option) after the termination of Continuous Status as an
Employee or Consultant, the Option may be exercised, at any time within six
(6) months (or such other period of time as is determined by the Board at the
time of grant of the Option) following the date of death (but in no event
later than the date of expiration of the term of such Option as set forth in
the Option Agreement), by the Optionee's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that had accrued at the date of termination.
9. Stock Purchase Rights.
(a) Rights to Purchase. After the Board of Directors determines
that it will offer an Employee or Consultant a Stock Purchase Right, it shall
deliver to the offeree a stock purchase agreement or stock bonus agreement,
as the case may be, setting forth the terms, conditions and restrictions
relating to the offer, including the number of Shares which such person shall
be entitled to purchase, and the time within which such person must accept
such offer, which shall in no event exceed six (6) months from the date upon
which the Board of Directors or its Committee made the determination to grant
the Stock Purchase Right. The offer shall be accepted by execution of a
stock purchase agreement or stock bonus agreement in the form determined by
the Board of Directors.
(b) Issuance of Shares. Forthwith after payment therefor, the
Shares purchased shall be duly issued; provided, however, that the Board may
require that the Purchaser make adequate provision for any Federal and State
withholding obligations of the Company as a condition to the Purchaser
purchasing such Shares.
(c) Repurchase Option. Unless the Board determines otherwise, the
stock purchase agreement or stock bonus agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination
of the Purchaser's employment with the Company for any reason (including
death or disability). If the Board so determines, the purchase price
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for shares repurchased may be paid by cancellation of any indebtedness of the
Purchaser to the Company. The repurchase option shall lapse at such rate as
the Board may determine.
(d) Other Provisions. The stock purchase agreement or stock bonus
agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Board of Directors.
10. Non-Transferability of Options and Stock Purchase Rights. The
Options and Stock Purchase Rights may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or
by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee or Purchaser, only by the Optionee or Purchaser.
11. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option, and the number of shares of Common Stock which
have been authorized for issuance under the Plan but as to which no Options
have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, all Options will terminate
immediately prior to the consummation of such proposed action, unless
otherwise provided by the Administrator. The Administrator may, in the
exercise of its sole discretion in such instances, declare that all Options
shall terminate as of a date fixed by the Administrator and give each
Optionee the right to exercise any Option held as to all or any part of the
Optioned Stock, including Shares as to which the Option would not otherwise
be exercisable.
(c) Sale of Assets or Merger. Subject to the provisions of
paragraph (d) hereof, in the event of a proposed sale of all or substantially
all of the assets of the Company, or the merger of the Company with or into
another corporation, all Options shall be assumed or equivalent options shall
be substituted by the successor corporation or a parent or subsidiary of such
successor corporation. In the event that such successor corporation refuses
to assume all Options or to substitute equivalent options, the Administrator
shall, in lieu of such assumption or substitution, provide for the Optionees
to have the right to exercise Options held by them as to all of the Optioned
Stock, including Shares as to which such Options would not otherwise be
exercisable. If the Administrator makes an Option fully exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee that the Option shall be fully
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exercisable for a period of time determined by the Administrator from the
date of such notice, and the Option will terminate upon the expiration of
such period. For purposes of this paragraph, an Option granted under the
Plan shall be deemed to be assumed if, following the sale of assets or
merger, the Option confers the right to purchase, for each Share of Optioned
Stock subject to the Option immediately prior to such sale of assets or
merger, the consideration (whether stock, cash or other securities or
property) received in the sale of assets or merger by holders of Common Stock
for each Share held on the effective date of the transaction (and, if such
holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the sale of assets or merger
was not solely Common Stock of the successor corporation or its parent, the
Administrator may, with the consent of the successor corporation and the
Optionee, provide for the per share consideration to be received upon
exercise of the Option to be solely Common Stock of the successor corporation
or its parent equal in fair market value (determined as set forth in Section
7(b) hereof) to the per share consideration received by holders of Common
Stock in the sale of assets or merger.
(d) No Other Adjustments. Except as expressly provided or
authorized herein, no issuance by the Company of shares of stock of any
class, or securities convertible into or exercisable for shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.
12. Time of Granting Options. The date of grant of an Option or Stock
Purchase Right shall, for all purposes, be the date on which the Board makes
the determination granting such Option or Stock Purchase Right. Notice of
the determination shall be given to each Employee or Consultant to whom an
Option or Stock Purchase Right is so granted within a reasonable time after
the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate
the Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval
of the shareholders of the Company in the manner described in Section 17 of
the Plan:
(i) any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 11 of the Plan;
(ii) any change in the designation of the class of persons
eligible to be granted Options and Stock Purchase Rights; or
(iii) if the Company has a class of equity securities
registered under Section 12 of the Exchange Act at the time of such revision
or amendment, any material increase in the benefits accruing to participants
under the Plan.
(b) Shareholder Approval. If any amendment requiring shareholder
approval under Section 13(a) of the Plan is made subsequent to the first
registration of any class of equity
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securities by the Company under Section 12 of the Exchange Act, such
shareholder approval shall be solicited as described in Section 17 of the
Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted and such Options or Stock Purchase Rights shall remain in
full force and effect as if this Plan had not been amended or terminated,
unless mutually agreed otherwise between the Optionee or Purchaser (as the
case may be) and the Board, which agreement must be in writing and signed by
the Optionee or Purchaser (as the case may be) and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Rights unless the
exercise of such Option or Stock Purchase Rights and the issuance and
delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933,
as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares
may then be listed, and shall be further subject to the approval of counsel
for the Company with respect to such compliance.
As a condition to the exercise of an Option or Stock Purchase Rights, the
Company may require the person exercising such Option or Stock Purchase
Rights to represent and warrant at the time of any such exercise that the
Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
16. Option, Stock Purchase and Stock Bonus Agreements. Options shall be
evidenced by written option agreements in such form as the Board shall
approve. Upon the exercise of Stock Purchase Rights, the Purchaser shall sign
a stock purchase agreement or stock bonus agreement in such form as the Board
shall approve.
17. Shareholder Approval.
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the
date the Plan is adopted. If such shareholder approval is obtained at a duly
held shareholders' meeting, it must be obtained by the affirmative vote of
the holders of a majority of the outstanding shares of the Company, or if
such shareholder approval is obtained by written consent, it must be obtained
by the unanimous written consent of all
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shareholders of the Company; provided, however, that approval at a meeting or
by written consent may be obtained by a lesser degree of shareholder
approval, if the Board determines, in its discretion after consultation with
the Company's legal counsel, that such a lesser degree of shareholder
approval will comply with all applicable laws and will not adversely affect
the qualification of the Plan under Section 422 of the Code.
(b) If and in the event that the Company registers any class of
equity securities pursuant to Section 12 of the Exchange Act, any required
approval of the shareholders of the Company obtained after such registration
shall be solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
(c) If any required approval by the shareholders of the Plan itself
or of any amendment thereto is solicited at any time otherwise than in the
manner described in Section 17(b) hereof, then the Company shall, at or prior
to the first annual meeting of shareholders held subsequent to the later of
(1) the first registration of any class of equity securities of the Company
under Section 12 of the Exchange Act or (2) the granting of an Option
hereunder to an officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for the
Plan substantially the same information which would be required (if proxies
to be voted with respect to approval or disapproval of the Plan or amendment
were then being solicited) by the rules and regulations in effect under
Section 14(a) of the Exchange Act at the time such information is furnished;
and
(ii) file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is
first sent or given to shareholders.
18. Information to Optionees and Purchasers. The Company shall provide
to each Optionee and Purchaser, during the period for which such Optionee or
Purchaser has one or more Options or Stock Purchase Rights outstanding,
copies of all annual reports and other information which are provided to all
shareholders of the Company. The Company shall not be required to provide
such information if the issuance of Options or Stock Purchase Rights under
the Plan is limited to key employees whose duties in connection with the
Company assure their access to equivalent information.
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THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
STOCK OPTION AGREEMENT
DATE OF GRANT: FIELD(4)
Focal, Inc., a Delaware corporation (the "Company"), hereby grants to
FIELD(1) (the "Optionee") an Option to purchase a total of FIELD(2) shares of
Common Stock (the "Shares"), at the price determined as provided herein, and in
all respects subject to the terms, definitions and provisions of the 1992
Incentive Stock Plan (the "Plan") adopted by the Company, which is incorporated
herein by reference. Unless otherwise defined herein, the terms defined in the
Plan shall have the same defined meanings herein.
1. Nature of the Option. If Optionee is an Employee of the Company, this
Option is intended to qualify as an Incentive Stock Option. If Optionee is a
Consultant of the Company, this Option is a Nonstatutory Stock Option and is not
intended to qualify for any special tax benefits to the Optionee.
2. Exercise Price. The exercise price is $0.37 for each share of Common
Stock, which price is not less than the fair market value per share of Common
Stock on the date of grant, as determined by the Board; provided, however, in
the event Optionee is an Employee and owns stock representing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of its Parent or Subsidiary corporations immediately before this
Option is granted, said exercise price is not less than one hundred ten percent
(110%) of the fair market value per share of Common Stock on the date of grant
as determined by the Board.
3. Exercise of Option. This Option shall be exercisable during its term
in accordance with the provisions of Section 8 of the Plan as follows:
(i) Right to Exercise
(a) Subject to Subsections 3(i)(b), (c), (d) and (e) below,
twelve forty-eighths (12/48ths) of the total number of the shares subject to
this Option shall become exercisable at the end of one year following FIELD(3)
and an additional one forty-eighth (1/48th) of the total number of shares
subject to this Option shall become exercisable at the end of each full month
thereafter until all of such shares are exercisable.
(b) This Option may not be exercised for a fraction of a
Share.
<PAGE>
(c) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 7, 8 and 9 below, subject to the limitations contained in subsections
3(i)(d) and (e).
(d) In no event may this Option be exercised after the date
of expiration of the term of this Option as set forth in Section 11 below.
(e) If this Option is intended to qualify as an Incentive
Stock Option, in no event may this Option become exercisable at a time or times
which, when this Option is aggregated with all other incentive stock options
granted to Optionee by the Company or any Parent or Subsidiary, would result in
Shares having an aggregate fair market value (determined for each Share as of
the date of grant of the option covering such share) in excess of $100,000
becoming first available for purchase upon exercise of one or more incentive
stock options during any calendar year.
(ii) Method of Exercise. This Option shall be exercisable by
written notice which shall state the election to exercise the Option, the number
of Shares in respect of which the Option is being exercised, and such other
representations and agreements as to the holder's investment intent with respect
to such shares of Common Stock as may be required by the Company pursuant to the
provisions of the Plan. Such written notice shall be signed by Optionee and
shall be delivered in person or by certified mail to the President, Secretary or
Chief Financial Officer of the Company. The written notice shall be accompanied
by payment of the exercise price. This Option shall be deemed to be exercised
upon receipt by the Company of such written notice accompanied by the exercise
price.
No shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares. Assuming such compliance, for income tax
purposes the Shares shall be considered transferred to the Optionee on the date
on which the Option is exercised with respect to such Shares.
4. Investment Representations; Restrictions on Transfer.
(i) By receipt of this Option, by its execution and by its exercise
in whole or in part, Optionee represents to the Company the following:
(a) Optionee understands that this Option and any Shares
purchased upon its exercise are securities, the issuance of which requires
compliance with federal and state securities laws.
(b) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities.
Optionee is acquiring these securities for investment for Optionee's own account
only and not with a view to, or for resale in connection with,
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<PAGE>
any "distribution" thereof within the meaning of the Securities Act of 1933,
as amended (the "Securities Act").
(c) Optionee acknowledges and understands that the securities
constitute "restricted securities" under the Securities Act and must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from such registration is available. Optionee further acknowledges
and understands that the Company is under no obligation to register the
securities. Optionee understands that the certificate evidencing the securities
will be imprinted with a legend which prohibits the transfer of the securities
unless they are registered or such registration is not required in the opinion
of counsel satisfactory to the Company and any other legend required under
applicable state securities laws.
(d) Optionee is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly, from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of exercise of the Option by the Optionee,
such exercise will be exempt from registration under the Securities Act. In the
event the Company later becomes subject to the reporting requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter
the securities exempt under Rule 701 may be resold, subject to the satisfaction
of certain of the conditions specified by Rule 144, including among other
things: (1) the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934); and, in the case of an
affiliate, (2) the availability of certain public information about the Company,
and the amount of securities being sold during any three month period not
exceeding the limitations specified in Rule 144(e), if applicable.
Notwithstanding this paragraph 4(i)(d), the Optionee acknowledges and agrees to
the restrictions set forth in paragraph 4(ii).
In the event that the Company does not qualify under Rule 701 at the
time of exercise of the Option, then the securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires
among other things: (1) the availability of certain public information about the
Company: (2) the resale occurring not less than two years after the party has
purchased, and made full payment for, within the meaning of Rule 144, the
securities to be sold; and (3) in the case of an affiliate, or of a
non-affiliate who has held the securities less than three years, the sale being
made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934) and the amount of securities being sold during
any three month period not exceeding the specified limitations stated therein,
if applicable.
(ii) Optionee agrees, in connection with the Company's initial
underwritten public offering of the Company's securities, (1) not to sell, make
short sale of, loan, grant any options for the purchase of, or otherwise dispose
of any shares of Common Stock of the Company held by Optionee (other than those
shares included in the registration) without the prior written consent of the
Company or the underwriters managing such initial underwritten public offering
of the Company's securities for one hundred eighty (180) days from the effective
date of such registration, and (2)
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<PAGE>
further agrees to execute any agreement reflecting (1) above as may be
requested by the underwriters at the time of the public offering.
5. Method of Payment. Payment of the purchase price shall be made by
cash or check.
6. Restrictions on Exercise. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations (Regulation G) as
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
7. Termination of Status as an Employee or Consultant. In the event of
termination of Optionee's Continuous Status as an Employee or Consultant,
Optionee may, but only within thirty (30) days after the date of such
termination (but in no event later than the date of expiration of the term of
this Option as set forth in Section 11 below), exercise this Option to the
extent that Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise this
Option at the date of such termination, or if Optionee does not exercise this
Option within the time specified herein, this Option shall terminate.
8. Disability of Optionee. Notwithstanding the provisions of Section 7
above, in the event of termination of Optionee's Continuous Status as an
Employee or Consultant as a result of Optionee's permanent and total disability
(as defined in Section 22(e)(3) of the Code), Optionee may, but only within six
(6) months from the date of termination of employment or consulting relationship
(but in no event later than the date of expiration of the term of this Option as
set forth in Section 11 below), exercise this Option to the extent Optionee was
entitled to exercise it at the date of such termination. To the extent that
Optionee was not entitled to exercise this Option at the date of termination, or
if Optionee does not exercise such Option (which Optionee was entitled to
exercise) within the time specified herein, this Option shall terminate.
9. Death of Optionee. In the event of the death of Optionee:
(i) during the term of this Option while an Employee or Consultant of
the Company and having been in Continuous Status as an Employee or Consultant
since the date of grant of this Option, this Option may be exercised, at any
time within six (6) months following the date of death (but in no event later
than the date of expiration of the term of this Option as set forth in
Section 11 below), by Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that would have accrued had Optionee continued living and
remained in Continuous Status as an Employee or Consultant six (6) months after
the date of death, subject to the limitations contained in Section 3(i)(e)
above; or
(ii) within thirty (30) days after the termination of Optionee's
Continuous Status as an Employee or Consultant, this Option may be exercised, at
any time within six (6) months following the date of death (but in no event
later than the date of expiration of the term of this Option as set
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<PAGE>
forth in Section 11 below), by Optionee's estate or by a person who acquired
the right to exercise this Option by bequest or inheritance, but only to the
extent of the right to exercise that had accrued at the date of termination.
10. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
11. Term of Option. Notwithstanding Section 9, this Option may not be
exercised more than ten (10) years from the date of grant of this Option, and
may be exercised during such term only in accordance with the Plan and the terms
of this Option.
12. Early Disposition of Stock. If Optionee is an Employee, Optionee
understands that, if Optionee disposes of any Shares received under this Option
within two (2) years after the date of this Agreement or within one (1) year
after such Shares were transferred to Optionee, Optionee will be treated for
federal income tax purposes as having received ordinary income at the time of
such disposition in an amount generally measured as the difference between the
price paid for the Shares and the lower of the fair market value of the Shares
at the date of exercise or the fair market value of the Shares at the date of
disposition. The amount of such ordinary income may be measured differently if
Optionee is an officer, director or 10% shareholder of the Company, or if the
Shares were subject to a substantial risk of forfeiture at the time they were
transferred. Any gain recognized on such a premature sale of the Shares in
excess of the amount treated as ordinary income will be characterized as capital
gain. Optionee hereby agrees to notify the Company in writing within thirty
(30) days after the date of any such disposition. Optionee understands that if
Optionee disposes of such Shares at any time after the expiration of such
two-year and one-year holding periods, any gain on such sale will be treated as
long-term capital gain.
13. Taxation Upon Exercise of Option. If Optionee is a Consultant,
Optionee understands that, upon exercise of this Option, Optionee will recognize
income for tax purposes in an amount equal to the excess of the then fair market
value of the Shares over the exercise price. Upon a resale of such shares by
the Optionee, any difference between the sale price and the fair market value of
the shares on the date of exercise of the Option will be treated as capital gain
or loss.
14. Tax Consequences. The Optionee understands that any of the foregoing
references to taxation are based on federal income tax laws and regulations now
in effect. The Optionee has reviewed with the Optionee's own tax advisors the
federal, state, local and foreign tax consequences of the transactions
contemplated by this Agreement. The Optionee is relying solely on such advisors
and not on any statements or representations of the Company or any of its
agents. The Optionee understands that the Optionee (and not the Company) shall
be responsible for the Optionee's own tax liability that may arise as a result
of the transactions contemplated by this Agreement.
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<PAGE>
FOCAL, INC.
By:
---------------------------------
Title:
------------------------------
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO SECTION
3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR CONSULTANT AT
THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT THIS OPTION, THE COMPANY'S PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE,
THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH
HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF
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<PAGE>
CONTINUED ENGAGEMENT AS AN EMPLOYEE OR CONSULTANT FOR THE VESTING PERIOD, FOR
ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTING RELATIONSHIP
AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
annexed hereto, represents that Optionee is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee has reviewed the Plan and this Option in their
entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option and fully understands all provisions of the Option.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Board or of the Committee upon any questions arising
under the Plan. Optionee further agrees to notify the Company upon any change
in the residence address indicated below.
Dated:
--------------------
-----------------------------------
Optionee
Residence Address:
-----------------------------------
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Social Security No.
---------------
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<PAGE>
EXHIBIT A
NOTICE OF EXERCISE OF
STOCK OPTION
TO:
FROM:
DATE:
RE: Exercise of Stock Option
I hereby exercise my option to purchase shares of Common Stock at
------
$ per share (total exercise price of $ ), effective today's date.
------ ------
This notice is given in accordance with the terms of my Stock Option Agreement
dated , 19 . The option price and vested amount is in accordance
------------ --
with Sections 2 and 3 of the Stock Option Agreement.
Attached is a check payable to Focal, Inc. for the total exercise price of
the shares being purchased. The undersigned confirms the representations made
in Section 4 of the Stock Option Agreement.
Please prepare the stock certificate in the following name(s):
---------------------------
---------------------------
If the stock is to be registered in a name other than your name, please so
advise the Company. The Stock Option Agreement requires the Company's approval
for registration in a name other than your name and requires certain agreements
from any joint owner.
Sincerely,
---------------------------
(Signature)
---------------------------
(Print or Type Name)
Letter and consideration
received on , 19
------------------ ---
By:
--------------------------
<PAGE>
EXHIBIT 10.3
FOCAL, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1997 Employee Stock
Purchase Plan of Focal, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is
the intention of the Company to have the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as
amended. The provisions of the Plan, accordingly, shall be construed so as
to extend and limit participation in a manner consistent with the
requirements of that section of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Focal, Inc. and any Designated Subsidiary
of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any
calendar year. For purposes of the Plan, the employment relationship shall
be treated as continuing intact while the individual is on sick leave or
other leave of absence approved by the Company. Where the period of leave
exceeds 90 days and the individual's right to reemployment is not guaranteed
either by statute or by contract, the employment relationship shall be deemed
to have terminated on the 91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
<PAGE>
(i) "Exercise Date" shall mean the last day of each Purchase Period.
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system
for the last market trading day on the date of such determination, as
reported in The Wall Street Journal or such other source as the Administrator
deems reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or
such other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board, or;
(4) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to
the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "Offering Periods" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan
may be exercised, commencing on the first Trading Day on or after
[ ] and [ ] of each year and terminating on the
--------------- ---------------
last Trading Day in the periods ending twenty-four months later; provided,
however, that the first Offering Period under the Plan shall commence with
the first Trading Day on or after the date on which the Securities and
Exchange Commission declares the Company's Registration Statement effective
and ending on the last Trading Day on or before [ ]. The
-------------
duration and timing of Offering Periods may be changed pursuant to Section 4
of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the approximately six month period
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence
on the Enrollment Date and end with the next Exercise Date.
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<PAGE>
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and
the number of shares of Common Stock which have been authorized for issuance
under the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares
at the time such option is granted) for each calendar year in which such
option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the
first Trading Day on or after [ ] and [ ] each
--------------- -------------
year, or on such other date as the Board shall determine, and continuing
thereafter until terminated in accordance with Section 20 hereof; provided,
however, that the first Offering Period under the Plan shall commence with
the first Trading Day on or after the date on which the Securities and
Exchange Commission declares the Company's Registration Statement effective
and ending on the last Trading Day on or before [ ]. The
---------------
Board shall have the power to change the duration of Offering Periods
(including the commencement dates thereof) with respect to future offerings
without shareholder approval if such change is announced at least five (5)
days prior to the scheduled beginning of the first Offering Period to be
affected thereafter.
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<PAGE>
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan and filing it with the Company's payroll
office prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll
in the Offering Period to which such authorization is applicable, unless
sooner terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay
day during the Offering Period in an amount not exceeding 15% of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into
such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate
shall be effective with the first full payroll period following five (5)
business days after the Company's receipt of the new subscription agreement
unless the Company elects to process a given change in participation more
quickly. A participant's subscription agreement shall remain in effect for
successive Offering Periods unless terminated as provided in Section 10
hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the
rate provided in such participant's subscription agreement at the beginning
of the first Purchase Period which is scheduled to end in the following
calendar year, unless terminated by the participant as provided in Section 10
hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise
upon the exercise of the option or the disposition of the Common Stock. At
any time, the
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<PAGE>
Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable
withholding obligations, including any withholding required to make available
to the Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted
an option to purchase on each Exercise Date during such Offering Period (at
the applicable Purchase Price) up to a number of shares of the Company's
Common Stock determined by dividing such Employee's payroll deductions
accumulated prior to such Exercise Date and retained in the Participant's
account as of the Exercise Date by the applicable Purchase Price; provided
that in no event shall an Employee be permitted to purchase during each
Purchase Period more than 30,000 shares of the Company's Common Stock
(subject to any adjustment pursuant to Section 19) on the Enrollment Date,
and provided further that such purchase shall be subject to the limitations
set forth in Sections 3(b) and 12 hereof. Exercise of the option shall occur
as provided in Section 8 hereof, unless the participant has withdrawn
pursuant to Section 10 hereof. The option shall expire on the last day of the
Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number
of full shares subject to option shall be purchased for such participant at
the applicable Purchase Price with the accumulated payroll deductions in his
or her account. No fractional shares shall be purchased; any payroll
deductions accumulated in a participant's account which are not sufficient to
purchase a full share shall be retained in the participant's account for the
subsequent Purchase Period or Offering Period, subject to earlier withdrawal
by the participant as provided in Section 10 hereof. Any other monies left
over in a participant's account after the Exercise Date shall be returned to
the participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time by giving written
notice to the Company in the form of Exhibit B to this Plan. All of the
participant's payroll deductions credited to his or her account shall be paid
to such participant promptly after receipt of notice of withdrawal and such
participant's option for the Offering Period shall be automatically
terminated, and no further payroll deductions for the purchase of shares
shall be made for such Offering Period. If a participant withdraws from an
Offering Period, payroll deductions shall
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<PAGE>
not resume at the beginning of the succeeding Offering Period unless the
participant delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding Offering
Periods which commence after the termination of the Offering Period from
which the participant withdraws.
11. Termination of Employment.
Upon a participant's ceasing to be an Employee, for any reason, he
or she shall be deemed to have elected to withdraw from the Plan and the
payroll deductions credited to such participant's account during the Offering
Period but not yet used to exercise the option shall be returned to such
participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 15 hereof, and such participant's option shall
be automatically terminated. The preceding sentence notwithstanding, a
participant who receives payment in lieu of notice of termination of
employment shall be treated as continuing to be an Employee for the
participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be [ ( )] shares. If, on a given
Exercise Date, the number of shares with respect to which options are to be
exercised exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available
for purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant
and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and
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<PAGE>
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required
for such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the
estate of the participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion,
may deliver such shares and/or cash to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company
may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to
participating Employees at least annually, which statements shall set forth
the amounts of payroll deductions, the Purchase Price, the number of shares
purchased and the remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the Reserves, the maximum number of shares
each participant may purchase each
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<PAGE>
Purchase Period (pursuant to Section 7), as well as the price per share and
the number of shares of Common Stock covered by each option under the Plan
which has not yet been exercised shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in
the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration". Such adjustment shall be made
by the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in
progress shall be shortened by setting a new Exercise Date (the "New Exercise
Date"), and shall terminate immediately prior to the consummation of such
proposed dissolution or liquidation, unless provided otherwise by the Board.
The New Exercise Date shall be before the date of the Company's proposed
dissolution or liquidation. The Board shall notify each participant in
writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option shall be exercised
automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10
hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the option, any
Purchase Periods then in progress shall be shortened by setting a new
Exercise Date (the "New Exercise Date") and any Offering Periods then in
progress shall end on the New Exercise Date. The New Exercise Date shall be
before the date of the Company's proposed sale or merger. The Board shall
notify each participant in writing, at least ten (10) business days prior to
the New Exercise Date, that the Exercise Date for the participant's option
has been changed to the New Exercise Date and that the participant's option
shall be exercised automatically on the New Exercise Date, unless prior to
such date the participant has withdrawn from the Offering Period as provided
in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided
that an Offering Period may be terminated by the Board of Directors on any
Exercise Date if the Board determines that the termination of the Plan is in
the best
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<PAGE>
interests of the Company and its shareholders. Except as provided in Section
19 hereof, no amendment may make any change in any option theretofore granted
which adversely affects the rights of any participant. To the extent
necessary to comply with Section 423 of the Code (or any successor rule or
provision or any other applicable law, regulation or stock exchange rule),
the Company shall obtain shareholder approval in such a manner and to such a
degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods,
limit the frequency and/or number of changes in the amount withheld during an
Offering Period, establish the exchange ratio applicable to amounts withheld
in a currency other than U.S. dollars, permit payroll withholding in excess
of the amount designated by a participant in order to adjust for delays or
mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or
accounting and crediting procedures to ensure that amounts applied toward the
purchase of Common Stock for each participant properly correspond with
amounts withheld from the participant's Compensation, and establish such
other limitations or procedures as the Board (or its committee) determines in
its sole discretion advisable which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any
of the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten
(10) years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock
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<PAGE>
on any Exercise Date in an Offering Period is lower than the Fair Market
Value of the Common Stock on the Enrollment Date of such Offering Period,
then all participants in such Offering Period shall be automatically
withdrawn from such Offering Period immediately after the exercise of their
option on such Exercise Date and automatically re-enrolled in the immediately
following Offering Period as of the first day thereof.
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<PAGE>
EXHIBIT A
FOCAL, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
Original Application Enrollment Date:
- ------ -----------
Change in Payroll Deduction Rate
- ------
Change of Beneficiary(ies)
- ------
1. hereby elects to participate in the
--------------------------------
Focal, Inc. 1997 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's Common
Stock in accordance with this Subscription Agreement and the Employee
Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
% of my Compensation on each payday (from 0 to 15%) during the
----
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
--------
.
----------------------------------------
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at the
time such shares were purchased by me over the price which I paid for the
shares. I hereby agree to notify the Company in writing within 30 days
after the date of any disposition of my shares and I will make adequate
provision for Federal, state or other tax withholding obligations, if
any, which arise upon the disposition of the Common Stock. The Company
may, but will not be obligated to, withhold from my compensation the
amount necessary to meet any applicable withholding obligation including
any withholding necessary to make available to the Company any tax
deductions or
<PAGE>
benefits attributable to sale or early disposition of Common Stock by me.
If I dispose of such shares at any time after the expiration of the
2-year and 1-year holding periods, I understand that I will be treated
for federal income tax purposes as having received income only at the
time of such disposition, and that such income will be taxed as ordinary
income only to the extent of an amount equal to the lesser of (1) the
excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2)
15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
---------------------------------------------------------
(First) (Middle) (Last)
- ------------------------------- -------------------------------------------
Relationship
-------------------------------------------
(Address)
Employee's Social
Security Number: -------------------------------------------
Employee's Address: -------------------------------------------
-------------------------------------------
-------------------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT
THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
------------------------ -------------------------------------------
Signature of Employee
-------------------------------------------
Spouse's Signature (If beneficiary other
than spouse)
<PAGE>
EXHIBIT B
FOCAL, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Focal, Inc.
1997 Employee Stock Purchase Plan which began on , 19 (the
------------ --
"Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to
pay to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to
participate in succeeding Offering Periods only by delivering to the Company
a new Subscription Agreement.
Name and Address of Participant:
---------------------------------
---------------------------------
---------------------------------
Signature:
---------------------------------
Date:
----------------------------
<PAGE>
EXHIBIT 10.4
FOCAL, INC.
1997 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1997 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the common stock of the Company.
(d) "Company" means Focal, Inc., a Delaware corporation.
(e) "Director" means a member of the Board.
(f) "Employee" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(h) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock for the last market
<PAGE>
trading day prior to the time of determination, as reported in The Wall
Street Journal or such other source as the Board deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(i) "Inside Director" means a Director who is an Employee.
(j) "Option" means a stock option granted pursuant to the Plan.
(k) "Optioned Stock" means the Common Stock subject to an Option.
(l) "Optionee" means a Director who holds an Option.
(m) "Outside Director" means a Director who is not an Employee.
(n) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1997 Director Option Plan.
(p) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code
of 1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is [ ] Shares of Common Stock, plus an annual
----------
increase to be added on each anniversary date of the adoption of the Plan
equal to the lesser of (i) the number of Shares needed to restore the maximum
aggregate number of Shares available for sale under the Plan to [ ]
----------
or (ii) a lesser amount determined by the Board. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not
be returned to the Plan and shall not become available for future
distribution under the Plan.
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<PAGE>
4. Administration and Grants of Options under the Plan.
(a) Procedure for Grants. All grants of Options to Outside Directors
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an
Option to purchase [5,000] Shares (the "Annual Option") on
[ ] of each year provided he or she is then an Outside
--------------------
Director and if as of such date, he or she shall have served on the Board for
at least the preceding six (6) months.
(iii) Notwithstanding the provisions of subsection (ii) hereof,
any exercise of an Option granted before the Company has obtained shareholder
approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in
accordance with Section 16 hereof.
(iv) The terms of each Option granted hereunder shall be as
follows:
(A) the term of the Option shall be ten (10) years.
(B) the Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.
(D) subject to Section 10 hereof, the Option shall become
exercisable as to [ ] percent of the Shares subject to the Option on
----------
each anniversary of its date of grant, provided that the Optionee continues
to serve as a Director on such dates.
(v) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the
remaining Shares available for Option grant shall be granted under Options to
the Outside Directors on a pro rata basis. No further grants shall be made
until such time, if any, as additional Shares become available for grant
under the Plan through action of the Board or the shareholders to increase
the number of Shares which may be issued under the Plan or through
cancellation or expiration of Options previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth
in Section 4 hereof. The Plan shall not
-3-
<PAGE>
confer upon any Optionee any right with respect to continuation of service as
a Director or nomination to serve as a Director, nor shall it interfere in
any way with any rights which the Director or the Company may have to
terminate the Director's relationship with the Company at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 11 of the
Plan.
7. Form of Consideration. The consideration to be paid for the Shares
to be issued upon exercise of an Option, including the method of payment,
shall consist of (i) cash, (ii) check, (iii) other shares which (x) in the
case of Shares acquired upon exercise of an Option, have been owned by the
Optionee for more than six (6) months on the date of surrender, and (y) have
a Fair Market Value on the date of surrender equal to the aggregate exercise
price of the Shares as to which said Option shall be exercised, (iv)
consideration received by the Company under a cashless exercise program
implemented by the Company in connection with the Plan, or (v) any
combination of the foregoing methods of payment.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in
Section 4 hereof; provided, however, that no Options shall be exercisable
until shareholder approval of the Plan in accordance with Section 16 hereof
has been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may consist of any consideration and method of
payment allowable under Section 7 of the Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. A share certificate for the number of Shares so
acquired shall be issued to the Optionee as soon as practicable after
exercise of the Option. No adjustment shall be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which
the Option is exercised.
-4-
<PAGE>
(b) Termination of Continuous Status as a Director. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or
her Option, but only within three (3) months following the date of such
termination, and only to the extent that the Optionee was entitled to
exercise it on the date of such termination (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was
not entitled to exercise an Option on the date of such termination, and to
the extent that the Optionee does not exercise such Option (to the extent
otherwise so entitled) within the time specified herein, the Option shall
terminate.
(c) Disability of Optionee. In the event Optionee's status as a
Director terminates as a result of total and permanent disability (as defined
in Section 22(e)(3) of the Code), the Optionee may exercise his or her
Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled to
exercise it on the date of such termination (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was
not entitled to exercise an Option on the date of termination, or if he or
she does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance may exercise the Option, but only within twelve
(12) months following the date of death, and only to the extent that the
Optionee was entitled to exercise it on the date of death (but in no event
later than the expiration of its ten (10) year term). To the extent that the
Optionee was not entitled to exercise an Option on the date of death, and to
the extent that the Optionee's estate or a person who acquired the right to
exercise such Option does not exercise such Option (to the extent otherwise
so entitled) within the time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per Share covered by each such outstanding
Option, and the number of Shares issuable pursuant to the automatic grant
provisions of Section 4 hereof shall be proportionately adjusted for any
increase or decrease in the number of issued Shares resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification
of the Common Stock, or any other increase or decrease in the number of
issued Shares effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the
Company shall not be deemed
-5-
<PAGE>
to have been "effected without receipt of consideration." Except as
expressly provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has
not been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation or the sale of substantially all of the
assets of the Company, outstanding Options may be assumed or equivalent
options may be substituted by the successor corporation or a Parent or
Subsidiary thereof (the "Successor Corporation"). If an Option is assumed or
substituted for, the Option or equivalent option shall continue to be
exercisable as provided in Section 4 hereof for so long as the Optionee
serves as a Director or a director of the Successor Corporation. Following
such assumption or substitution, if the Optionee's status as a Director or
director of the Successor Corporation, as applicable, is terminated other
than upon a voluntary resignation by the Optionee, the Option or option shall
become fully exercisable, including as to Shares for which it would not
otherwise be exercisable. Thereafter, the Option or option shall remain
exercisable in accordance with Sections 8(b) through (d) above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested
and exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the
Option shall be fully exercisable for a period of thirty (30) days from the
date of such notice, and upon the expiration of such period the Option shall
terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the
right to purchase or receive, for each Share of Optioned Stock subject to the
Option immediately prior to the merger or sale of assets, the consideration
(whether stock, cash, or other securities or property) received in the merger
or sale of assets by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares). If such consideration received in the merger or
sale of assets is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option,
for each Share of Optioned Stock subject to the Option, to be solely common
stock of the successor corporation or its Parent equal in fair market value
to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall
-6-
<PAGE>
be made which would impair the rights of any Optionee under any grant
theretofore made, without his or her consent. In addition, to the extent
necessary and desirable to comply with any applicable law, regulation or
stock exchange rule, the Company shall obtain shareholder approval of any
Plan amendment in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and
the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, state securities laws, and the requirements of any
stock exchange upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any
of the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel
to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue
or sell such Shares as to which such requisite authority shall not have been
obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan
is adopted. Such shareholder approval shall be obtained in the degree and
manner required under applicable state and federal law and any stock exchange
rules.
-7-
<PAGE>
FOCAL, INC.
DIRECTOR OPTION AGREEMENT
Focal, Inc., a Delaware corporation (the "Company"), has granted to
(the "Optionee"), an option to purchase a total of
- -----------
[ ( )] shares of the Company's Common Stock (the
---------------- -----------
"Optioned Stock"), at the price determined as provided herein, and in all
respects subject to the terms, definitions and provisions of the Company's
1997 Director Option Plan (the "Plan") adopted by the Company which is
incorporated herein by reference. The terms defined in the Plan shall have
the same defined meanings herein.
1. Nature of the Option. This Option is a nonstatutory option and is
not intended to qualify for any special tax benefits to the Optionee.
2. Exercise Price. The exercise price is $ for each share of
---------
Common Stock.
3. Exercise of Option. This Option shall be exercisable during its
term in accordance with the provisions of Section 8 of the Plan as follows:
(i) Right to Exercise.
(a) This Option shall become exercisable in installments
cumulatively with respect to percent ( %) of the Optioned Stock
----------- ----
one year after the date of grant, and as to an additional
-----------------
percent ( %) of the Optioned Stock on each anniversary of the date of grant,
---
so that one hundred percent (100%) of the Optioned Stock shall be exercisable
[ ] years after the date of grant; provided, however, that in no event
-------
shall any Option be exercisable prior to the date the stockholders of the
Company approve the Plan.
(b) This Option may not be exercised for a fraction of a share.
(c) In the event of Optionee's death, disability or other
termination of service as a Director, the exercisability of the Option is
governed by Section 8 of the Plan.
(ii) Method of Exercise. This Option shall be exercisable by
written notice which shall state the election to exercise the Option and the
number of Shares in respect of which the Option is being exercised. Such
written notice, in the form attached hereto as Exhibit A, shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The written notice shall be accompanied by payment
of the exercise price.
4. Method of Payment. Payment of the exercise price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(i) cash;
<PAGE>
(ii) check; or
(iii) surrender of other shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised; or
(iv) delivery of a properly executed exercise notice together
with such other documentation as the Company and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company
of the sale or loan proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option,
the Company may require Optionee to make any representation and warranty to
the Company as may be required by any applicable law or regulation.
6. Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by the
Optionee. The terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
7. Term of Option. This Option may not be exercised more than ten (10)
years from the date of grant of this Option, and may be exercised during such
period only in accordance with the Plan and the terms of this Option.
8. Taxation Upon Exercise of Option. Optionee understands that, upon
exercise of this Option, he or she will recognize income for tax purposes in
an amount equal to the excess of the then Fair Market Value of the Shares
purchased over the exercise price paid for such Shares. Since the Optionee
is subject to Section 16(b) of the Securities Exchange Act of 1934, as
amended, under certain limited circumstances the measurement and timing of
such income (and the commencement of any capital gain holding period) may be
deferred, and the Optionee is advised to contact a tax advisor concerning the
application of Section 83 in general and the availability a Section 83(b)
election in particular in connection with the exercise of the Option. Upon a
resale of such Shares by the Optionee, any difference between the sale price
and the Fair Market Value of the Shares on the date
-2-
<PAGE>
of exercise of the Option, to the extent not included in income as described
above, will be treated as capital gain or loss.
DATE OF GRANT:
-----------
FOCAL, INC.,
a Delaware corporation
By:
---------------------------
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the
terms and provisions thereof. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under the Plan.
Dated:
-------------------
------------------------------
Optionee
-3-
<PAGE>
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
Focal, Inc.
Attention: Corporate Secretary
1. Exercise of Option. The undersigned ("Optionee") hereby elects to
exercise Optionee's option to purchase shares of the Common Stock (the
-------
"Shares") of Focal, Inc., (the "Company") under and pursuant to the Company's
1997 Director Option Plan and the Director Option Agreement dated
(the "Agreement").
- -----------
2. Representations of Optionee. Optionee acknowledges that Optionee
has received, read and understood the Agreement.
3. Federal Restrictions on Transfer. Optionee understands that the
Shares must be held indefinitely unless they are registered under the
Securities Act of 1933, as amended (the "1933 Act"), or unless an exemption
from such registration is available, and that the certificate(s) representing
the Shares may bear a legend to that effect. Optionee understands that the
Company is under no obligation to register the Shares and that an exemption
may not be available or may not permit Optionee to transfer Shares in the
amounts or at the times proposed by Optionee.
4. Tax Consequences. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. Delivery of Payment. Optionee herewith delivers to the Company the
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding
taxes required to be paid or withheld by the Company.
6. Entire Agreement. The Agreement is incorporated herein by
reference. This Exercise Notice and the Agreement constitute the entire
agreement of the parties and supersede in their entirety all prior
undertakings and agreements of the Company and Optionee with respect to the
<PAGE>
subject matter hereof. This Exercise Notice and the Agreement are governed
by Utah law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: FOCAL, INC.
- ----------------------------- By:
---------------------------
Its:
--------------------------
Address:
Dated: Dated:
----------------------- ------------------------
-2-
<PAGE>
EXHIBIT 10.5
INVESTORS RIGHTS AGREEMENT
This Agreement is made as of April 12, 1996 by and among Focal, Inc., a
Delaware corporation (the "Company"), the holders of the Company's Series A,
Series B, Series C, Series D and Series E Preferred Stock, the holders of
certain warrants to purchase Preferred Stock of the Company and certain
holders of Common Stock of the Company.
RECITALS
A. Simultaneously herewith, the Company is entering into a Series E
Preferred Stock Purchase Agreement (the "1996 Series E Agreement") and
issuing shares of Series E Preferred Stock to the Purchasers named in the
Schedule of Investors to the 1996 Series E Agreement.
B. In connection with this transaction, the Company wishes to
consolidate the registration rights and rights of first refusal held by the
holders of its Preferred Stock and warrants to acquire Preferred Stock into a
single agreement.
NOW, THEREFORE, it is hereby agreed as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Conversion Stock" shall mean the shares of Common Stock issued or
issuable upon conversion of the Shares.
"Holder" shall mean the holders of Registrable Securities,
securities convertible into Registrable Securities or warrants to acquire
Registrable Securities or securities convertible into Registrable Securities
and any person holding such securities to whom the rights under this
Agreement have been transferred in accordance with Section 2.13 hereof.
"Initiating Holders" shall mean any Holder or Holders who in the
aggregate hold or have the power to acquire (through conversion or exercise
of other securities) at least 40% of the Registrable Securities.
"Purchasers" shall mean the purchasers of Series A and B Preferred
Stock pursuant to the Preferred Stock Purchase Agreement dated May 31, 1992
(the "Series A and B Agreement"), the Purchasers of Series C Preferred Stock
pursuant to the Series C Preferred Stock Purchase Agreement dated December
22, 1992 (the "Series C Agreement"), the Purchasers of Series D Preferred
Stock pursuant to the Series D Agreement dated August 11, 1993 (the "1993
Series D Agreement") the
<PAGE>
Purchasers of Series D Preferred Stock pursuant to the Series D Agreement
dated August 5, 1994 (the "1994 Series D Agreement"), the Purchasers of
Series E Preferred Stock pursuant to the 1996 Series E Agreement.
"Registrable Securities" means (i) the Conversion Stock, and (ii)
any Common Stock of the Company issued or issuable with respect to, or in
exchange for or in replacement of the Conversion Stock or other securities
convertible into or exercisable for Conversion Stock upon any stock split,
stock dividend, recapitalization, or similar event, provided, however, that
shares of Common Stock or other securities shall only be treated as
Registrable Securities for the purposes of Section 2.6 hereof if and so long
as they have not been sold to or through a broker or dealer or underwriter in
a public distribution or a public securities transaction.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, except as otherwise
stated below, incurred by the Company in complying with Sections 2.5, 2.6 and
2.7 hereof, including, without limitation, all registration, qualification
and filing fees, printing expenses, escrow fees, fees and disbursements of
counsel for the Company and special counsel to the selling Holders, blue sky
fees and expenses, the expense of any special audits incident to or required
by any such registration (but excluding the compensation of regular employees
of the Company which shall be paid in any event by the Company).
"Restricted Securities" shall mean the securities of the Company
required to bear the legend set forth in Section 2.2 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered
by the Holders.
"Shares" shall mean the shares of the Company's (i) Series A
Preferred Stock and Series B Preferred Stock issued pursuant to the Series A
and B Agreement, (ii) Series C Preferred Stock issued pursuant to the Series
C Agreement, (iii) Series C Preferred Stock issued pursuant to a warrant held
by Comdisco, Inc., (iv) Series D Preferred Stock issued or issuable pursuant
to warrants held by Comdisco, Inc., MMC/GATX Partnership No. I, Frazier
Investment Securities and Invemed Associates, (v) Series D Preferred Stock
issued pursuant to the 1993 Series D Agreement and the 1994 Series D
Agreement, and (v) Series E Preferred Stock issued pursuant to the 1996
Series E Agreement.
2. Restrictions on Transferability of Securities;
Compliance with Securities Act; Registration Rights
<PAGE>
a. Restrictions on Transferability. The Shares and the
Conversion Stock shall not be sold, assigned, transferred or
pledged except upon the conditions specified in this Section 2,
which conditions are intended to ensure compliance with the
provisions of the Securities Act. The Purchasers will cause
any proposed purchaser, assignee, transferee, or pledgee of the
Shares or the Conversion Stock held by the Purchasers to agree
to take and hold such securities subject to the provisions and
upon the conditions specified in this Section 2.
b. Restrictive Legend. Each certificate representing (i) the
Shares, (ii) the Conversion Stock and (iii) any other
securities issued in respect of the Shares or the Conversion
Stock upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall (unless otherwise
permitted by the provisions of Section 2.3 below) be stamped or
otherwise imprinted with a legend in the following form (in
addition to any legend required under applicable state
securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION UNLESS THE TRANSFER IS IN ACCORDANCE WITH RULE 144 OR
SIMILAR RULE OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND
RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
The Purchasers and Holders consent to the Company making a notation on
its records and giving instructions to any transfer agent of the Shares or
the Conversion Stock in order to implement the restrictions on transfer
established in this Section 2.
c. Notice of Proposed Transfers. The holder of each
certificate representing Restricted Securities by acceptance
thereof agrees to comply in all respects with the provisions
of this Section 2.3. Prior to any proposed sale, assignment,
transfer or pledge of any Restricted Securities (other than (i)
a transfer not involving a change in beneficial ownership or
(ii) in transactions involving the distribution without
consideration of Restricted Securities by any Holder to any of
its partners, or retired partners, or to the estate of any of
its partners or
<PAGE>
retired partners, (iii) a transfer to an affiliated fund,
partnership or company, which is not a competitor of the
Company, subject to compliance with applicable securities laws,
or (iv) transfers in compliance with Rule 144, so long as the
Company is furnished with satisfactory evidence of compliance
with such Rule), unless there is in effect a registration
statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to the
Company of such holder's intention to effect such transfer,
sale, assignment or pledge. Each such notice shall describe the
manner and circumstances of the proposed transfer, sale,
assignment or pledge in sufficient detail, and shall be
accompanied, at such holder's expense, by either (i) a written
opinion of legal counsel who shall, and whose legal opinion
shall be, reasonably satisfactory to the Company addressed to
the Company, to the effect that the proposed transfer of the
Restricted Securities may be effected without registration
under the Securities Act; or (ii) a "no action" letter from the
Commission to the effect that the transfer of such securities
without registration will not result in a recommendation by the
staff of the Commission that action be taken with respect
thereto, whereupon the holder of such Restricted Securities
shall be entitled to transfer such Restricted Securities in
accordance with the terms of the notice delivered by the holder
to the Company. Each certificate evidencing the Restricted
Securities transferred as above provided shall bear, except if
such transfer is made pursuant to Rule 144, the appropriate
restrictive legend set forth in Section 2.2 above, except that
such certificate shall not bear such restrictive legend if in
the opinion of counsel for such holder and in the reasonable
opinion of the Company such legend is not required in order to
establish compliance with any provision of the Securities Act.
d. Removal of Restrictions on Transfer of Securities. Any
legend referred to in Section 2.2 hereof stamped on a
certificate evidencing (i) the Shares, (ii) the Conversion
Stock or (iii) any other securities issued in respect of the
Shares or the Conversion Stock upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar
event and the stock transfer instructions and record notations
with respect to such security shall be removed and the Company
shall issue a certificate without such legend to the holder of
such security if such security is registered under the
Securities Act, or if such holder provides the Company with an
opinion of counsel (which may be counsel for the Company)
reasonably acceptable to the Company to the effect that a
public sale or transfer of such security may be made without
registration under the Securities Act or such holder provides
the Company with reasonable assurances,which may, at the option
of the Company, include an opinion of counsel satisfactory to
the Company, that such security can be sold pursuant to Section
(k) of
<PAGE>
Rule 144 under the Securities Act. The Company will cause
legend removal to be authorized or provide a written response
as to why legends may not be removed within 10 days of receipt
of any such request.
e. Requested Registration.
i. Request for Registration. In case the Company shall receive
from Initiating Holders a written request that the Company effect
any registration, qualification or compliance with respect to
shares of Registrable Securities with an expected aggregate
offering price to the public of at least $5,000,000, the Company
will:
(1) within ten days of the receipt by the Company of such
notice, give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(2) as soon as practicable, use its best efforts to effect
such registration, qualification or compliance (including,
without limitation, appropriate qualification under applicable
blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or
regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of
such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities
of any Holder or Holders joining in such request as are
specified in a written request received by the Company within
20 days after receipt of such written notice from the Company;
Provided, however, that the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant
to this Section 2.5:
(a) In any particular jurisdiction in which the Company
would be required to execute a general consent to service
of process in effecting such registration, qualification
or compliance unless the Company is already subject to
service in such jurisdiction and except as may be required
by the Securities Act;
(b) Prior to the earlier of (i) December 31, 1997 or (ii)
the expiration of six months following completion of the
Company's first registered public offering of its stock;
<PAGE>
(c) During the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of,
and ending on the date three (3) months immediately
following the effective date of, any registration
statement pertaining to securities of the Company (other
than a registration of securities in a Rule 145
transaction, with respect to an employee benefit plan or
with respect to the Company's first registered public
offering of its stock), provided that the Company is
actively employing in good faith all reasonable efforts to
cause such registration statement to become effective;
(d) After the Company has effected two such registrations
pursuant to this Section 2.5(a) covering all shares
requested to be registered by the Holders initiating or
joining such request, and such registrations have been
declared or ordered effective, and, if the method of
disposition specified by such initiating or requesting
Holders shall have been a firm commitment underwritten
public offering, all such shares shall have been sold
pursuant thereto;
(e) If the Company shall furnish to such Holders a
certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors
it would be seriously detrimental to the Company or its
stockholders for a registration statement to be filed in
the near future, then the Company's obligation to use its
best efforts to register, qualify or comply under this
Section 2.5 shall be deferred for a period not to exceed
90 days from the date of receipt of written request from
the Initiating Holders; provided, however, that the
Company shall not exercise such right more than once in
any twelve-month period.
Subject to the foregoing clauses (A) through (E), the Company shall file
a registration statement covering the Registrable Securities so requested to
be registered as soon as practicable, after receipt of the request or
requests of the Initiating Holders.
ii. Underwriting. In the event that a registration pursuant
to Section 2.5 is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as part
of the notice given pursuant to Section 2.5(a)(i). In such
event, the right of any Holder to registration pursuant to
Section 2.5 shall be conditioned upon such Holder's
participation in the underwriting arrangements required by
this Section 2.5, and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent
requested shall be limited to the extent provided herein.
<PAGE>
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting
agreement in customary form with the managing underwriter of recognized
national standing selected for such underwriting by the Company and
reasonably acceptable to a majority of the Holders proposing to distribute
their securities through such underwriting; provided, however, that if
General Electric Pension Trust ("GEPT") is participating in such underwriting
and the General Electric Company is directly or indirectly the beneficial
owner of five percent (5%) or more of the outstanding equity interests of any
underwriter or underwriters, GEPT shall have the absolute right to disapprove
such underwriter or underwriters. Notwithstanding any other provision of this
Section 2.5, if the managing underwriter advises the Initiating Holders in
writing that marketing factors require a limitation of the number of shares
to be underwritten, then the Company shall so advise all holders of
Registrable Securities and the number of shares of Registrable Securities
that may be included in the registration and underwriting shall be allocated
among all Holders thereof in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities requested by such Holders to be
included in such registration statement or in such other manner as shall be
agreed to by the Company and Holders of a majority of the Registrable
Securities proposed to be included in such registration. No Registrable
Securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. To facilitate
the allocation of shares in accordance with the above provisions, the Company
or the underwriters may round the number of shares allocated to any Holder to
the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such Holder may elect to withdraw therefrom by written notice
to the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to 90 days after the effective
date of such registration, or such other shorter period of time as the
underwriters may require.
f. Company Registration.
i. Notice of Registration. If at any time or from time to time
the Company shall determine to register any of its securities,
either for its own account or the account of a security holder or
holders, other than (i) a registration relating solely to employee
benefit plans or (ii) a registration relating solely to a Commission
Rule 145 transaction, the Company will:
(1) promptly give to each Holder written notice thereof; and
(2) include in such registration (and any related
qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made
within 20 days after receipt of such written notice from the
Company, by any Holder.
<PAGE>
ii. Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of
the written notice given pursuant to Section 2.6(a)(i); provided,
however, that if GEPT is participating in such underwriting and the
General Electric Company is directly or indirectly the beneficial
owner of five percent (5%) or more of the outstanding equity
interests of any underwriter or underwriters, GEPT shall have the
absolute right to disapprove such underwriter or underwriters. In
such event the right of any Holder to registration pursuant to
Section 2.6 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing
to distribute their securities through such underwriting shall
(together with the Company) enter into an underwriting agreement in
customary form with the managing underwriter selected for such
underwriting by the Company. Notwithstanding any other provision of
this Section 2.6, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the Registrable
Securities and other securities to be distributed through such
underwriting; provided, however, that except in connection with the
Company's initial underwritten public offering of Common Stock the
number of Registrable Securities shall not be limited to less than
20% of the aggregate number of shares proposed to be included in
such underwriting. The Company shall so advise all Holders
distributing their securities through such underwriting of such
limitation and the number of shares of Registrable Securities that
may be included in the registration (and underwriting if any) shall
be allocated among all Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities
requested by such Holders to be included in such Registration
Statement. To facilitate the allocation of shares in accordance
with the above provisions, the Company may round the number of
shares allocated to any Holder or holder to the nearest 100 shares.
If any Holder or holder disapproves of the terms of any such
underwriting, such Holder or holder may elect to withdraw therefrom
by written notice to the Company and the managing underwriter. Any
securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration, and shall not be transferred in a
public distribution prior to 90 days after the effective date of the
registration statement relating thereto, or such other shorter
period of time as the underwriters may require.
iii. Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it
under this Section 2.6 prior to the effectiveness of such
registration whether or not any Holder has elected to include
securities in such registration. The Registration Expenses of such
withdrawn registration shall be borne by the Company in accordance
with Section 2.8 hereof.
<PAGE>
g. Registration on Form S-3.
i. If any Holder or Holders request that the Company file a
registration statement on Form S-3 (or any successor form to Form
S-3), or any similar short-term registration statement, for a public
offering of Registrable Securities, the reasonably anticipated
aggregate price to the public of which, net of underwriting
discounts and commissions (if any), would exceed $1,000,000 and the
Company is a registrant entitled to use Form S-3 to register the
Registrable Securities for such an offering, the Company shall use
its best efforts to cause such Registrable Securities to be
registered on such form for the offering and to cause such
Registrable Securities to be qualified in such jurisdictions as the
Holder or Holders may reasonably request; provided, however, that
the Company shall not be required to effect more than four
registrations pursuant to this Section 2.7 or more than one such
registration in any twelve (12) month period. After the Company's
first public offering of its securities, the Company will use its
best efforts to qualify for Form S-3 registration or a similar
short-form registration. The provisions of Section 1.6(b) shall be
applicable to each registration initiated under this Section 2.7.
ii. Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 2.7: (i) in
any particular jurisdiction in which the Company would be required
to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be
required by the Securities Act; (ii) if the Company, within ten (10)
days of the receipt of the request of the initiating Holders, gives
notice of its bona fide intention to effect the filing of a
registration statement with the Commission within ninety (90) days
of receipt of such request (other than with respect to a
registration statement relating to a Rule 145 transaction, or an
offering solely to employees); (iii) during the period starting with
the date sixty (60) days prior to the Company's estimated date of
filing of, and ending on the date three (3) months immediately
following, the effective date of any registration statement
pertaining to securities of the Company (other than a registration
of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided that the Company is actively
employing in good faith all reasonable efforts to cause such
registration statement to become effective; or (iv) if the Company
shall furnish to such Holder a certificate signed by the President
of the Company stating that in the good faith judgment of the Board
of Directors it would be seriously detrimental to the Company or its
stockholders for registration statements to be filed in the near
future, then the Company's obligation to use its best efforts to
file a registration statement shall be deferred for a period not to
exceed 90 days from the receipt of the request to file such
registration by such Holder;
<PAGE>
provided, however, that the Company shall not exercise such right
more than once in any twelve-month period.
h. Expenses of Registration. All Registration Expenses
incurred in connection with registrations pursuant to Sections
2.5, 2.6 and 2.7 shall be borne by the Company. All Selling
Expenses relating to securities registered on behalf of the
Holders shall be borne by the holders of securities included in
such registration pro rata with the Company and among each
other on the basis of the number of shares so registered.
i. Registration Procedures. In the case of each
registration, qualification or compliance effected by the
Company pursuant to this Section 2, the Company will keep each
Holder advised in writing as to the initiation of each
registration, qualification and compliance and as to the
completion thereof. At its expense the Company will:
i. Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective for at
least one hundred eighty (180) days or until the distribution
described in the Registration Statement has been completed;
ii. 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.
iii. Furnish to the Holders participating in such registration and
to the underwriters of the securities being registered such
reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as
such underwriters may reasonably request in order to facilitate the
public offering of such securities.
iv. Furnish, at the request of any Holder requesting registration
of Registrable Securities at the time such securities are delivered
to the underwriters (if any) for sale in connection with a
registration pursuant to this Section 2.9, (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 of
Registrable Securities and (ii) a letter dated the date of
commencement of the offering and a "bring-down" letter dated as of
the
<PAGE>
closing date of such offering, from the independent accountants of
the Company, in form and substance as is customarily given by
independent accountants to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
j. Indemnification.
i. The Company will indemnify each Holder, each of its officers,
directors, partners and legal counsel, and each person controlling
(or deemed to be controlling) such Holder within the meaning of
Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant
to this Section 2, and each underwriter, if any, and each person who
controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or
liabilities (or actions in respect thereof), including any of the
foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any
such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading, or any violation by the Company of the Securities Act or
any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each
such Holder, each of its officers, directors, partners and legal
counsel and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for
any legal and any other expenses reasonably incurred in connection
with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission, made
in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such
Holder, controlling person or underwriter and stated to be
specifically for use therein.
ii. Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the
Company, each of its directors, officers and legal counsel, each
underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act,
and each other Holder, each of its officers, directors, partners
<PAGE>
and legal counsel and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, against all claims,
losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, such
Holders, such directors, officers, persons, underwriters or control
persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished
to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein. Notwithstanding the
foregoing, the liability of each Holder under this subsection (b)
shall be limited to the proportion of any such loss, claim, damage,
liability or expense which is equal to the proportion that the
public offering price of the shares sold by such Holder under such
registration statement bears to the total public offering price of
all securities sold thereunder, but not to exceed the proceeds
received by such Holder from the sale of Registrable Securities
covered by such registration statement. A Holder will not be
required to enter into any agreement or undertaking in connection
with any registration under this Section 2 providing for any
indemnification or contribution on the part of such Holder greater
than the Holder's obligations under this Section 2.10(b).
iii. Each party entitled to indemnification under this Section 2.10
(the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who
shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate
in such defense at such party's expense, and provided further that
the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations
under this Section 2 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend
such action and provided further, that the Indemnifying Party shall
not assume the defense for matters as to which there is a conflict
of interest or separate and different defenses but shall bear the
expense of such defense nevertheless. No Indemnifying Party, in the
defense of any such claim or
<PAGE>
litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation.
iv. If the indemnification provided for paragraphs (a) through (c)
of this Section 2.10 is unavailable or insufficient to hold harmless
an indemnified party under such paragraphs in respect of any losses,
claims, damages or liabilities or actions in respect thereof
referred to therein, then each indemnifying party shall in lieu of
indemnifying such indemnified party contribute to the amount paid or
payable by such indemnified party as a result of such losses,
claims, damages, liabilities or actions in such proportion as
appropriate to reflect the relative fault of the Company, on the one
hand, and the underwriters and the Holder of such Registrable
Securities, on the other, in connection with the statements or
omissions which resulted in such losses, claims, damages,
liabilities or actions as well as any other relevant equitable
considerations, including the failure to give any notice under
paragraph (c). The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue
statement of a material fact relates to information supplied by the
Company, on the one hand, or the underwriters or the Holders of such
Registrable Securities, on the other, and to the parties' relative
intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission. The Company and each of the
Holders agrees that it would not be just and equitable if
contributions pursuant to this paragraph were determined by pro rata
allocation (even if all of the Holders of such Registrable
Securities were treated as one entity for such purpose) or by any
other method of allocation which did not take account of the
equitable considerations referred to above in this paragraph. The
amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or action in respect thereof,
referred to above in this paragraph, shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this paragraph, no
Holder shall be required to contribute any amount in excess of the
lesser of (i) the proportion that the public offering price of
shares sold by such Holder under such registration statement bears
to the total public offering price of all securities sold
thereunder, but not to exceed the proceeds received by such Holder
for the sale of Registrable Securities covered by such registration
statement and (ii) the amount of any damages which they would have
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the
Securities Act), shall be entitled to contribution from any person
who is not guilty of such fraudulent misrepresentation.
<PAGE>
k. Information by Holder. The Holder or Holders of
Registrable Securities included in any registration shall
furnish to the Company such information regarding such
Holder or Holders, the Registrable Securities held by them
and the distribution proposed by such Holder or Holders as
the Company may reasonably request in writing and as shall
be required in connection with any registration,
qualification or compliance referred to in this Section 2.
l. Rule 144 Reporting. With a view to making available
the benefits of certain rules and regulations of the
Commission which may at any time permit the sale of the
Restricted Securities to the public without registration,
after such time as a public market exists for the Common
Stock of the Company, the Company agrees to use its best
efforts to:
i. Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all
times after the effective date that the Company becomes subject to
the reporting requirements of the Securities Act or the Securities
Exchange Act of 1934, as amended.
ii. Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under
the Securities Act and the Securities Exchange Act of 1934, as
amended (at any time after it has become subject to such reporting
requirements);
iii. So long as a Purchaser owns any Restricted Securities to
furnish to the Purchaser forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements
of said Rule 144 (at any time after 90 days after the effective date
of the first registration statement filed by the Company for an
offering of its securities to the general
public), and of the Securities Act and the Securities Exchange
Act of 1934 (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or
quarterly report of the Company, and such other reports and
documents of the Company and other information in the possession
of or reasonably obtainable by the Company as a Purchaser may
reasonably request in availing itself of any rule or regulation
of the Commission allowing a Purchaser to sell any such
securities without registration.
m. Transfer of Registration Rights. The rights to cause
the Company to register securities granted Holders under
Sections 2.5, 2.6 and 2.7 may be assigned to a transferee or
assignee in connection with any transfer or assignment of
Registrable Securities by a Holder of not less than 100,000
shares of Registrable Securities, or to any transferee
<PAGE>
or assignee who is a constituent partner of a Holder or the
estate of such constituent partner, provided that such
transfer may otherwise be effected in accordance with
applicable securities laws.
n. Standoff Agreement. Each Holder agrees in connection
with the Company's initial public offering of the Company's
securities, upon request of the Company or the underwriters
managing any underwritten offering of the Company's
securities, not to sell, make any short sale of, loan, grant
any option for the purchase of, or otherwise dispose of any
Registrable Securities (other than those included in the
registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such
period of time (not to exceed one hundred eighty (180) days)
from the effective date of such registration as may be
requested by the underwriters; provided, that the officers
and directors of the Company who own stock of the Company
and all other holders of 5% or more of the Company's
outstanding Common Stock equivalents also agree to such
restrictions.
o. Rule 144A Information. Whenever the Company receives a
request for the following information from Initiating
Holders on or after December 31, 1997, then the Company
shall within 60 days after the date of such request provide
the information required in Rule 144A(d)(4) to such
Initiating Holders and any person or persons designated by
the Initiating Holders as a prospective buyer in a
transaction pursuant to Rule 144A. The Company's
obligations pursuant to this Section 2.15 shall extend to
any person who acquires shares of the Company's Preferred
Stock and/or Conversion Stock as a result of a transaction
pursuant to Rule 144A.
p. Termination of Registration Rights. The rights granted
under this Section 2 shall terminate on the fifth
anniversary of the consummation of the initial underwritten
public offering of the Company's securities pursuant to a
registration statement filed under the Securities Act.
3. Purchasers' Right of First Refusal.
a. Right of First Refusal Upon Issuances of Securities by
the Company.
i. The Company hereby grants, on the terms set forth in
this Section 3.1, to each Purchaser the right of first
refusal to purchase all or any part of such Purchaser's pro
rata share of the New Securities (as defined in Section
3.1(b)) which the Company may, from time to time, propose to
sell and issue. The
<PAGE>
Purchasers may purchase said New
Securities on the same terms and at the same price at which
the Company proposes to sell the New Securities. The pro
rata share of each Purchaser, for purposes of this right of
first refusal, is the ratio of the total number of shares of
Common Stock held by such Purchaser, including any shares of
Common Stock into which shares of Preferred Stock held by
such Purchaser are convertible, to the total number of
shares of Common Stock outstanding immediately prior to the
issuance of the New Securities (including any shares of
Common Stock into which outstanding shares of Preferred
Stock are convertible).
ii. "New Securities" shall mean any capital stock of the
Company, whether now authorized or not, and any rights,
options or warrants to purchase said capital stock, and
securities of any type whatsoever that are, or may become,
convertible into said capital stock; provided that "New
Securities" does not include the following issuances (as
long as they are approved by the Company's board of
directors): (i) the Shares purchased under this Agreement or
the Conversion Stock, (ii) securities offered pursuant to a
registration statement filed under the Securities Act, as
hereinafter defined, (iii) securities issued pursuant to the
acquisition of another corporation by the Company by merger,
purchase of substantially all of the assets or other
reorganization, (iv) up to 4,250,000 shares of Common Stock
or other securities hereafter issued or issuable to
officers, directors, employees, scientific advisors or
consultants of the Company pursuant to any employee or
consultant stock offering, plan or arrangement approved by
the Board of Directors of the Company, (v) all shares of
Common Stock or other securities hereafter issued in
connection with or as consideration for acquisition or
licensing of technology, (vi) all shares of Common Stock or
other securities hereafter issued pursuant to warrants,
rights or options, provided that the rights of first refusal
established hereby applied to the initial sale or grant by
the Company of such warrants, rights or options, and
(vii) all shares of Common Stock or other securities issued
in connection with equipment leasing or equipment financing
arrangements.
iii. In the event the Company proposes to undertake an
issuance of New Securities, it shall give to the Purchasers
written notice (the "Notice") of its intention, describing
the type of New Securities, the price, the terms upon which
the Company proposes to issue the same, and a statement as
to the number of days from receipt of such Notice within
which the Purchasers must respond to such Notice. The
Purchasers shall have thirty (30) days from the date of
receipt of the Notice to purchase any or all of the New
Securities for the price and upon the terms specified in the
Notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased and
forwarding payment for such New Securities to the Company if
immediate payment is required by such terms, or in any event
no later than thirty (30) days after the date of receipt of
the Notice.
<PAGE>
iv. In the event the Purchasers fail to exercise in full
the right of first refusal within said thirty (30) day
period, the Company shall have ninety (90) days thereafter
to sell or enter into an agreement (pursuant to which the
sale of New Securities covered thereby shall be closed, if
at all, within thirty (30) days from date of said agreement)
to sell the New Securities respecting which the Purchasers'
rights were not exercised, at a price and upon general terms
no more favorable to the Purchasers thereof than specified
in the Notice. In the event the Company has not sold the
New Securities within said ninety (90) day period (or sold
and issued New Securities in accordance with the foregoing
within thirty (30) days from the date of said agreement),
the Company shall not thereafter issue or sell any New
Securities without first offering such securities to the
Purchasers in the manner provided above.
v. The right of first refusal granted under this
Section 3.1 shall expire upon:
(1) The date upon which a registration statement filed
by the Company under the Securities Act (other than a
registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan) in connection
with an underwritten public offering of its securities
first becomes effective and the securities registered
thereunder are sold.
(2) For each Purchaser, the date on which such
Purchaser no longer holds a minimum of 75,000 Shares or
Conversion Stock or the number of Shares or Conversion
Shares originally purchased, whichever is less.
b. Right of First Refusal Upon Issuances of
Securities by the Company. The right of first refusal
granted under this Section is assignable by any
Purchaser to any transferee of a minimum of 75,000
Shares or Conversion Stock or to any transferee who is
a constituent partner or affiliate of the transferor.
4. Right of Co-Sale.
a. Grant of Co-Sale Rights.
(a) If a Stockholder or a Purchaser proposes to sell or transfer
any shares of Common Stock now owned by the selling Stockholder or Purchaser
(the shares subject to such offer to be hereafter called the "Stock" and the
selling Stockholder or Purchaser to be called the "Selling Party") in one or
more related transactions, then, such Party shall promptly deliver written
notice (the "Co-Sale Notice") to each of the Purchasers (if such Selling Party
is a Stockholder) or to each of the other Purchasers (if such Selling Party is
an Purchaser) at least twenty (20) days prior to
<PAGE>
the closing of such sale or transfer. For purposes of this Section 4,
"Common Stock" shall mean (i) the Company's Common Stock (including
Conversion Shares), (ii) shares of Common Stock issuable upon exercise of
outstanding options and (iii) shares of Common Stock issuable upon conversion
of the Shares or any other outstanding convertible securities. The Co-Sale
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.
(b) Each Purchaser shall have the right, exercisable upon
written notice to such Selling Party within thirty (30) days after receipt of
the Notice, to participate in such sale of Stock on the same terms and
conditions provided that no Purchaser shall be required to make any
representation or warranties or perform any undertakings other than with respect
to its title and authority. To the extent one or more of the Purchasers
exercise such right of participation in accordance with the terms and conditions
set forth below, the number of shares of Stock that the Selling Party may sell
in the transaction shall be correspondingly reduced.
(c) Each Purchaser who elects to participate in a sale of Stock
under this Section 4 (a "Participant") may sell all or any part of that number
of shares of Stock equal to the product obtained by multiplying (i) the
aggregate number of shares of Stock covered by the Co-Sale Notice by (ii) a
fraction the numerator of which is the number of shares of Common Stock (on a
fully-diluted, as converted basis) owned by the Purchaser 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 Stockholders and Purchasers (including the Selling
Party) at the time of the sale or transfer.
(d) If any Purchaser fails to elect to fully participate in the
Selling Party's sale pursuant to this Section 4.1, the Selling Party shall
promptly give notice of such failure and the aggregate number of shares that the
non-participating Purchasers did not elect to sell (the "Unsold Portion") to
each of the Participants. Such notice may be made by telephone if confirmed in
writing within fifteen (15) days. The Participants shall have two (2) days from
the date such notice was given to agree to sell their pro rata share of the
Unsold Portion. After the expiration of the fifteen (15) day period following
the provision of notice to the Participants and without being subject to the
provisions of this paragraph 4.1(d), the Selling Party shall have the right to
sell or transfer the number of shares of Stock that is equivalent to the balance
of the Unsold Portion that is not elected to be sold by the Participants. For
purposes of this paragraph, a Participant's pro rata share shall be the ratio of
(x) the number of shares of Common Stock held by such Participant to (y) the
total number of shares of Common Stock held by all the Participants and the
Selling Party.
(e) Each Participant shall effect its participation in the sale
by promptly delivering to the Selling Party for transfer to the prospective
purchaser one or more certificates, properly endorsed for transfer, which
represent:
(i) the type and number of shares of Common Stock
which such Participant elects to sell; or
<PAGE>
(ii) that number of Shares or other shares of Preferred
Stock which is at such time convertible into the number of shares of Common
Stock which such Participant elects to sell; provided, however, that if the
prospective purchaser objects to the delivery of such Shares or other Preferred
Stock in lieu of Common Stock, such Participant shall convert such Shares or
Preferred Stock into Common Stock upon the closing of the sale contemplated
hereby and deliver Common Stock as provided in subparagraph 4.1(e)(i) above.
The Company agrees to make any such conversion concurrent with the actual
transfer of such shares to the purchaser.
(f) The stock certificate or certificates that the Participant
delivers to the Selling Party pursuant to paragraph 4.1(e) shall be transferred
to the prospective purchaser in consummation of the sale of the Stock pursuant
to the terms and conditions specified in the Co-Sale Notice, and the Selling
Party shall concurrently therewith remit to such Participant that portion of the
sale proceeds to which such 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 a Participant exercising its rights of co-sale hereunder,
the Selling Party shall not sell to such prospective purchaser or purchasers any
Stock unless and until, simultaneously with such sale, the Selling Party shall
purchase such shares or other securities from such Participant.
(g) The exercise or non-exercise of the rights of the
Participants hereunder to participate in one or more sales of Stock made by a
Selling Party shall not adversely affect their rights to participate in
subsequent sales of Stock subject to paragraph 4.1(a).
(h) Subject to the rights of the Purchasers who have elected to
participate in the sale of the Stock subject to the Co-Sale Notice, the Selling
Party may, not later than sixty (60) days following delivery to the Company and
each of the Purchasers of the Notice, conclude a transfer of any or all of the
Stock covered by the Notice on terms and conditions not materially more
favorable to the transferor than those described in the Notice. Any proposed
transfer on terms and conditions materially more favorable than those described
in the Co-Sale Notice, as well as any subsequent proposed transfer of any of the
Stock by the Selling Party, shall again be subject to the co-sale rights of the
Purchasers and shall require compliance by the Selling Party with the procedures
described in this Section 4.
b. Termination of Right of Co-Sale. Notwithstanding anything in
this Section 4 to the contrary, the right of co-sale shall terminate
upon (and shall not be applicable with respect to) the earlier of (i)
the closing of the Company's initial firm commitment underwritten
public offering pursuant to an effective registration statement under
the Securities Act, (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) such time as the
Purchasers hold an aggregate of less than 1,000,000 (appropriately
adjusted for stock splits, dividends, recapitalizations and similar
events) Shares and Conversion Shares.
<PAGE>
c. Exempt Transfers.
(a) Notwithstanding the foregoing, the co-sale rights of the
Purchasers shall not apply to any transfer to the ancestors, descendants or
spouse or to trusts for the benefit of such persons or the transferring
Stockholder or Purchaser or to any transfer by an Purchaser to a partner or
affiliate of such Purchaser, or a retired partner of such Purchaser who retires
after the date hereof; or to the estate of any such partner or retired partner
or the transfer by gift, will or intestate succession of any partner to such
partner's spouse or to the siblings, lineal descendants or ancestors of such
partner or such partner's spouse; provided that (A) the transferring Stockholder
or Purchaser shall inform the Purchasers or the Company (which shall then inform
the Purchasers) of such pledge, transfer or gift prior to effecting it and (B)
the pledgee, transferee or donee shall furnish the Purchasers with a written
agreement to be bound by and comply with all provisions of Section 4 of this
Agreement. Such transferred Stock shall remain "Stock" hereunder, and such
pledgee, transferee shall be treated as a "Stockholder" or "Purchaser," as
applicable, for purposes of this Agreement.
(b) Notwithstanding the foregoing, the provisions of Section 4
shall not apply to the sale of any Stock (i) to the public pursuant to a
registration statement filed with, and declared effective by, the Commission
under the Securities Act or (ii) to the Company pursuant to the terms of the
Company's repurchase rights set forth in restricted stock purchase agreements
with the Stockholders or in connection with the termination of a Stockholder's
employment with the Company or (iii) if prior to such sale, the Stockholder held
less than one percent (1%) of the Company's outstanding shares.
(c) This Section 4 shall in no manner limit the right of the
Company to repurchase securities from Stockholders, consultants, employees or
directors pursuant to its repurchase rights and first refusal rights set forth
in applicable stock purchase agreements.
4.4 Prohibited Transfers. Notwithstanding the foregoing, any
attempt by a Stockholder or Purchaser to transfer Stock in violation of Section
4 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 sixty percent (60%) of the outstanding shares of the
Company's Preferred Stock.
4.5 Legend.
(a) Each certificate representing shares of Stock now or
hereafter owned by the Stockholders or Purchasers or issued to any person in
connection with a transfer pursuant to paragraph 4.3(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 AN INVESTORS RIGHTS AGREEMENT, BY
AND BETWEEN THE STOCKHOLDER, THE COMPANY AND CERTAIN HOLDERS
OF STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE
OBTAINED
<PAGE>
UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY."
(b) Each Stockholder and Purchaser 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 paragraph 4.5(a)
above to enforce the provisions of this Section 4 and the Company agrees to
promptly do so. The legend shall be removed upon termination of the provisions
of Section 4 of this Agreement.
4.6 Assignability of Rights. The co-sale rights granted to the
Purchasers hereunder shall be assignable only to an assignee or transferee who
acquires at least 75,000 shares of Preferred Stock or Common Stock issued upon
conversion thereof.
4.7 Stock Split. All references to numbers of shares in this
Section 4 shall be appropriately adjusted to reflect any stock dividend, split,
combination or other recapitalization of shares by the Company occurring after
the date of this Agreement.
5. Amendments to Prior Agreements; Waivers.
a. Prior Investors Rights Agreement. The Investors Rights Agreement
dated March 18, 1996 (the "Prior Rights Agreement") is hereby
terminated and superseded in its entirety by this Agreement. Holders
of outstanding Series A, Series B, Series C, Series D and Series E-1
Preferred Stock hereby consent to the foregoing as parties to the
Prior Rights Agreement.
b. Waivers. The holders of the Series A, Series B, Series C, Series
D and Series E-1 Preferred Stock hereby waive any rights they may
have pursuant to the Prior Rights Agreement to receive notice of the
issuance of or to purchase or otherwise acquire the Series E Preferred
Stock being issued pursuant to the 1996 Series E Agreement (and the
Common Stock issuable upon conversion of such Series E Preferred
Stock).
6. Miscellaneous.
a. Waivers and Amendments. With the written consent of the Company
and the record holders of more than sixty percent (60%) of the Shares
and/or the Conversion Stock and, to the extent Stockholders are
specifically affected by a waiver, amendment or modification of
Section 4 hereof, by each such Stockholder, the obligations of the
Company and the rights of the holders of the Shares and the Conversion
Stock under this Agreement may be waived (either generally or in a
particular instance, either retroactively or prospectively and either
for a specified period of time or indefinitely), and with the same
consent the Company, when authorized by resolution of its Board of
Directors, may enter into a supplementary agreement for the purpose of
adding any provisions to or changing in any manner or eliminating any
of the provisions of this
<PAGE>
Agreement; provided, however, that no such
waiver or supplemental agreement shall reduce the aforesaid percentage
of the Shares and/or the Conversion Stock, the holders of which are
required to consent to any waiver or supplemental agreement without
the consent of the record holders of all of the Shares and/or the
Conversion Stock and any such waiver or supplementary agreement that
amends the proviso to the first sentence of the second paragraph of
Section 2.5(b) hereof , the proviso to the first sentence of Section
2.6(b) hereof or the proviso to Section 2.14 hereof or that otherwise
adversely affects any individual Holder only shall require the consent
of such Holder. Upon the effectuation of each such waiver, consent,
agreement, amendment or modification the Company shall promptly given
written notice thereof to the record holders of the Shares and/or the
Conversion Stock who have not previously consented thereto in writing.
Neither this Agreement nor any provisions hereof may be changed,
waived, discharged or terminated orally, but only by a signed
statement in writing.
b. Governing Law. This Agreement shall be governed in all respects
by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be
performed entirely within California.
c. Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
d. Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the
subjects hereof and thereof.
e. Notices. All notices and other communications required or
permitted hereunder shall be effective upon receipt and shall be in
writing and may be delivered in person, by telecopy, electronic mail,
overnight delivery service or U.S. mail, in which event it may be
mailed by first-class, certified or registered, postage prepaid,
addressed (a) if to a Purchaser or Holder, at such address as such
Purchaser or Holder shall have furnished the Company in writing, or,
until any such holder so furnishes an address to the Company, then to
and at the address of the last holder of such securities who has so
furnished an address to the Company, or (b) if to the Company, at its
address set forth at the beginning of this Agreement, or at such other
address as the Company shall have furnished to the Purchasers, Holders
and each such other holder in writing. Notwithstanding the foregoing,
all notices and communications to addresses outside the United States
shall be given by telecopier and confirmed in writing sent by
overnight or two-day courier service.
f. Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only
and are not to be considered in construing this Agreement.
<PAGE>
g. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
h. Nominees. Securities registered in the name of a nominee for a
Purchaser or a Holder shall, for purposes of this Agreement, be
treated as being owned by such Purchaser or Holder.
<PAGE>
The foregoing Investors Rights Agreement is hereby executed as of the date
first above written.
FOCAL, INC.
By:
---------------------------------
David Clapper, President
STOCKHOLDERS:
- ------------------------------ ---------------------------------
David Clapper Stephen Jack Herman
- ------------------------------ ---------------------------------
Robert Langer Arthur Coury
- ------------------------------ ---------------------------------
Henry Brem Richard Leavitt
<PAGE>
HOLDERS:
Name of Holder
- -------------------------------------
APA EXCELSIOR FUND IV, L.P.
By APA Excelsior IV Partners, L.P.,
its General Partner
By:
---------------------------------
Janet G. Effland, General Partner
APA EXCELSIOR IV/OFFSHORE, L.P.
By Patricof & Co. Ventures, Inc.,
its Investment Adviser
By:
--------------------------------
Janet G. Effland, Vice President
THE P/A FUND
By APA Pennsylvania Partners II, L.P.,
its General Partner
By:
----------------------------------
Wilmer R. Bottoms, General Partner
WARBURG PINCUS EMERGING GROWTH FUND
By:
---------------------------------
Title:
--------------------------------
PACIFIC HORIZON VENTURES
<PAGE>
By:
---------------------------------
Title:
--------------------------------
GMGF, L.P.
By:
---------------------------------
Title:
--------------------------------
SENTRON MEDICAL, INC.
By:
---------------------------------
Title:
--------------------------------
- --------------------------------------
Sam Rubinstein
THE CIT GROUP/EQUITY INVESTMENTS, INC.
By:
---------------------------------
Title:
--------------------------------
DELPHI INVESTMENTS II, L.P.
By:
---------------------------------
Title:
--------------------------------
DELPHI VENTURES II, L.P.
<PAGE>
By:
---------------------------------
Title:
--------------------------------
DOMAIN PARTNERS II, L.P.
By:
---------------------------------
Title:
--------------------------------
Peter W. Eising
- --------------------------------------
Signature
FRAZIER MANAGEMENT, L.L.C.
By:
---------------------------------
Title:
--------------------------------
FRAZIER & CO., L.P.
By:
---------------------------------
Title:
--------------------------------
FRAZIER HEALTHCARE INVESTMENTS, L.P.
By:
------------------------------------
<PAGE>
Title:
---------------------------------
GENERAL ELECTRIC PENSION TRUST
By:
---------------------------------
Title:
--------------------------------
GLENBROOK PARTNERS
By:
---------------------------------
Title:
--------------------------------
H & Q HEALTHCARE INVESTORS
By:
---------------------------------
Title:
--------------------------------
H & Q FOCAL INVESTORS, L.P.
By:
---------------------------------
Title:
--------------------------------
H & Q LIFE SCIENCES INVESTORS
By:
---------------------------------
Title:
--------------------------------
<PAGE>
HELIOS PARTNERS, L.P.
By:
---------------------------------
Title:
--------------------------------
George P. Hutchinson
- ---------------------------------------
Signature
INVEMED ASSOCIATES, INC.
By:
---------------------------------
Title:
--------------------------------
Cristina H. Kepner
- --------------------------------------
Signature
KLEINER, PERKINS, CAULFIELD & BYERS VI
By:
---------------------------------
Title:
--------------------------------
KPCB FOUNDERS' FUND
By:
---------------------------------
Title:
--------------------------------
<PAGE>
KPCB VI FOUNDERS' FUND
By:
---------------------------------
Title:
--------------------------------
Kenneth G. Langone
- --------------------------------------
Signature
David E. Maryatt
- --------------------------------------
Signature
MAYFIELD VI
By:
---------------------------------
Title:
--------------------------------
MAYFIELD VII
By:
---------------------------------
Title:
--------------------------------
MAYFIELD ASSOCIATES
By:
---------------------------------
Title:
--------------------------------
<PAGE>
MAYFIELD ASSOCIATES FUND II
By:
---------------------------------
Title:
--------------------------------
MAYFIELD MEDICAL PARTNERS
By:
---------------------------------
Title:
--------------------------------
MAYFIELD MEDICAL PARTNERS 1992
By:
---------------------------------
Title:
--------------------------------
OLD COURT LIMITED
By:
---------------------------------
Title:
--------------------------------
PARVEST U.S. PARTNERS II, C.V.
By:
---------------------------------
Title:
--------------------------------
ROUSSO FAMILY TRUST
<PAGE>
By:
---------------------------------
Title:
--------------------------------
SINGAPORE BIO-INNOVATIONS PTE LTD
By:
---------------------------------
Title:
--------------------------------
Eugene L. Step
- --------------------------------------
Signature
VULCAN VENTURES, INC.
By:
---------------------------------
Title:
--------------------------------
Stefan K. Widensohler
- --------------------------------------
Signature
<PAGE>
WARRANT HOLDERS:
COMDISCO, INC.
By:
---------------------------------
Title:
--------------------------------
BANK OF BOSTON
By:
---------------------------------
Title:
--------------------------------
FRAZIER INVESTMENT SECURITIES, L.P.
By:
---------------------------------
Title:
--------------------------------
MMC/GATX PARTNERSHIP NO.1
GATX CAPITAL CORPORATION
By:
---------------------------------
Title:
--------------------------------
<PAGE>
Exhibit 10.6
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
701 Pennsylvania Avenue, Telephone: 617/542-6000
N.W. Washington, D.C. 20004 Fax: 617/542-2241
Telephone: 202/434-7300
Fax: 2O2/434-7400
Joel R. Bloom
April 6, 1994
BY FEDERAL EXPRESS
W. Bradford Smith
Director of Finance
Focal Incorporated
One Kendall Square
Building 600
Cambridge, MA 02139
Dear Brad:
I am enclosing for your file an executed original of the Lease with
Mutual Life. I have kept a duplicate original in our files here. As I
mentioned yesterday, we'll do a Notice of Lease and record that and will
obtain the leasehold title insurance policy for you.
I will be in touch with you soon to discuss the amount of the title
insurance coverage you need.
Best personal regards.
SINCERELY,
/s/ Joel R. Bloom
___________________
Joel R. Bloom
<PAGE>
LEASE
BY THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, LANDLORD
TO
FOCAL, INC., TENANT
4 MAGUIRE ROAD, LEXINGTON, MASSACHUSETTS
APRIL 1, 1994
<TABLE>
<S> <C> <C>
ARTICLE I Fundamental Lease Provisions
1.1 Reference Subject 1
ARTICLE II Premises and Term
2.1 Premises 3
2.2 Acceptance 4
2.3 Term 4
2.4 Option to Extend 4
ARTICLE III Renovation of the Building and the Improvements
3.1 Work Letter 4
ARTICLE IV Rent
4.1 Annual Base Rent 5
4.2 Additional Rent 8
ARTICLE V Additional Covenants
5.1 Tenant's Covenants 11
5.2 Landlord's Covenants of Quiet Enjoyment 24
5.3 Interruptions 25
ARTICLE VI Insurance: Casualty; Taking
6.1 Insurance 25
6.2 Intentionally Deleted 27
6.3 Damage or Destruction of Premises 27
6.4 Eminent Domain 30
i
<PAGE>
<S> <C> <C>
ARTICLE VII Default
7.1 Events of Default 31
7.2 Remedies Cumulative: Jury Waiver 33
7.3 Waivers of Default; Accord and Satisfaction 34
7.4 Landlord's Curing and Enforcement 34
ARTICLE VIII Miscellaneous Provisions
8.1 Notice 35
8.2 Limitation of Landlord's Liability 35
8.3 Excusable Delay 35
ii
<PAGE>
<S> <C> <C>
8.4 Applicable Law and Construction 36
8.5 Estoppel Certificate 37
8.6 Notice of Lease 37
8.7 Landlord's Default 37
8.8 Brokers 37
8.9 Vacancy at End of Term 38
8.10 Tenant as Business Entity 38
8.11 Security 38
8.12 Financial Information 40
ARTICLE IX Landlord's Financial
9.1 Subordination and Superiority of Lease 41
9.2 Rent Assignment 42
9.3 Other Instruments 42
ARTICLE X Right of First Offer to Purchase
10.1 Right of First Offer to Purchase 43
10.2 Default under Purchase and Sale Agreement by Tenant 44
ARTICLE XI Landlord's Obligations
11.1 Landlord's Maintenance 44
11.2 Landlord's Indemnity 44
ARTICLE XII Index of Defined Terms
</TABLE>
iii
<PAGE>
ARTICLE I
Fundamental Lease Provisions
1.1 REFERENCE SUBJECTS. Each reference in this Lease to any of the
following subjects shall incorporate the following information. Other terms
are defined throughout this Lease and are indexed in the last Article.
<TABLE>
<S> <C> <C>
DATE OF LEASE
EXECUTION: As of April 1, 1994
PREMISES: The land containing approximately 7.52 acres
(as more particularly described in Appendix A
attached, the "Land") and the existing
building ("Building") containing 54,114
square feet of rentable area and other
improvements (the "Improvements") thereon
presently located at 4 Maguire Road,
Lexington, Massachusetts.
LANDLORD: The Mutual Life Insurance Company of New York
NOTICE ADDRESS
OF LANDLORD: MONY Real Estate Investment Management
One Atlantic Street
Stamford, Connecticut 06901
Attention: Vice President,
Real Estate
with a copy to:
MONY LAW
1740 Broadway
New York, New York 10019
Attention: General Counsel
TENANT: Focal, Inc.
Attention: W. Bradford Smith,
Chief Financial Officer
NOTICE ADDRESS
OF TENANT:
Prior to After
Commencement Date: Commencement Date:
One Kendall Square 4 Maguire Road
</TABLE>
1
<PAGE>
<TABLE>
<S> <C> <C>
Building 600 Lexington, MA 02173
Cambridge, MA 02139
COMMENCEMENT The earlier to occur of (i) Tenant's receipt of a emporary or permanent certificate of occupancy for ll or
DATE: any portion of the Building, or (ii) September 1, 1994 (subject to extension as provided in section 8 of
the Work Letter).
TERM:
INITIAL TERM: The period commencing on the commencement Date and ending on the day which is ten (10) years after the last
day of the month in which the Commencement Date occurs.
EXTENSION TERM(S): Two (2) Extension Terms of Five (5) Lease Years each.
ANNUAL BASE RENT:
INITIAL TERM: First Lease Year: $974,052.00 per annum
Second and Third
Lease Years: $1,055,223.00 per annum
Fourth and Fifth
Lease Years: $1,095,808.50 per annum
Sixth through
Tenth Lease Years: $1,136,394.00 per annum
ANNUAL BASE RENT:
EXTENSION TERMS:
First Extension Term
(Eleventh through
Lease Years): Eighty-five (85%) percent of Fair
Market Rent (as further provided in
Section 4.1.3).
Second Extension Term
(Sixteenth through
Twentieth Lease Years): Eight-five (85%) percent of Fair Market
Rent (as provided in section 4.1.3)
PERMITTED USES: Laboratory (including, without limitation, laboratories performing animal research), research and
development, light manufacturing and office uses but only insofar as any of the foregoing uses is permitted
as et matter of right under applicable zoning by-laws or ordinances.
COMMERCIAL
GENERAL LIABILITY
INSURANCE: $4,000,000.00
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
SECURITY: At the time of Lease execution, Tenant will deliver to Landlord either (i) the sum of $1,750,000.00 in
immediately available funds (the "Cash Security"), or (ii) an irrevocable bank letter of credit in the
amount of $1,750,000.00 in favor of Landlord and in compliance with the provisions of Appendix B attached
(such letter of credit and all replacement and successor letters of credit complying with the provisions of
this Lease, including said Appendix, are referred to as the "Letter of Credit"). The Cash Security or Letter
of Credit shall be held subject to the provisions of Section 8.11 below.
LANDLORD'S BROKER: Fallon, Hines & O'Connor, Inc.
TENANT'S BROKER: Lynch, Murphy, Walsh & Partners
Appendix A - Property Description
Appendix A-l -Permitted Exceptions
Appendix B -Form of Letter of Credit
Appendix C -Work Letter
Schedule 1 -Base Building Work
Schedule 2 -Tenant Work Insurance Requirements
Appendix D - Approved Construction Documents for Base Building Work and Tenant's Work (to be added by amendment to Lease)
</TABLE>
ARTICLE II
PREMISES AND TERM
2.1 PREMISES. Landlord leases the Premises to Tenant and Tenant leases
the Premises from Landlord, subject to the terms and provisions of this Lease
and the matters of record set forth on Appendix A-1 attached hereto (the
"Permitted Exceptions"). Tenant shall also have appurtenant rights to use the
roads, utilities and easements now or hereafter in, on or under the Land in
common with Landlord and others to whom Landlord has previously granted (if
any, as included in the Permitted Exceptions) or, with the consent of Tenant,
such consent not to be unreasonably withheld or delayed, hereafter may grant
rights. Landlord shall have the right from time to time to grant and relocate
easements, to alter and diminish the shape and size of the Land and to alter
driveways, walkways, parking areas and utilities serving the Building, all of
which may be done by Landlord only with the consent of Tenant, such consent
not to be unreasonably withheld or delayed.
There is included in the Premises the parking area and access drives in
their current condition and configuration. Tenant agrees
3
<PAGE>
that, subject to the provisions of Section 6.4 hereinbelow, throughout the
Term of this Lease there shall be sufficient paved areas in the parking area
to provide at least 216 parking spaces (without intending hereby to affect
the relative obligations of the parties with respect to the initial
rehabilitation of, or ongoing maintenance of, the parking area and access
drives as elsewhere provided in this Lease).
2.2 ACCEPTANCE OF PREMISES. Except as otherwise expressly set forth in
this Lease, Landlord shall have no obligation or risk with respect to the
condition of the Premises (including the soil and groundwater thereunder)
either as of the Date of Lease Execution or at any time thereafter. Tenant
acknowledges that it has had the full opportunity to inspect the Premises
with such consultants as it deemed necessary, Tenant's occupancy shall be
deemed an acknowledgment that the condition of the Premises is satisfactory
and that Landlord has fulfilled all obligations, if any, with respect to such
condition, Tenant further acknowledges that, except as expressly set forth
herein, neither Landlord nor any person acting under Landlord has made or
implied any representations or warranties concerning the Premises, their
condition or this Lease.
2.3 TERM. This Lease will be for the Term, beginning on the
Commencement Date.
2.4 OPTION TO EXTEND. Subject to Section 5.1.13(a), Tenant pay extend
the Term for up to two (2) Extension Terms as set forth in section 1.1, in
each case by giving written notice of its intention to do so at least
eighteen (18) (but not more than twenty-four (24)) months prior to the end of
the then- expiring Term, time being of the essence to such exercise, so long
as at the time of such notice and at the beginning of the corresponding
Extension Term no Event of Default has occurred hereunder, Such notice of
Tenant's intention to extend the Term shall be subject to rescission by
Tenant in the manner provided in Section 4.1.3 below. All references to the
Term shall mean the Initial Term as it may be extended by any Extension Term.
ARTICLE III
RENOVATION OF THE BUILDING AND THE IMPROVEMENTS
3.1 WORK LETTER. The Building and Improvements shall he prepared for
Tenant's occupancy in the manner provided in the Work Letter attached hereto
as Appendix C. Landlord will have no obligation whatsoever to perform or pay
for any work or improvements to the Premises except as provided in the Work
Letter, Tenant taking the Premises in their "as is" condition. Landlord shall
perform its obligations under the Work Letter.
4
<PAGE>
ARTICLE IV
RENT
4.1. Annual Base Rent.
4.1.1 Initial Term. Annual Base Rent during the Initial Term will be as
set forth in Section 1.1; provided, however, that if Tenant duly pays the
Buydown Amount as provided in Section 4.1.2 below, then Annual Base Rent for
the remainder of the Initial Term shall be as set forth in that Section.
4.1.2 Tenant's Buydown Option. So long as an Event of Default has not
occurred, Tenant may, by giving written notice to Landlord at least thirty
(30) days prior to the end of any Lease Year during the Initial Term, elect
to reduce the amount of Annual Base Rent by reimbursing Landlord for the
unamortized portion of Tenant's Work Allowance through the payment to
Landlord of the applicable amount ("Buydown Amount") set forth in the table
at the end of this Section. On the last day of the Lease Year during which
Tenant gives notice of such election, (or the next following business day if
such day is not a business day) (a) Tenant shall deliver to Landlord a
certified or bank check drawn on a Boston or New York clearinghouse bank (or,
if Landlord so elects, Tenant will wire transfer federal funds in accordance
with Landlord's instructions) for the Buydown Amount, and (b) thereafter for
all subsequent Lease Years during the Initial Term, Annual Base Rent shall be
the Annual Base Rent amounts per annum set forth for such Lease Years in the
table at the end of this Section.
<TABLE>
<CAPTION>
REVISED ANNUAL BASE RENT FOR THIS LEASE
YEAR IF
END OF LEASE BUY DOWN BUYDOWN AMOUNT PAID AT END OF PRECEDING
YEAR AMOUNT LEASE YEAR
- ------------------- --------------- -------------------------------------------
<S> <C> <C>
1 $ 3,382,125.00 --
2 $ 3,219,783.00 $ 378,798.00
3 $ 3,024,972.60 $ 378,798.00
4 $ 2,789,576.70 $ 419,383.50
5 $ 2,508,183.90 $ 419,383.50
6 $ 2,172,677.10 $ 459,969.00
7 $ 1,766,822.10 $ 459,969.00
8 $ 1,282,501.80 $ 459,969.00
9 $ 698,070.60 $ 459,969.00
</TABLE>
4.1.3 Extension Terms. If the Term is extended for any Extension Term(s),
then Annual Base Rent will be as set forth in Section 1.1, with the fair
market rent of the Premises ("Fair Market Rent") being determined in the
manner provided in this subsection.
5
<PAGE>
Fair Market Rent shall be the Annual Base Rent (i) which a willing tenant
would pay to lease the Premises for each year of the Extension Term in
question, (ii) under terms and conditions substantially the same as those of
this Lease, (iii) with the Premises considered free and clear of this Lease,
(iv) in the condition in which the Premises then are, and (v) shall be based
an rentals for comparable space in the Route 128 area where the Premises are
located over a comparable period (with appropriate adjustments made to such
rentals as necessary to establish comparability of buildings and tenants
(including such factors as creditworthiness of tenant, type of business
conducted by tenant, and potential risk factors (environmental and otherwise)
associated with tenant's type of business)) for similar premises for the
Permitted Uses, and with rental historically paid under this Lease
disregarded. All additional rent provided for in this Lease shall be in
addition to Fair Market Rent as so determined,
Within one (1) month of Landlord's receipt of Tenant's notice of
intention to extend the Term, Landlord shall give written notice to Tenant
setting forth Landlord's estimate of Fair Market Rent for each of the Lease
Years of the Extension Term in question (which may be different from year to
year). The parties shall thereafter negotiate in good faith to attempt to
arrive at a mutually-satisfactory determination of Fair Market Rent. If the
parties are unable to agree on the amount of Fair Market Rent within one (1)
month after Tenant received Landlords estimate of Fair Market Rent, then
Landlord and Tenant shall, not later than three (3) months after Landlord
received Tenant's notice of intention to extend the Term, each retain a real
estate professional with at least ten (10) years' continuous experience in
the business of leasing commercial real estate or acting as commercial real
estate agent or broker in the vicinity of the Premises, who shall, within one
(1) month of his or her selection, prepare a written report summarizing his
or her conclusion as to Fair Market Rent. Landlord and Tenant shall
simultaneously exchange such reports; provided, however, that if one party
has not obtained such a report within four (4) months after Landlord received
Tenant's notice of intention to extend the Term, then the determination set
forth in the other party's report shall be final and binding upon the
parties. If both parties receive reports within such time and the lesser of
the two determinations is within ten (10%) percent of the higher
determination, then the average of these determinations shall be deemed to be
Fair Market Rent, if these determinations differ by more than ten (10%)
percent, then Landlord and Tenant shall mutually select a person with the
qualifications stated above (the "Final Arbiter"), to resolve the dispute as
to Fair Market Rent. If Landlord and Tenant cannot agree upon the designation
of the Final Arbiter within one (1) month of the exchange of the first
written reports, either party may apply to the American Arbitration
Association, the Greater Boston Real Estate Board, or any successor thereto
for the designation of a Final Arbiter. Within ten (10) days of the selection
of the Final Arbiter, Landlord and Tenant
6
<PAGE>
shall each submit to the Final Arbiter its written determination of Fair
Market Rent. The Final Arbiter shall, within one (1) month after such
submissions, issue his or her determination of Fair Market Rent in writing,
which shall be the determination the Final Arbiter would have made acting
alone and applying the standards set forth in this Lease. The Final Arbiter
shall give notice of its determination to Landlord and Tenant and such
determination shall be final and binding upon Landlord and Tenant.
Except as otherwise provided in the immediately following paragraph, (i)
each party shall pay the fees and expenses of its real estate professional
and counsel, if any, in connection with any proceeding under this Section
4.1.3, and (ii) the parties shall each pay one-half of the fees and expenses
of the Final Arbiter.
Tenant shall have the right to rescind its election to extend the Term by
giving written notice to Landlord at any time between the final determination
of Fair Market Rent and the first day of the last Lease Year of the then-Term
(without giving effect to Tenant's election to extend the Term). If Tenant
gives such notice, then (i) Tenant's election to extend the Term shall be
deemed irrevocably rescinded and deemed null and void and of no further force
and effect and the Term shall expire at the end of the then-current Term as
if such notice of election to extend had never been given, and (ii) Tenant
shall reimburse Landlord, on demand as Additional Rent, for all reasonable
out-of-pocket expenses paid or incurred by Landlord in connection with the
determination of Fair Market Rent.
4.1.4 Method of Payment. Tenant agrees to pay the Annual Base Rent to
Landlord without notice or demand in advance in equal monthly installments by
the first day, of each calendar month during the Term. As used in this Lease,
"Lease Year" shall mean the period commencing on the Commencement Date and
ending on the day before the first anniversary thereof and each succeeding
twelve-month period (or portion thereof) included in the Term, except that if
the Commencement Date is not the first day of a -calendar month, then the
first Lease Year shall end on the first anniversary of the last day of the
calendar month in which the Commencement Date occurred and all subsequent
Lease Years shall commence on an anniversary of the first day of the calendar
month first occurring after the Commencement Date), Tenant shall make ratable
payment of Annual Base Rent for any period of less than a month prior to the
beginning or, if applicable, end of the Term. All payments of Annual Base
Rent, additional rent and other sums due shall be paid in current U.S.
currency by check drawn on a Boston or New York clearinghouse bank and shall
be made to such payee and at such address as Landlord nay from, time to time
designate in writing to Tenant (or if requested by Landlord in the case of
Annual Base Rent, by electronic fund transfer), without demand, set-off or
other deduction except as otherwise specifically provided in this Lease.
7
<PAGE>
Without limiting the foregoing, Tenant's obligation so to pay rent shall
not be discharged or otherwise affected by any law now or hereafter
applicable to the Premises, or any other restriction on Tenant's use, or
(except as and to the extent provided in Sections 6.3 and 6.4) any casualty
or taking, or any failure by Landlord to perform, or any other occurrence;
and Tenant waives all rights now or hereafter existing to surrender this
Lease or the Premises or any part thereof, or to assert any defense in the
nature of constructive eviction to any action seeking to recover rent.
Subject to the provisions of this Lease, however, Tenant shall have the right
to commence and prosecute an independent action against Landlord to obtain
judgments for direct money damages occasioned by Landlord's breach of its
Lease covenants.
4.1.5 Net Return to Landlord. It is intended that Annual Base Rent
payable hereunder shall be a net return to Landlord throughout the Term, free
of expense, charge, offset, diminution or other deduction whatsoever on
account of the Premises (excepting those particular expenses which this Lease
expressly makes the responsibility of Landlord), and all provisions hereof
shall be liberally construed in terms of such intent.
4.2 Additional Rent.
4.2.1 Landlord's Taxes. Tenant shall pay, as additional rent, all of
"Landlord's Taxes" for each fiscal period wholly included in the Term (and a
ratable amount for the first and last Lease Years). Landlord shall send a
copy of all bills for Landlord's Taxes to Tenant within five (5) days after
Landlord receives them from the taxing authority. Tenant shall pay the full
amount of each such bill to the taxing authority and provide a receipted copy
of each such bill (or other evidence of payment in full reasonably
satisfactory to Landlord) within fifteen (15) days of Tenant's receipt of
such copy of the bill. Any interest or penalties which accrue as a result of
Tenant's failure to make such payment within such time shall be the sole
responsibility and obligation of Tenant.
Notwithstanding the foregoing, at any time after the occurrence of an
Event of Default hereunder, Landlord shall have the right to require Tenant
to pay Landlord's Taxes to Landlord in monthly installments by the first day
of each month in amounts reasonably estimated from time to time by Landlord
to provide for the full payment of Tenant's obligation with respect to
Landlord's Taxes on the date such Taxes are due. In such event, Landlord
shall deliver a copy of the bill(s) for Landlord's Taxes to Tenant after
Landlord receives it, together with a statement showing the amount then held
by Landlord pursuant to this Section 4.2.1. if the amount then held by
Landlord is insufficient to pay such bill in full, Tenant shall pay to
Landlord the amount of such deficiency within ten (10) days after delivery by
Landlord of such copy of the bill and statement. If the amount then hold by
Landlord exceeds
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the amount of such bill, such excess shall be credited by Landlord against
the monthly installments of additional rent next falling due or refunded to
Tenant upon the expiration or termination of this Lease (unless this Lease is
terminated as a result of the default by Tenant hereunder, in which case
Landlord may credit such amount against any amount due from Tenant by reason
of such termination).
"Landlord's Taxes" means all taxes, assessments, betterments, water and
sewer charges, excises, user fees, service charges and all other governmental
charges, imposition and fees of any kind or nature, or reasonable agreed
payments in lieu thereof or voluntary payments made in connection with the
provision of governmental services or improvements of benefit to the Premises
(including any so-called linkage impact or voluntary betterment payments),
and all penalties and interest thereon if due to Tenant's failure to make
timely payments an account of Landlord's Taxes, assessed or imposed in
connection with the Premises or the property of which the Premises are a part
(including any personal property taxes levied on such property or on fixtures
or equipment used in connection therewith), other than income, inheritance,
estate, excise, succession, transfer, gift, franchise, gross receipts or
profits taxes. If during the Term the present system of ad valorem taxation
of property shall be changed so that, in lieu of or in addition to the whole
or any part of such ad valorem tax, there shall be assessed, levied or
imposed on such property or Premises, this Lease or on Landlord or Landlord's
reversionary interest any kind or nature of federal, state, county, municipal
or other governmental capital, rental, sales, service, franchise, excise or
other tax, assessment, levy, charge or fee (as distinct from the federal and
state income tax in effect on the Commencement Date) measured by or based in
whole or in part upon Premises valuation, mortgage valuation, rents, services
or any other incidents, benefits or measures of real property or real
property operations, then any and all of such taxes, assessments, levies,
charges and fees shall be included within the term Landlord's Taxes (and if
any such changed system of taxation employs a graduated tax rate, such
graduated tax rate shall be applied to the Premises and to this Lease as if
the Premises was the only real property owned by Landlord in the Commonwealth
of Massachusetts.
Without implying that other covenants do not survive, the covenants of
this Section shall survive the Term.
4.2.2 Abatement of Landlord's Taxes. Tenant may at any time and from time
to time make application to the appropriate governmental authority for an
abatement of Landlord's Taxes. If Tenant files such an abatement application,
Tenant shall promptly provide a copy thereof to Landlord, shall diligently
pursue such application, shall keep Landlord informed of the status thereof
in writing, shall not settle such claim without the prior written approval of
Landlord (which shall not be unreasonably withheld or
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delayed) and shall not dismiss such claim (other than in connection with a
settlement approved by Landlord as aforesaid) without first giving Landlord
at least twenty (20) days' Prior 'written notice and opportunity to assume
the prosecution of such claim. If (i) such an application is successful and
(ii) Tenant has made any payment in respect of Landlord's Taxes pursuant to
Section 4.2.1 above for the period with respect to which the abatement was
granted, (a) Tenant shall deduct from the amount of the abatement all
expenses reasonably incurred by it in connection with the application, and
(b) Tenant shall retain the balance of such abatement (except that if Tenant
did not pay the full amount of Landlord Taxes for the period covered by such
abatement then the balance of the abatement shall be pro-rated appropriately
between Landlord and Tenant).
Landlord shall have the right to file an application for abatement of
Landlord's Taxes only if Tenant has not filed such an application by ten (10)
days prior to the last day on which such an abatement application may be
filed. If Landlord files such an abatement application, Landlord shall
promptly provide a copy thereof to Tenant, shall diligently pursue such
application, shall keep Tenant informed of the status thereof in writing,
shall not settle such claim without the prior written approval of Tenant
(which shall not be unreasonably withheld or delayed) and shall not dismiss
such claim (other than in connection with a settlement approved by Tenant as
aforesaid) without first giving Tenant at least twenty (20) days' prior
written notice and opportunity to assume the prosecution of such claim.
Landlord successfully pursues such an application, (a) Landlord shall be
entitled to reimbursement out of such abatement for all expenses reasonably
incurred by it in connection with the application, and (b) Landlord shall pay
to Tenant the balance of such abatement (except that if Tenant did not pay
the full amount of Landlord Taxes for the period covered by such abatement
then the balance of the abatement shall be pro-rated appropriately between
Landlord and Tenant).
Both Landlord and Tenant shall reasonably cooperate with the moving party
in prosecuting any abatement.
4.2.3 Management. Landlord shall have the right to retain a managing
agent for the Premises ("Landlord's Agent") to perform such accounting and
administrative functions (such as collecting rent payments) as Landlord deems
appropriate, and to engage contractors to perform Landlord's obligations
under this Lease. Landlord's Agent may be an affiliate of Landlord, but in no
event shall the fee payable to Landlord's Agent exceed the fair market fee
charged for a comparable scope of management services in the vicinity of the
Premises. All fees payable to Landlord's Agent shall be payable by Tenant to
Landlord on demand, as additional rent.
4.2.4 Additional Base Building Work Allowance. All sums advanced by
Landlord pursuant to the Work Letter as part of the
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"Additional Base Building Work Allowance" (as therein defined), together with
interest thereon at the rate of ten (10%) percent per annum, shall be repaid
by Tenant to Landlord, as additional rent, in equal monthly installments on
the first day of each month during the Term of the Lease. The amount of such
installments shall be calculated based on an amortization period of twenty
(20) years. As set forth in the Work Letter, the amount of the Additional
Base Building Work Allowance shall in no event exceed one Hundred Thousand
($100,000.00) Dollars. Therefore, if for any reason whatsoever (including but
not limited to Tenant's refusal to exercise one or both rights hereinabove
granted to it to extend the Term or the termination of this Lease as herein
provided) the Term of this Lease is less than twenty (20) years, Tenant shall
pay to Landlord, as additional rent, the full unamortized principal amount of
the Additional Base Building Work Allowance promptly upon the expiration or
termination of this Lease except to the extent to which it is deducted by
landlord as provided in section 6.3(j) below. Without implying that other
covenants do not survive, the covenants of this Section shall survive the
Term.
ARTICLE V
Additional Covenants
5.1 Tenant's Covenants. Tenant agrees during the Term and such further
time as Tenant (or any person acting under it) occupies any part of the
Premises to perform the following, all at Tenant's cost:
5.1.1 Utilities. Tenant shall arrange, provide and pay directly for, and
assume all risk of service interruptions of, all water, sewer, oil, gas,
electricity and other energy or utility services which serve the Premises and
all charges, fees, deposits or bonds in connection therewith.
5.1.2 Alterations.
5.1.2.1 General. "Alterations" shall mean all work, including demolition,
improvements, additions and alterations, in or to the Premises performed or
desired to be performed by Tenant, including, without limitation, all
attached carpeting, all signs visible from the exterior of the Building, and
any change in the exterior appearance of the windows in the Building. All
Alterations shall be subject to Landlord's prior written approval and shall
be arranged and paid for by Tenant except that no such prior written approval
shall be required for Alterations (i) costing not more than $75,000 in each
instance (provided that from and after the point at which the aggregate cost
of such Alterations in any Lease Year exceeds $150,000 there shall be no
further exception during such Lease Year to the requirement of obtaining
Landlord's prior written approval for all Alterations) (such $75,000 amount
and $150,000 amount are hereinafter
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collectively referred to as the "Threshold Amount"), and (ii) which do not
involve alteration removal, cutting, or adding to any structural component of
the Building (including, without limitation, exterior walls, exterior
windows, corewalls, roofs, or floor slabs). Tenant shall neither propose nor
effect any Alterations (i) which adversely affects any structural component
of the Building (including, without limitation, exterior walls, exterior
windows, core walls, roofs, or floor slabs), (ii) which is incompatible with
the electrical or mechanical components or systems of the Building as the
same exist at the Commencement Date, (iii) which adversely affects in any
respect other property than the Premises, or (iv) which is not consistent
with the use by. Tenant or a future occupant of the Premises for the
Permitted Uses as set forth in this Lease.
5.1.2.2 Design and Construction. No Alterations for which Landlord's
consent is required hereunder shall be effected except in accordance with
complete, consistent construction drawings and specifications, prepared by an
architect approved in advance by Landlord, such approval not to be
unreasonably withheld. Tenant shall be solely responsible for the liabilities
of and expenses of all architectural and engineering services relating to
Alterations. Said construction drawings and specifications shall be fully
coordinated with one another and with field conditions as they exist in the
Premises, and shall show all work necessary to complete the Alterations
including all cutting, fitting, and patching and all connections to the
mechanical and electrical systems and components of the Building. Landlord
shall respond to Tenant's request for approval of the construction drawings
and specifications for Alterations within fifteen (15) days of Landlord's
receipt of complete plans and specifications, and Landlord's failure to
respond within such time shall be deemed to be approval by Landlord except
that with respect to Alterations whose hard construction cost to Tenant will
equal or exceed $250,000. 00 ("Major Alterations"), Landlord shall have
twenty (20) days to respond to Tenant's request for approval.
The identity of any person or entity performing any Alterations costing
in excess of the Threshold Amount shall be subject to Landlord's prior
approval, not to be unreasonably withheld. Tenant shall procure all necessary
governmental permits, licenses and approvals before undertaking any
Alterations, and shall furnish copies of the same to Landlord. Tenant shall
perform all Alterations at Tenant's risk in compliance with all applicable
Legal Requirements and Insurance Requirements, and in a good and workmanlike
manner employing new materials of good quality and producing a result at
least equal in quality to the other parts of the Premises. Tenant shall pay
as the same becomes due the entire cost of all Alterations so that the
Premises shall always be free of liens for labor or materials. When any
Alterations are in progress, Tenant shall cause to be maintained (i)
insurance as described in the Tenant's Work Insurance Requirements attached as
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Schedule 2 to the Work Letter and such other insurance as may be reasonably
required by Landlord covering any additional hazards due to such Work, and
(ii) if Landlord so requires, a performance and payment bond or statutory
lien bond or such other protection as Landlord may reasonably require, in
each case for the benefit of Landlord. Tenant shall reimburse Landlord for
its reasonable out of pocket expenses (not to exceed $5,000.00 per each set
of Alterations) incurred in reviewing proposed Alterations costing in excess
of the Threshold Amount and inspecting installation of the same except that
with respect to Major Alterations the preceding cap on Landlord's
reimbursable expenses shall not apply and Landlord shall have the right to
retain a construction representative at a market-rate fee (but in no event
greater than one and one-half (1-1/2%) percent of Tenant's hard construction
cost) whose fee to Landlord will be reimbursed by Tenant. At all times while
performing Alterations, Tenant shall require each of its contractors to
comply with all applicable Legal Requirements and Insurance Requirements
relating to such work. Each of Tenant's contractors shall, by entry into the
Building, be deemed to have agreed to indemnify the Indemnitees in connection
with any act or neglect by such contractor (or those acting under the
contractor) to the same extent as Tenant has so agreed elsewhere in this
Lease.
5.1.3 Maintenance. Except as otherwise specifically provided in Section
11.1 below, Tenant shall maintain, repair, replace, clean, secure, protect,
defend and keep in compliance with all "Legal Requirements" and "Insurance
Requirements" (as hereinafter defined) the Premises and all improvements
thereon and appurtenances thereto and all utilities, facilities,
installations and equipment used in connection therewith, including the
elements of all interior walls, floors and floor coverings, roofs and roof
waterproofing and membranes, glass, windows (except to the extent to which
Landlord is responsible for maintaining the "Devac" exterior window system as
provided in Section 11.1 below), doors, partitions, exterior lighting,
elevators, electrical, plumbing, heating, ventilating and other building
systems) water and sewage systems and other fixtures or equipment serving the
Premises. Without limitation, Tenant shall provide all security, cleaning,
painting, janitorial services, rubbish disposal, periodic exterior
waterproofing treatments (Hydrozol or equivalent) to the Building, window
caulking, maintenance of all gas, water, sewer, electric and other utility
lines from public ways to the Premises, and shall repair and maintain the
grounds, roads, parking areas and walkways appurtenant to the Premises (but
Tenant shall not be required to re-fill holes or re-pave cracked areas in the
parking area except in those areas which were repaved as part of the initial
preparation of the Premises for Tenant's occupancy), and shall provide
landscaping and snowplowing services thereto, keeping the Premises and all
improvements and appurtenances in at least as good condition as on the
Commencement Date, excepting only reasonable wear and tear and damage by
casualty or taking which Tenant is not otherwise obligated by the terms of
this Lease to repair or
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replace. All of Tenant's obligations shall be performed in accordance with
standards befitting comparable quality suburban buildings in the Boston
metropolitan area. Tenant shall enter into service and/or maintenance
contracts with recognized and experienced specialized vendors (such contracts
and vendors to be subject to Landlord's prior approval, not to be
unreasonably withheld) providing for the periodic servicing of building
systems and the performance of other Tenant maintenance responsibilities as
required by good building management practices. All such vendors shall
maintain insurance in amounts and coverages reasonably acceptable to Landlord,
5.1.4 Use and Compliance with Legal Requirements and Insurance
Requirements. Tenant shall occupy the Premises only (i) for the Permitted
Uses and for no other use, and (ii) as and to the extent permitted under
present and future federal, state or local laws, ordinances, codes, rules and
regulations, or the provisions of any license, permit or other governmental
consent required for or applicable now or at any time during the Term to the
Land, the Building or the Premises or Tenant's use thereof, including,
without limitation, the Americans With Disabilities Act of 1990
(collectively, "Legal Requirements"), and the terms of any policy of
insurance maintained by Landlord or Tenant and applicable now or at any time
during the Term to (or affecting any condition, operation, use or occupancy
of) the Land, the Building or the Premises or any part or parts of either and
all requirements of the issuer of any such policy and all orders, rules,
regulations and other requirements of the National Board of Fire Underwriters
(or any other body exercising similar functions) (collectively, "Insurance
Requirements"), foreseen or unforeseen. Tenant shall make all physical
alterations and additions required to the Premises by any change in Legal
Requirements or Insurance Requirements during the Term, whether or not the
same necessitate structural or other extraordinary changes or improvements to
the Premises or interfere with Tenant's use. Tenant shall procure all
appropriate approvals, licenses and permits, in each case promptly giving
Landlord copies of the same and all applications therefor. Tenant shall also
keep the Premises equipped with appropriate safety appliances. It is intended
that Tenant bear the sole risk of all present or future Legal Requirements
and Insurance Requirements affecting its use, the Premises or both, and
Landlord shall not be liable for (nor suffer any reduction in any rent on
account of) the enforcement of Legal Requirements or Insurance Requirements.
Notwithstanding the preceding provisions of this Section 5.1.4, Landlord
shall be responsible for (i) the compliance of the exterior walls, roof
decks, floor slabs, foundations and the "Devac" window system of the Building
with all building codes applicable to the use of the Premises for general
office use as of the Commencement Date, and (ii) the removal of all
asbestos-containing materials from the Building. The cost of the preceding
items (i) and (ii) shall be payable solely out of the Base Building
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Work Allowance and the Additional Base Building Work Allowance and Landlord
shall have no obligation to pay any further sums on account thereof I but
this limitation shall, not apply to Landlord's ongoing maintenance
obligations under Section 11.1 below. In addition, Landlord shall be
responsible, at its sole cost and expense and not as part of the Base
Building Work Allowance or the Additional Base Building Work Allowance, for
preexisting Hazardous Materials conditions at the Premises to the extent
provided in Section 11.2 below. Except as specifically provided in this
paragraph, in Section 11.2 below, and in the Work Letter, Landlord shall have
no obligation or responsibility whatsoever in connection with the initial
condition of the Premised.
5.1.5 Liens and Encumbrances. Tenant shall keep the Premises (and
Landlord's interest therein and Tenant's leasehold (and Tenant's interest
therein) free of, and shall within ten (10) days of notice from any source,
discharge or bond over (to Landlord's reasonable satisfaction) any lien,
security interest or other encumbrance which arises as a result of any act or
omission of Tenant or persons acting under Tenant.
5.1.6 Indemnity. Subject to the rights expressly reserved to Landlord,
Tenant shall assume exclusive control of the Premises and all areas
pertaining thereto including all appurtenances, improvements, utilities,
water bodies, grounds, sidewalks, walkways, driveways and parking facilities,
and Tenant shall bear the sole risk of all related liabilities of all and
every nature whatsoever. Except as set forth below in this Section, Tenant
shall indemnify, save harmless and defend Landlord, Landlord's Agent and
Landlord's beneficiaries, partners, mortgagees and ground lessors and the
officers, directors, agents, employees, independent contractors and invitees
of any of the foregoing and any other persons designated by Landlord from
time to time as having a relationship to the Premises prior to the assertion
of a claim or demand against any such person or the incurrence by any such
person of any liability, damage, cost or loss for which indemnification is
herein agreed to be made by Tenant ("Indemnitees") from all liability, claim,
damage, cost or loss (including reasonable costs of litigation and legal
counsel of any Indemnitee's choice against whom Tenant makes no reasonable
objection) arising in whole or in part out of, or in any manner related to,
(i) any alleged or actual injury, loss, theft or damage (except to the extent
caused solely and directly by the negligence or willful act of Landlord) to
any person or property while on or about the Premises, or (ii) any alleged or
actual condition of the Premises or the possession and use thereof (including
any failure to vacate at the end or earlier termination of the Term) or any
alleged or actual activity permitted or suffered in connection therewith, or
(iii) any breach of any provision of this Lease or any other covenant,
representation or certification by Tenant or persons acting under Tenant, or
(iv) any act or omission anywhere by Tenant or persons acting under Tenant,
in each case paying the
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same on demand as additional rent. This Section shall not apply to matters
relating to Hazardous Materials or Hazardous Materials Activities, which are
addressed in Sections 5.1.10 and 11.2 of this Lease, Without implying that
other covenants do not survive, the covenants of this Section shall survive
the Term.
5.1.7 Landlord's Right to Enter; Interruptions. Landlord and persons
acting under Landlord may upon such notice and in such manner as is
reasonable under the circumstances enter the Premises during business hours
(and in case of emergency at any time) in exercise of any rights reserved to
Landlord, or to inspect the Premises, or to review and inspect Tenant's
records relating to the maintenance of the Premises or any component of the
Building, or to take measurements of the Premises, or to secure or protect
the Premises, or to remove any unconsented to Alterations which require
Landlord's consent; and similarly at any time may show the Premises to
prospective purchasers and lenders, and during the last eighteen (18) months
of the Term (if not extended) to prospective tenants (and also during such
period may keep affixed in suitable places notices for letting.) Except in
case of emergency, Landlord shall be subject in entering the Premises to
reasonable security conditions, if any, previously set forth in a notice by
Tenant to Landlord.
5.1.8 Signage. Landlord may affix at its expense an entry plaque at each
main entrance to the Building identifying the Premises as property owned by
Landlord, which sign shall be of typical size for such signs and shall be
subject to the reasonable approval of Tenant, which approval shall not be
unreasonably withheld or delayed.
Tenant shall obtain Landlord's prior written reasonable approval as to
the location, size, shape and appearance of all signs which Tenant wishes to
erect or install anywhere in, on or about the Premises. and as to the plans
and specifications relating to such installation. Tenant shall install all
such signs and shall obtain all approvals, licenses, permits and consents
from governmental authorities required by applicable Legal Requirements to
install such signs. Tenant shall cause such installation to be done in a good
and workmanlike manner and in accordance with all applicable Legal
Requirements and Insurance Requirements, and the requirements of all existing
restrictions, easements and encumbrances of record affecting the Land, and
the provisions of this Lease applicable to Alterations. Tenant shall maintain
all such signs in good operating condition and in accordance with all
applicable Legal Requirements and Insurance Requirements, and the
requirements of all existing restrictions, easements and encumbrances of
record affecting the Land. Tenant shall remove such signs on or prior to the
date on which the Term expires or this Lease is terminated and restore the
surface of the Land and/or the Building reasonably to the condition in which
it was prior to the installation of such sign. All signs installed by Tenant
shall
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be at Tenant's sole risk, and Landlord shall have no responsibility or
liability in connection therewith.
5.1.9 Assumption of Risk. To the full extent permitted by law, Tenant
assumes all risk of damage or injury to any person or property located in, on
or about the Premises. Landlord shall not be liable for any loss or damage to
person or property resulting from any accident, theft, vandalism or other
occurrence on the Premises, including damage resulting tram water, wind, ice,
steam, explosion, fire, smoke, chemicals, the rising of water or leaking or
bursting of pipes or sprinklers, defect, structural or nonstructural failure,
the act or neglect of any other tenant or person, or any other cause except
to the extent such loss or damage is caused solely and directly by Landlord's
negligent or willful act or omission.
5.1.10 Damage. Nuisance, Etc. Whether with or without negligence or
notice, Tenant shall not itself, nor shall it allow persons acting under it,
to injure, overload, deface, damage or otherwise harm Landlord's property,
the Building, the Premises or any part or component thereof; to commit any
nuisance; to allow any offensive noise or odors to emanate beyond the
Premises; to commit or allow any waste to Landlord's property or the
Premises; or to allow the emission, discharge, disposal, release or other
escape of any oil or petroleum products, asbestos, polychlorinated biphenyls
or any biologically or chemically active or other hazardous or toxic
materials, substances or wastes whether in solid, liquid or gaseous state
(collectively, "Hazardous Materials"), or allow the storage, generation,
disposal or use of such materials by Tenant or persons claiming through
Tenant (collectively, "Hazardous Materials Activities") except in either case
as permitted by applicable Legal Requirements and by the standards prevailing
in the industry for such Hazardous Materials Activities; nor shall Tenant
permit to be brought onto the Premises any Hazardous Materials except to use
in Tenant's business. Tenant shall give written notice to Landlord of the
identity and approximate quantities or estimates of such materials. Such
notice shall be deemed sufficient if Tenant provides it to Landlord on a
quarterly basis each Lease Year during the Term. In no event shall Tenant or
persons acting under it store Hazardous Materials, or conduct any Hazardous
Materials Activities, outside of the fully-enclosed portions of the Building.
Landlord shall not be liable to Tenant or those persons claiming through
Tenant or to any person or governmental authority whatsoever for any
Hazardous Materials Activities by Tenant, those claiming through Tenant or by
any of their employees, agents, contractors, licensees or invitees, or of any
other tenant or third party, whether or not such activities hale been
consented to by Landlord. Landlord shall have the right, from time to time
during the Term, to enter upon the Premises to perform environmental audits
relating to the business operations of Tenant and all those claiming through
Tenant on the Premises, including, without limitation, (i) reviewing records
of each such business relating to
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compliance with Legal Requirements and industry standards applicable to
Hazardous Materials Activities, (ii) observing techniques for handling,
storing, using and disposing of Hazardous Materials, (iii) reviewing
documentation relating to the off-Premises disposal of Hazardous Materials
from the Premises, and (iv) conducting such tests and chemical analyses of
air (both within the Building and outside), water and soil samples as
Landlord deems appropriate, all such work to be performed at Landlord's sole
expense. In addition to, and not in limitation of the rights provided in the
immediately preceding sentence, if required by any mortgagee or governmental
agency or if Landlord reasonably believes that a release of, Hazardous
Materials has occurred or a threat of release exists or that Hazardous
Materials Activities do not conform to the requirements of this Lease, then
Landlord may, but need not, perform appropriate testing in a commercially
reasonable manner and the reasonable costs thereof shall be reimbursed to
Landlord by Tenant as additional rent upon demand by Landlord and delivery by
Landlord to Tenant of a copy of the report from such testing, except that
Landlord shall bear the cost of testing if such testing determines that no
such release has occurred as a result of the actions of Tenant or persons
claiming through Tenant and that Hazardous Materials Activities are being
conducted in compliance with the terms of this Lease. Any entry by Landlord
or its representatives onto the Premises pursuant to this Section or
provisions of information by Tenant to Landlord required hereunder shall be
made in accordance with Tenant's reasonable standard operating procedures and
security and confidentiality requirements of which Tenant has previously
given Landlord written notice (but in cases of emergencies Landlord shall be
required only, to use reasonable efforts to comply with such standard
operating procedures and security and confidentiality requirements). Tenant
shall cooperate with Landlord in connection with any environmental audits or
other inspections or testing performed by Landlord pursuant to this Section.
Without limitation, Hazardous Materials shall include all substances and
wastes described or designated as hazardous or toxic substances, or other
similar terms in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. 9601 et seq.; the Resource Conservation and
Recovery Act, 42 U.S.C. 6901 et seq.; the Hazardous Materials Transportation
Act; the Clean Air Act, 42 U.S.C. 7401 et seq.; the Water Pollution Control
Act (Clean Water Act of 1977), 33 U.S.C. 1251 et seq.; the Insecticide,
Fungicide, and Rodenticide Act (Pesticide Act of 1987), 7 U.S.C. 135 et seq.;
the Toxic Substances Control Act, 15 U.S.C. 2601 et seq.; the Safe Drinking
Water Act, 42 U.S.C. 300 et seq.; the Refuse Act of 1989, 33 U.S.C. 407 et
seq.; the Massachusetts Hazardous Waste Management Act, M.G.L. Chapter 21;
the Massachusetts Hazardous Waste Facility Siting Act, M.G.L. Chapter 21D;
the Massachusetts Oil and Hazardous Material Release Prevention Act, M.G.L.
Chapter 21E; and in any other federal, state or local laws as they may be
amended from time to time and in all regulations or publications promulgated
pursuant to all of the foregoing. Tenant shall execute certifications from
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time to time at Landlord's reasonable request concerning Tenant's best
knowledge and belief regarding Hazardous materials and Hazardous Materials
Activities on the Premises.
In all events and without limitation except as provided in Section 11.2
below, Tenant shall indemnify, save harmless and defend Indemnitees from all
liability, claim, demand, action, proceeding or assertion of liability,
whether accrued, contingent or determinable, and any damage, cost or loss
(including reasonable costs of litigation and. legal counsel of any
Indemnitee's choice against whom Tenant makes no reasonable objection)
arising in whole or in part out of, or in any manner related to the Hazardous
Materials Activities of Tenant or persons claiming through Tenant, whether or
not the same have been consented to by Landlord (and for these purposes the
costs and loss indemnified shall include any costs of investigation of site
conditions, any cleanup, remediation, removal or restoration work, any lost
rents, and any decrease in value of or adverse impact on marketability to the
Premises or property of others) except that (i) the foregoing indemnification
shall not require Tenant or persons claiming through Tenant to indemnify,
save harmless or defend any of the Indemnitees with respect to Hazardous
Materials other than those spilled or released by Tenant or persons claiming
through Tenant (including, without limitation, those Hazardous Materials
which are or become present in the soil or groundwater of the Premises by
reason of regional contamination as to which Landlord has indemnified Tenant
under Section 11.2 hereof), (ii) in those situations in which Landlord can
establish that only a portion of the Hazardous Materials on account of which
Landlord seeks indemnification hereunder were spilled or released by Tenant
or persons claiming through it, then Tenant's indemnification obligation
shall be limited to any and all incremental liability, demand, claim, damage,
cost or loss asserted against or incurred by Landlord as a result of the
spill or release of Hazardous Materials by Tenant or persons claiming through
Tenant, and (iii) Landlord shall have the burden of establishing that the
Hazardous Materials on account of which Landlord seeks indemnification
hereunder were spilled or released by Tenant or persons claiming through it,
and as to any incremental cost allocation (whether such burden is phrased as
one of proof, production, or persuasion),
Without limiting the foregoing, if the presence of any Hazardous
Materials in, on or about the Premises caused or permitted by Tenant or
persons claiming through Tenant results in any contamination of the Premises
or any other property such that applicable Legal Requirements require the
investigation, response action, removal or remediation or other action,
Tenant shall promptly undertake such investigation, response action, removal
or remediation or other action and shall perform the same in accordance with
all applicable Legal Requirements and, to the extent consistent with Legal
Requirements, any accepted and relevant industry practices; provided that
Landlord's approval of
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such actions which are not immediate action to reports, contain and initially
assess a spill or release shall first be obtained, which approval shall not
be unreasonably withheld or delayed so long as such actions would not
potentially have any material (as determined by Landlord) adverse effect on
the Premises or expose Landlord to any additional liability as a result
thereof and such actions are undertaken in accordance with all applicable
Legal Requirements and accepted and relevant industry practices consistent
therewith. In those situations in which applicable law, rules, or regulations
or a governmental authority having jurisdiction thereof require Tenant to
undertake an immediate response action, Tenant shall (i) notify Landlord of
the situation by telephone immediately after notifying the appropriate
governmental authorities, and (ii) unless otherwise required by a
governmental authority having jurisdiction thereof, not take any action
(including, without limitation, making any excavation) other than containing
and removing Hazardous materials from the surface of the Premises without the
prior approval of Landlord as provided above. Tenant shall provide to
Landlord at no additional cost copies of all reports prepared for Tenant
concerning the presence of Hazardous Materials in or around the Premises.
Without implying that other covenants do not survive, the covenants of this
Section shall survive the Term.
5.1.11 Yield Up. Upon the expiration or earlier termination of the Term,
Tenant (and all persons claiming under Tenant) shall without the necessity of
notice surrender the Premises and all keys (or lock combinations) to the
Premises; and shall remove (i) all of Tenant's furniture, furnishings,
removable equipment and personal property, (ii) all of Tenant's signs
wherever located, and (iii) if directed in writing by Landlord given not less
than one (1) year prior to the expiration of the Term (but no such prior
notice shall be required in the event of the early termination of this Lease
as elsewhere provided herein), all (but not less than all) Tenant's Work and
Alterations exclusive of demising walls, floor coverings and ceilings, in
each case whether or not the same be permanently affixed to the Premises, and
in each case repairing damage which results from such removal (including the
filling of all floor and wall holes, the removal of all disconnected wiring
back to junction boxes and the replacement of all damaged ceiling tiles).
Landlord shall have the right to direct Tenant, by notice given at least one
(1) year prior to the expiration of the Term (but no such prior notice shall
be required in the event of the early termination of this Lease as elsewhere
provided herein), either to remove all of Tenant's Work and Alterations
exclusive of demising walls, floor coverings and ceilings, or to cause all of
Tenant's Work and Alterations to remain in or on the Premises. In any event,
Tenant shall remove the contents of all neutralization tanks (if any)
installed in or on the Premises. Tenant shall yield up the Premises clean
(and without limitation if Tenant ever engaged in any use which produced
odors, bacteria or germs then Tenant shall sanitize and disinfect the
Premises to remove all odors, bacteria, germs and other
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evidence of Tenant's use) and in good order, repair and condition (reasonable
wear and tear, and damage by fire or other casualty or taking which Tenant is
not otherwise required by the terms of this Lease to repair or replace only
excepted). Any property described in the foregoing clauses (i) - (iii) which
is not so removed shall be deemed abandoned, shall at once become the
property of Landlord, and may be disposed of in such manner as Landlord shall
see fit; and Tenant shall pay the costs of removal and disposal (together
with an administrative charge of fifteen (15%) percent of such costs) to
Landlord upon demand. Landlord shall have the right to conduct, at its
expense, prior to the last day of the Term a "close-out" environmental audit
of the type described in Section 5.10 above. Without implying that other
covenants do not survive, the covenants of this Section shall survive the
Term.
5.1.12 Holding Over. If Tenant (or anyone claiming under Tenant) shall
remain in possession of the Premises or any part thereof after the expiration
or earlier termination of the Term without a written agreement executed by
Landlord, then without limitation of Landlord's other rights and remedies the
person remaining in possession shall be deemed a tenant at sufferance only,
subject to all of the terms and conditions of this Lease except that rent
shall be due and payable tar the duration of such holding over at a rate
equal to one and one-half times the amount payable as Annual Base Rent for
the twelve-month period immediately preceding such expiration or termination,
and with all additional rent also payable as provided in this Lease. Such a
holding over, even if with the consent of Landlord, shall not constitute an
extension or renewal of this Lease, and Landlord's acceptance of rent from
Tenant shall not constitute Tenant a tenant at will. Without implying that
other covenants do not survive, the covenants of this Section shall survive
the Term.
5.1.13 Transfer - Assignment and Subletting.
(a) Except as provided below in the case of Permitted Transfers, Tenant
shall not assign this Lease, or sublet or license the Premises or any portion
thereof, or advertise the Premises for assignment or subletting, or permit
the occupancy of all or any portion of the Premises by anybody other than
Tenant, including transfer by mortgage, pledge or other encumbrances (all of
the foregoing actions are collectively referred to as a "Transfer"), without
obtaining, on each occasion, the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed taking into account
factors such as the creditworthiness of the proposed transferee, the current
financial condition and financial history (if any) of the proposed
transferee, the nature of the business proposed by such transferee to be
conducted on the Premises, and the need for alterations or improvements to be
made to ready the Premises for occupancy by such proposed transferee which
are of an unusual nature not readily reusable by a future occupant of the
Premises for the Permitted Uses set forth in this
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Lease. Notwithstanding anything herein to the contrary, if, except as a
Permitted Transfer, Tenant assigns this Lease or otherwise Transfers more
than thirty-seven and one-half (37.5%) percent of the rentable floor area of
the Building (i.e., more than 20,290 rentable square feet), with or without
Landlord's consent, then all rights of Tenant to extend the Term (as provided
in Section 2.4) and to purchase the Premises (as provided in Article X) will
automatically become void and terminate.
(b) A "Permitted Transfer" shall be one or more of the following: (1) a
Transfer to any subsidiary in which Tenant owns substantially all the voting
stock or otherwise exercises voting control, or to any parent owning
substantially all the voting stock of Tenant or to any subsidiary of Tenant's
parent in which such parent owns substantially all the voting stock or
otherwise exercises voting control, and (2) any Transfer of Tenant's interest
in this Lease by statutory merger or any assignment incident to the sale of
substantially all of Tenant's assets, where in either such case the resulting
person succeeding to Tenant's interest has a net worth immediately thereafter
equal to or in excess of that of Tenant immediately prior thereto. Landlord
agrees not to unreasonably withhold its consent to a Permitted Transfer, and
to respond to any request for such consent within ten (10) business days
after receipt of a written request therefor from Tenant together with the
materials required the paragraph (c) below (failing which Landlord shall be
deemed to have approved such permitted Transfer).
(c) If Tenant wishes to make a Transfer (whether a Permitted Transfer or
otherwise). Tenant shall deliver to Landlord (i) a true and complete copy of
the proposed instrument containing all of the terms and conditions of such
Transfer, (ii) a general description of the types of business conducted by
the proposed transferee and a reasonably detailed description of the business
operations proposed to be conducted in the Premises by such person or entity,
(iii) such financial information concerning the proposed transferee as
Landlord may reasonably require, (iv) schematic plans and specifications for
any Alterations which Tenant or the proposed transferee seeks to make in
connection with such Transfer (with complete plans and specifications in the
form required under Section 5.1.2.2 above to be submitted and approved (where
required by that Section) prior to the commencement of any construction), and
(v) a written agreement, in recordable form reasonably approved by Landlord,
between such proposed transferee and Landlord, duly executed by such proposed
transferee, in which such proposed transferee agrees with Landlord to perform
and observe all of the terms, covenants and conditions of this Lease.
Landlord shall have fifteen (15) days from the day on which it receives
Tenant's written request for consent and such required documentation to give
notice to Tenant that either (i) Landlord consents to such Transfer, or (ii)
Landlord withholds its consent to such Transfer, in which case Landlord shall
set forth the reasons therefor.
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Tenant shall pay to Landlord on demand, as additional rent, Landlord's out of
pocket costs and expenses (including, without limitation, reasonable
attorneys fees) reasonably incurred in reviewing any request for consent to
Transfer contemplated by this Section, whether or not Landlord consents to
the same, in an amount not to exceed $5,000.00 per request by Tenant.
(d) If Tenant does Transfer with Landlord's consent, and if, except in
the case of any Permitted Transfer, the consideration, rent, or other charges
payable to Tenant under such Transfer (including payments received by Tenant
for services such as glass washing rendered by Tenant to such transferee but
only to the extent such payments exceed Tenant's actual costs for providing
the same) exceed the rent and other charges to be paid hereunder and
"Tenant's Transfer Expenses" (prorated based on floor area in the case of a
subletting, license or other occupancy of less than the entire area of the
Building), then Tenant shall pay to Landlord, as additional rent, one-half of
the amount of such excess when and as received. "Tenant's Transfer Expenses"
shall mean Tenant's reasonable payments to third parties in connection with
such Transfer for brokerage, legal and fit-up costs, all amortized for these
purposes over the term of the Transfer. For the purposes of calculating the
amount of "excess rent" received from a transferee after Tenant has paid the
Buydown Amount, such calculation shall be made as though Tenant had not paid
the Buydown Amount and was then obligated to pay Annual Base Rent at the
rates set forth in Section 1.1 of this Lease rather than the reduced rates
set forth in Section 4.1.2 above (that is, in such a case there will be no
"excess rent" if the rent received by Tenant from such transferee is less
than the Annual Base Rent which would be payable by Tenant if the Buydown
Amount had not been paid).
(e) If Landlord consents to a Transfer, prior to such transferee taking
occupancy of any portion of the Premises Tenant shall deliver to Landlord an
original of the fully-executed instrument of Transfer.
(f) Tenant shall not be entitled to make any Transfer, or to request
Landlord's consent to any proposed Transfer, during the continuance of a
default hereunder by Tenant of which Landlord has given notice to Tenant
(where notice is required by this Lease) prior to Tenant's request for
Landlord's consent.
(h) In all events, notwithstanding any Transfer and whether or not the
same is a Permitted Transfer or consented to by Landlord, Tenant's (and any
guarantors) liability to Landlord shall remain direct and primary. Any
transferee of all or substantially all of Tenant's interest in the Premises,
whether by assignment, sublease, license or otherwise, including any
transferee of a Permitted Transfer, shall be deemed to have agreed directly
with Landlord to be jointly and severally liable with Tenant for the
performance of those of Tenant's covenants which
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relate to the portion of the Premises subject to such Transfer and pro rata
for all of Tenant's other monetary obligations under this Lease; and such
transferee shall upon request execute and deliver such instruments as
Landlord reasonably requests in confirmation thereof (and agrees that its
failure to do so shall be subject to the default provisions of this Lease).
At any time after the occurrence of an Event of Default, Landlord may collect
rent and other charges from any transferee (and upon notice any transferee
shall pay such directly to Landlord) and apply the amount collected to the
rent and other charges herein reserved. No consent to Transfer or collection
of rent by Landlord directly from the transferee or failure so to collect
such rent shall be deemed a waiver of the provisions of this Section, or an
acceptance of such transferee as a tenant hereunder, or as a release of
Tenant from direct and primary liability for the performance of all of the
covenants of this Lease. The consent by Landlord to any Transfer shall not
relieve Tenant (or any transferee including any transferee of a Permitted
Transfer) from the obligation of obtaining the express consent of Landlord to
any modification of such Transfer or any further Transfer; nor shall
Landlord's consent alter in any manner whatsoever the terms of this Lease, to
which any Transfer at all times shall be subject and subordinate. In no event
shall any transferee, including any Permitted Transfer, whether or not
consented to, further Transfer all or any part of its interest in the
Premises without the prior written consent of Landlord in each instance
which, notwithstanding anything to the contrary in this Lease contained, may
be withheld by Landlord in its sole and absolute discretion. In addition, if
any transferee requests Landlord's consent to a further Transfer of all or
any part of its interest in the Premises, such transferee shall pay to
Landlord the reimbursement described in the last sentence of paragraph (c) of
this Section without regard to the $5,000.00 limit stated therein.
5.1.14 Rules and Regulations. Tenant shall comply with all reasonable
rules and regulations from time to time adopted by Landlord for the care and
use of the Premises.
5.1.15 Cessation of Occupancy. If at any time during the Term Tenant (or
the transferee under a Permitted Transfer) and all subtenants, if any, cease
to conduct their business in the Building Tenant shall promptly so notify
Landlord. If the Building remains vacant for at least one (1) year, Landlord
shall have the right, in its sole discretion, to terminate this Lease upon
thirty (30) days' written notice to Tenant. Such a termination by Landlord
shall not be deemed a termination pursuant to Section 7.1 below, but rather
shall have the same effect as a termination pursuant to Section 6.3 below.
5.2 Landlord's Covenants of Quiet Enjoyment. Upon performing all
covenants of this Lease, Tenant may peaceably and quietly enjoy the Premises
during the Term without disturbance by anyone, subject
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always to the terms of this Lease, provisions of law, the Permitted
Exceptions, matters to which this Lease may become subordinate pursuant to
Section 9.1 below, and such other matters as may hereafter be created with
Tenant's consent as provided in Section 2.1 above. Except as otherwise
expressly provided herein, this covenant of quiet enjoyment is in lieu of any
other covenant express or implied.
5.3 Interruptions. Landlord shall not be liable to Tenant in damages or
by reduction of rent or otherwise by reason of inconvenience or annoyance or
for loss of business arising from Landlord or its agents, employees or
independent contractors entering the Premises in a reasonable manner for any
of the purposes authorized in this Lease. In case Landlord is prevented or
delayed from performing any covenant or duty to be performed on Landlord's
part by reason of any cause reasonably beyond Landlord's control, Landlord
shall not be liable to Tenant therefor, nor shall the same give rise to a
claim in Tenant's favor that such failure constitutes constructive eviction
from the Premises.
ARTICLE VI
Insurance; Casualty: Taking
6.1 Insurance
6.1.1 Casualty Insurance. Tenant shall maintain throughout the Term
ill-risk property insurance covering the Premises (including all Base
Building Work, Tenant's Work and Alterations) against fire and such other
hazards, casualties and contingencies (including boiler and machinery, flood
and earthquake coverage) as are from time to time customarily covered by
all-risk policies for similar buildings used for similar purposes as Tenant
is then making of the Building (including rent continuation coverage of no
less than one year's Annual Base Rent). The limits of insurance shall be
equal to the sum of (a) one year's Annual Base Rent and (b) an amount not
less than stipulated from time to time by Landlord's mortgagees. Amounts
specified in clause (b) of the preceding sentence shall never be less than
100% of the actual replacement cost determined from time to time but no less
frequently than annually by an appraisal performed either by the insurance
company which will be issuing the property insurance policy for the coming
year or, if such company cannot perform such an appraisal, by an independent
appraiser retained and paid by Tenant, or by an automatic indexing
endorsement approved annually by Landlord and Tenant). Such insurance will
cover the Building and all Improvements on the Premises, excluding
foundations, and be subject only to such deductibles as are from time to time
reasonably approved by Landlord based on the then current practice for
similar buildings used for similar purposes as Tenant is then making of the
Building (Tenant agreeing to pay to Landlord, upon demand as additional rent,
the amount of any such deductible
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following any casualty loss). All such policies shall be written with
insurers of recognized responsibility, qualified to do business in
Massachusetts and reasonably acceptable to Landlord, shall name Landlord and
Tenant as insureds, shall name Landlord as loss payee, shall name any
mortgagees from time to time designated by Landlord as insured mortgagees
(and any additional persons designated by Landlord as additional insureds),
and shall provide (and the insurer issuing such policy upon request shall
certify to Landlord and any such persons and mortgages) substantially that
(i) loss payments will be payable solely to Landlord (and such persons and
mortgagees); (ii) the interest of Landlord (and any such persons and
mortgagees) shall be insured regardless of any breach or violation by Tenant
and/or Landlord of any warranties, declarations or conditions in such policy,
or of any act or neglect by Tenant or Landlord, or of any occupation of the
Premises for purposes more hazardous than permitted under the policy, or of
any change or transfer of ownership of the property or this leasehold or
interest in either; (iii) if any such insurance policy is subject to
cancellation or is endorsed (with respect to the Premises) or sought to be
endorsed to effect a change in coverage for any reason whatsoever, such
insurer will promptly notify Landlord (and any such person and mortgagees)
and such cancellation or change shall not be effective as to them for thirty
(30) days after receipt by them of such notice; and (iv) Landlord (or any
such person or mortgagee) may, but shall not be obligated to, make premium
payments to prevent such cancellation for nonpayment of premiums, and that
such payments shall be accepted by the insurer, Tenant shall furnish to
Landlord (and any such persons and mortgagees) duplicate executed copies of
each then existing policy prior to the Commencement Date, and certificates of
insurance evidencing the renewal thereof not less than fifteen (15) days
prior to the expiration of the original policy or the preceding renewal
policy (as the case may be), together with receipts or other evidence that
the premiums thereon have been paid, to be followed by receipt of certified
copies of the renewal policies.
6.1.2 Commercial General Liability Insurance. Tenant shall maintain
throughout the Term (and such further time as Tenant or any person claiming
through it occupies any part of the Premises) comprehensive public liability
insurance against all claims for injury to persons or property in connection
with the Premises naming Landlord and Landlord's Agent (and if requested,
Landlord's mortgagees and other persons designated from time to time by
Landlord as having some relationship to the Premises) as additional insureds,
in an amount which shall be equal to the amount set forth in Section 1.1.
such insurance shall provide that it will not be subject to cancellation,
termination or change except after at least 30 days' prior written notice to
Landlord (and Landlords mortgagees and other additional insureds). A
certified copy of such policy shall be deposited with Landlord prior to the
Commencement Date, and a renewal certificate shall be so deposited not less
than 15 days prior to their normal
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expiration, to be followed by receipt of certified copies of the renewal policy.
6.1.3 Insurance by Landlord. Tenant fails to perform any covenant in
Section 6.1.1 or Section 6.1.2, then without limiting any of Landlord's other
rights and notwithstanding any other provision of this Lease concerning notice
and cure of defaults, Landlord may obtain such insurance, and Tenant shall pay
the cost thereof and Landlord's related expenses upon demand as additional rent.
6.2 Intentionally Deleted.
6.3 Damage or Destruction of Premises.
(a) If the Premises or any part thereof are damaged by fire or other
casualty, Tenant shall promptly notify Landlord thereof.
(b) Unless Landlord otherwise notifies Tenant in writing within thirty (30)
days after the occurrence of such casualty:
(i) Tenant shall be solely responsible for repairing and restoring the
Premises (including, without limitation, all Base Building Work, Tenant's
Work, and Alterations) to substantially the condition in which the same
existed immediately prior to the casualty (subject to then-applicable Legal
Requirements) and shall commence that work as soon as practicable and
continue the same diligently to completion;
(ii) Tenant shall be responsible for obtaining all licenses, permits
and governmental consents necessary in connection with such repair and
restoration and, at Tenant's sole cost and expense, for maintaining the same
in full force and effect until construction is finally completed and
complying with the terms and condition thereof. Tenant shall perform such
work in a good and workmanlike manner in accordance with the standards
usual and customary for buildings of a similar nature, and in compliance
with all Legal Requirements. All materials used shall be new and of
first-class quality and shall be equal to or better than the materials
originally used in the construction of the Premises;
(iii) The provisions of Sections 1, 3, 4, 5, 7, and 13 of the Work
Letter shall apply to the performance of such work by Tenant;
(iv) Tenant shall perform such repair and restoration without regard to
the amount of insurance proceeds available therefor. Prior to the
commencement of any work, Tenant shall deposit with Landlord the full amount
of any deductible under each applicable insurance policy. If at any time
either prior to the commencement of such work by Tenant or during the
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performance thereof, Landlord reasonably determines that the amount of
insurance proceeds available will be insufficient to complete such repair and
restoration, Landlord shall so notify Tenant and Tenant shall deposit with
Landlord the sum so requested prior to the disbursement (or further
disbursement, as the case may be) by Landlord of any insurance proceeds.
(v) Unless Landlord is required to turn over the insurance proceeds to
its mortgagee for disbursement, Landlord shall make progress payments to
Tenant for reimbursement of the cost of repairing and restoring the Promises
in accordance with the procedures set forth in Section 9 of the Work Letter.
(c) If Landlord gives written notice to Tenant within thirty (30) days
after the occurrence of the casualty that Landlord desires to repair and restore
the Premises, then:
(i) Landlord shall be solely responsible for repairing and restoring
the Premises including without limitation, all Base Building Work, Tenant's
Work, and Alterations) to substantially the condition in which the same
existed immediately prior to the casualty (subject to then-applicable Legal
Requirements) and shall commence that work as soon as practicable and
continue the same diligently to completion;
(ii) Landlord shall be responsible for obtaining all licenses, permits
and governmental consents necessary in connection with such repair and
restoration and, at Landlord's sole cost and expense, for maintaining the
same in full force and effect until construction is finally completed and
complying with the terms and conditions thereof. Landlord shall perform
such, work in a good and workmanlike manner in accordance with the
standards usual and customary for buildings of a similar nature, and in
compliance with all Legal Requirements. All materials used shall be new and
of first-class quality and shall be equal to or better than the materials
originally used in the construction of the Premises; and
(iii) Landlord's obligation under this Section shall in no event
require Landlord to expend more insurance proceeds actually received by
costs and expenses incurred by Landlord proceeds). Prior to the commencement
than the amount of Landlord (net of the in obtaining such of any work,
Tenant shall deposit with Landlord the full amount of any deductible under
each applicable insurance policy. If at any time either prior to the
commencement of such work by Landlord or during the performance thereof,
Landlord reasonably determines that the amount of insurance proceeds
available will be insufficient to complete such repair and restoration,
Landlord shall so notify Tenant and Tenant shall deposit with Landlord the
sum so requested prior to the disbursement (or further
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disbursement, as the case may be) by Landlord of any insurance proceeds.
(d) Regardless of whether or not Landlord elects to repair or restore the
Premises, Tenant shall be solely responsible for repairing and replacing at its
expense all of its furniture, furnishings, removable equipment and personal
property required for the normal use of the Premises in Tenant's business
operations.
(e) Tenant shall be entitled to a just abatement of Annual Base Rent during
the period of impaired use of the Premises, in no event, however, exceeding 12
months, but only if, as and to the extent that full payment is made to Landlord
on account thereof under any rent continuation insurance.
(f) If Landlord reasonably determines reconstruction of the Premises will
take more than from the date of the casualty, Landlord shall so either party
shall have the right to terminate this written notice to the other party within
thirty giving of Landlord's notice, in which event terminate on the date which
is thirty (30) days notice is given. In the event that this lease pursuant to
this paragraph (f), then rent shall extent the Premises are unusable for after
the date of such damage to the date of this Lease, and no further rent shall
accrue the date of such termination.
(g) Notwithstanding the provisions of the preceding paragraph (f), if any
casualty occurs to the Premises during the last Lease Year of the Term and its
repair will reasonably cost more than $200,000, then in any such case, this
Lease and the Term thereof may be terminated at the election of Landlord or
Tenant by a notice in writing of its election so to terminate given to the other
party within two (2) months following adjustment of such casualty loss with the
insurer, the effective termination date being not less than thirty (30) nor more
than sixty (60) days thereafter.
(h) If any mortgagee refuses without fault of Tenant or any persons acting
under Tenant to permit insurance proceeds to be applied to replacement of the
Premises, and, subject always to Section 8.3, neither Landlord nor such
mortgagee has commenced such replacement within two (2) months following
adjustment of such casualty loss with the insurer, then Tenant may, until any
such replacement commences, terminate this Lease by giving at least thirty (30)
days prior written notice thereof to Landlord.
(i) Except as expressly provided In this Section 6.3, Tenant's obligation
to pay all rent and to perform and observe all other covenants and conditions of
this Lease shall not be affected
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by any damage or casualty, and the Term of this Lease and rent hereunder shall
continue nonetheless.
(j) In the event this Lease is terminated pursuant to this Section 6.3
after Tenant has paid the Buydown Amount, Landlord agrees to pay to Tenant
promptly after the effective date of such termination an amount equal to the
product of (i) the Buydown Amount and (ii) a fraction, the numerator of which is
the number of whole months remaining in the Initial Term after the effective
date of such termination, and the denominator of which is 120, but Landlord
shall be entitled to deduct therefrom the unamortized principal amount of the
Additional Base Building Work Allowance.
6.4 Eminent Domain. In the event that (i) all or any substantial part of
the Building (meaning more than 33% of the rentable floor area), or (ii) more
than 30% of the parking spaces in the parking area, is taken (other than for
temporary use, hereafter described) by public authority under power of eminent
domain (or by conveyance in lieu thereof), then by notice given within three (3)
months following the recording of such taking (or conveyance) in the appropriate
registry of deeds, this Lease may be terminated at Tenant's election thirty (30)
days after such notice, and rent shall be apportioned as of the date of
termination. If this Lease is not terminated as aforesaid, the Premises (or what
remain thereof) shall be restored in the manner provided in Section 6.3 above
with respect to damage by casualty. In the event some portion of the floor area
of the Building is taken (other than for temporary use) and this Lease is not
terminated, Annual Base Rent shall be proportionally abated for the remainder of
the Term. In the event that more than thirty (30%) percent of the parking spaces
in the parking area are taken and this Lease is not terminated, then if there is
not sufficient paved area remaining to relocate such spaces on the Premises such
that Tenant is required to lease substitute parking spaces for its employees and
invitees in order to continue its business operations at the Premises, Landlord
shall reimburse Tenant on a monthly basis for the actual out-of-pocket amounts
reasonably paid by Tenant to lease such spaces at a location and in an amount
mutually agreeable to Landlord and Tenant. In the event of any taking of the
Premises or any part thereof for temporary use, (i) this Lease shall be and
remain unaffected thereby and rent shall not abate, and (ii) Tenant shall be
entitled to receive for itself such portion or portions of any award made for
such use with respect to the period of the taking which is within the Term.
So long as no Event of Default has occurred, any specific damages which are
expressly awarded to Tenant on account of its relocation expenses, and
specifically so designated by the awarding authority, shall belong to Tenant.
Except as provided in the preceding sentence of this paragraph, Landlord
reserves to itself, and Tenant releases and assigns to Landlord, all rights to
damages accruing on account of any taking or by reason of any act of any
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public authority for which damages are payable. Tenant agrees to execute such
further instruments of assignment as may be reasonably requested by Landlord,
and to turn over to Landlord any damages due Landlord that may be recovered in
any proceeding or otherwise.
In the event this Lease is terminated pursuant to this Section 6.4 after
Tenant has paid the Buydown Amount, Landlord agrees to pay to Tenant promptly
after the effective date of such termination an amount equal to the product of
(i) the Buydown Amount and (ii) a fraction, the numerator of which is the number
of whole months remaining in the Initial Term after the effective date of such
termination, and the denominator of which is 120, but Landlord shall be entitled
to deduct therefrom, the unamortized principal amount of the Additional Base
Building Work Allowance.
ARTICLE VII
Default
7.1 Events of Default. Any of the following shall constitute an "Event of
Default" hereunder: if Tenant fails to pay Annual Base Rent, additional rent or
any other sum when due hereunder or under the terms of any other agreement
hereafter made with Landlord and such default continues for five days after
written notice (but if Landlord has previously given Tenant default notices for
failure to pay money when due two times within the preceding twelve months, then
no further notice need be given and the failure of Tenant to pay to Landlord any
sum within five days of when due shall constitute an "Event of Default"
hereunder without the necessity of any further notice); or if Tenant (or any
transferee of Tenant) makes any Transfer of the Premises in violation of this
Lease; or if any insurance premium required to be paid by Tenant is not paid
when due; or if a petition is filed by Tenant (or any transferee or guarantor)
for insolvency or for appointment of a receiver, trustee or assignee or for
adjudication, reorganization or arrangement under any bankruptcy law or if any
similar petition is filed against Tenant (or any transferee or guarantor) and
such petition is not dismissed within 60 days thereafter; or if Tenant fails to
perform any other non-monetary covenant or condition hereunder and such default
continues longer than any period expressly provided for the correction thereof
(and if no period is expressly provided then for thirty (30) days after notice
is given, provided, however, that such 30-day period shall be extended for the
period reasonably required to cure such default provided that Tenant commences
such cure within such 30-day period and thereafter diligently and continuously
prosecutes such cure to completion. Upon the occurrence of an Event of Default,
or at any time thereafter, Landlord and its agents lawfully may, in addition to
any remedies for any preceding breach, immediately or at any time thereafter
without demand or notice and with or without process of law, enter upon any part
of the Premises in the name of the whole or mail or deliver a notice of
termination of the Term of this Lease addressed
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to Tenant at the Premises or at any other address herein, and thereby terminate
the Term and repossess the Premises as of Landlord's former estate. Upon such
entry or mailing the Term shall terminate, all executory rights of Tenant and
all obligations of Landlord will immediately cease, and Landlord may expel
Tenant and all persons claiming under Tenant and remove their effects without
any trespass and without prejudice to any remedies for damages, arrears of rent
or prior beach; and Tenant waives all statutory and equitable rights to its
leasehold (including rights in the nature of further cure or redemption, if
any).
If this Lease is terminated for an Event of Default, Tenant covenants, as
an additional cumulative obligation incurred now but arising after such
termination, to pay all of Landlord's reasonable costs, including attorneys fees
and litigation expenses, related thereto and in collecting amounts due and all
reasonable expenses in connection with reletting, including tenant inducements
and improvements, brokerage commissions, fees for legal services, expenses of
preparing the Premises for reletting and the like ("Reletting Expenses"). It is
agreed that Landlord may (i) relet the Premises or part or parts thereof for a
term or terms which may be equal to, less than or exceed the period which would
otherwise have constituted the balance of the Term, and may grant such tenant
inducements, including free rent, as Landlord in its sole discretion considers
advisable, and (ii) make such alterations to the Premises as Landlord in its
sole discretion considers advisable, and no failure to relet or to collect rent
under any reletting shall operate to reduce Tenant's liability. Any obligation
to relet imposed by law will be subject to Landlord's reasonable objectives of
developing its property in a harmonious manner with appropriate mixes of
tenants, uses, floor areas, terms and the like. Landlord's Reletting Expenses
together with all other sums provided for whether incurred prior to or after
such termination will be due upon demand.
If this Lease is terminated for default, then unless and until Landlord
elects lump sum liquidated damages described in the next paragraph below, Tenant
covenants, as an additional cumulative obligation after any such termination, to
pay punctually to Landlord all the sums and perform all of its obligations in
the same manner as if the Term had not been terminated. In calculating such
amounts Tenant will be credited with the net proceeds (after deducting all
Reletting Expenses) of any rent then actually received by Landlord from a
reletting of the Premises after deducting all sums to be paid by Tenant and not
then paid.
If this Lease is terminated for default, then Tenant covenants, as an
additional cumulative obligation after any such termination, to pay forthwith to
Landlord at Landlord's election made by written notice at any time after
termination, as liquidated damages a single lump sum payment equal to the sum of
(i) all sums to be paid by Tenant and not then paid at the time of such
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election, plus (ii) the excess of all of the rent reserved for the residue of
the Term (with additional rent payable under Section 4.3 deemed to increase five
(5%) percent in each year on a compounding basis) over all of the net proceeds
of rent which Tenant shows by reasonable evidence will be received on account of
reletting the Premises during such period, which rent will be reduced by
reasonable projections of vacancies and by Landlord's Reletting Expenses to the
extent not then paid by Tenant. Tenant agrees that Landlord may file suit to
recover any sums falling due under the terms of this Section from time to time
and that no suit or recovery of any portion due Landlord hereunder shall be any
defense to any subsequent action brought for any amount not theretofore reduced
to judgment in favor of Landlord.
If any payment of Annual Base Rent, additional rent, or other payment due
to Landlord is not paid when due, then Landlord may at its option, in addition
to all other remedies hereunder, impose an administrative late charge on Tenant
equal to three (3%) percent of the amount in question, which late charge will be
due upon demand as additional rent. Without limiting any of its other rights or
remedies, any sum due hereunder shall, in addition, bear interest from the date
due at a rate equal to one (1%) percent for each month (or ratable portion
thereof) the same remains unpaid; provided that interest shall never exceed the
maximum rate permitted under applicable law.
The Tenant's Work Allowance, Additonal Base Building Work Allowance and the
like (collectively "Tenant Inducements") have been agreed to by Landlord as
inducements Or Tenant to enter into and faithfully to perform all of its
obligations contained in this Lease. For all purposes under this Lease, upon the
occurrence of an Event of Default, Landlord shall have no further obligation to
pay any Tenant Inducements. If this Lease is terminated by reason of an Event of
Default by Tenant hereunder, the aggregate amounts (or value) of Tenant
Inducements paid or incurred by Landlord as of the effective date of such
termination shall be deemed to be additional rent immediately then due and
payable by Tenant. Calculations of amounts due hereunder, damages and the like
shall for all purposes be determined accordingly. The foregoing shall occur
automatically without the requirement of any further notice or action by
Landlord not specifically required by Section 7.1. whether or not this Lease is
then or thereafter terminated on account of the event in question, and whether
or not Tenant thereafter corrects or cures any such event.
Without implying that other covenants do not survive, the covenants of this
Section shall survive the Term.
7.2 Remedies Cumulative; Jury Waiver. The specific remedies to which
Landlord may resort under this Lease, and all other rights and remedies of
Landlord are cumulative, and any two or more may be exercised at the same time.
Nothing in this Lease shall limit the
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right of Landlord to prove and obtain in proceedings for bankruptcy or
insolvency an amount equal to the maximum allowed by any statute or rule of law
in effect at the time; and Tenant agrees in any such proceeding that the fair
value for occupancy of all or any part of the Premises at all times shall never
be less than the Annual Base Rent and all additional rent payable from time to
time. In the event that Tenant shall file for protection under any chapter of
the Bankruptcy Code now or hereafter in effect, or a trustee-in-bankruptcy shall
be appointed for Tenant, Landlord and Tenant agree, to the extent permitted by
law, to request that the debtor-in-possession or trustee-in-bankruptcy, if one
is appointed, assume or reject this lease within sixty (60) days thereafter.
Landlord and Tenant waive trial by jury in any action to which they are parties.
7.3 Waivers of Default; Accord and Satisfaction. No consent by Landlord or
Tenant to any act or omission which otherwise would be a breach of covenant
shall be construed to permit other similar acts or omissions. Neither party's
failure to seek redress for violation or to insist upon the strict performance
of any covenant, nor the receipt by Landlord of rent with knowledge of any
breach of covenant, shall be deemed a consent to or Waiver of such breach. No
breach of covenant shall be implied to have been waived unless such is in
writing, signed by the party benefitting from such covenant and delivered to the
other party; and no acceptance by Landlord of a lesser sum than the Annual Base
Rent, additional rent or any other sum due shall be deemed to be other than on
account of the earliest installment of such rent or other sum due. Nor shall any
endorsement or statement on any check or in any letter accompanying any check or
payment be deemed an accord and satisfaction; and Landlord nay accept such check
or payment without prejudice to Landlord's right to recover the balance of such
installment or pursue any other right or remedy. The delivery of keys (or any
similar act) to Landlord shall not operate as a termination of the Term or an
acceptance, or surrender of the Premises. The acceptance by Landlord of any rent
following the giving of any default and/or termination notice shall not be
deemed a waiver of such notice.
7.4 Landlord's Curing and Enforcement. If Tenant fails to perform any
covenant within any applicable cure period, then Landlord at its option may
(without waiving any right or remedy for Tenant's non-performance) at any time
thereafter perform the covenant for the account of Tenant. Tenant shall
reimburse Landlord's reasonable costs (including attorneys' fees and litigation
expenses) of enforcing Tenant's obligations under this Lease on demand as
additional rent. Notwithstanding any other provision concerning cure periods,
Landlord may cure any non-performance for the account of Tenant after such
notice to Tenant, if any, as is reasonable under the circumstances if curing
prior to the expiration of the applicable cure period is reasonably necessary to
prevent likely damage to the Premises or possible
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injury to persons or loss to Landlord, or to protect Landlord's interest in the
Premises.
ARTICLE VIII
Miscellaneous Provisions
8.1 Notice. All notices, consents, approvals and the like shall be in
writing and shall be delivered in hand, by any courier service providing
receipts, or mailed by certified mail addressed, if to Tenant, at the Notice
Address of Tenant or such other address within the United States as Tenant shall
have last designated by notice to Landlord and, if to Landlord, at the Notice
Address of Landlord or such other address within the United States as Landlord
shall have last designated by notice to Tenant, with a copy sent in like manner
to Landlord's Agent as designated from time to time. If requested, Tenant shall
deliver copies of all notices in like manner to Landlord's mortgagees and other
persons having a relationship to the Premises at such address within the United
States as designated from time to time by Landlord or such mortgagee. Any notice
so addressed shall be deemed duly given on the second business day following the
day of mailing if so mailed by registered or certified mail, return receipt
requested, whether or not accepted, or upon the earlier actual receipt by any
person reasonably appearing to be an agent or employee working in the offices of
the addressee.
8.2 Limitation of Landlord's Liability. Tenant agrees that Landlord shall
be liable only for breaches of its covenants occurring while it is owner of the
Premises. Tenant (and each person acting under Tenant) agrees to look solely to
Landlord's interest from time to time in the Premises, for satisfaction of any
claim against Landlord. No trustee, beneficiary, partner, manager, agent or
employee of Landlord (or of any mortgagee) shall ever be personally or
individually liable; nor shall it or they ever be answerable or liable in any
equitable judicial proceeding or order beyond the extent of their interest in
Premises. Any lien obtained to enforce any judgment against Landlord shall be
subject and subordinate to any mortgage encumbering the Premises. Without
implying that other covenants do not survive, the covenants of this Section
shall survive the Term.
8.3 Excusable Delay. If either party is delayed in performing (other than
paying Annual Base Rent, additional rent or any other charge or any amount due
from Landlord, which may never be delayed for any reason whatsoever) by causes
beyond such party's reasonable control, including war, civil commotion, acts or
regulations of government, moratoria and the like, weather, fire, casualty,
theft, labor difficulties or the unavailability of labor, materials, equipment
or utilities from customary sources upon customary terms, or by acts, neglects$
or delays of the other party (or persons acting under such other party), then
such delay
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shall not be counted in determining the time during which such performance is to
be completed.
8.4 Applicable Law and Construction. This Lease may be executed in
counterparts. The covenants of Landlord and Tenant are independent, and such
covenants shall be construed as such in accordance with the laws of the state
where the Premises are located. If any provision shall to any extent, be
invalid, the remainder shall not be affected. Other than contemporaneous
instruments executed and delivered of even date, if any, this Lease contains all
of the agreements between Landlord and Tenant relating in any way to the
Premises and supersedes all prior agreements and dealings between them. This
Lease may be amended only by instrument in writing executed and delivered by
both Landlord and Tenant. The provisions of this Lease shall bind Landlord and
Tenant and their respective successors and assigns, and shall inure to the
benefit of Landlord and its successors and assigns and of Tenant and its
permitted successors and assigns. Where the phrases "persons acting under"
Landlord or Tenan or "persons claiming through" Landlord or Tenant or similar
phrases are used, the persons included shall be any assignee, subtenant or other
transferee of Landlord or Tenant and all of their respective employees,
servants, contractors, agents and invitees. The titles are for convenience only
and shall not be considered a part of the Lease. Time is of the essence of this
Lease and of each and all of its provisions. If Tenant is granted any extension
or other option, to be effective the exercise (and notice thereof) must be
unconditional; and if Tenant purports to condition the exercise of any option or
to vary its terms in any manner, then the option granted shall be void and the
purported exercise shall be ineffective. The enumeration of specified examples
of a general provision shall not be construed as a limitation of the general
provision. Unless a party's approval or consent is required by the express terms
of this Lease not to be unreasonably withheld, such approval or consent may be
withheld in the party's sole discretion. The submission of a form of this Lease
or any summary of its terms shall not constitute an offer by Landlord to Tenant;
but a leasehold shall only be created and the parties bound when this Lease is
executed and delivered by both Landlord and Tenant. Nothing herein shall be
construed as creating the relationship between Landlord and Tenant of principal
and agent, or of partners or joint venturers or any relationship other than
landlord and tenant. All covenants of this Lease, except those clearly intended
to end with the Term, shall survive the Term. This Lease and all consents,
notices, approvals and all other related documents may be reproduced by any
party by facsimile, photographic, microfilm, microfiche or other reproduction
process and the originals may be destroyed; and each party agrees that any
reproductions shall be as admissible in evidence in any judicial or
administrative proceeding as the original itself (whether or not the original is
in existence and whether or not reproduction was made in the regular course of
business), and that any further reproduction of such reproduction
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shall likewise be admissible. If any payment in the nature of interest provided
for in this Lease shall exceed the maximum interest permitted under controlling
law, as established by final judgment of a court, then such interest shall
instead be at the maximum permitted interest rate as established by such
judgment. Landlord's title is and always shall be paramount to the title of
Tenant, and nothing in this Lease shall empower Tenant to do any act which can,
shall or may encumber the title of Landlord.
8.5 Estoppel Certificate. Within two (2) weeks of either party's written
request, the other agrees to execute, acknowledge and deliver a statement in
writing certifying whether this Lease is in full effect (or if there has been
any amendnent whether the same is in full effect as amended and stating the
amendment or amendments), the Commencement Date, the amount of and the dates to
which the Annual Base Rent (and additional rent and all other charges) have been
paid and, as of its best knowledge and belief, any other information concerning
performance, construction, tenancy, security deposits, possession or other
matters of reasonable interest to prospective lenders or purchasers. Both
parties agree that any such statement may be relied upon by any person to whom
the same is delivered. Tenant acknowledges that prompt execution and delivery of
such statements, and of instruments referred to in Section 9.3, in connection
with any proposed financings or sales, constitute essential requirements of
Landlord's financings or sales; and any failure by Tenant to perform under this
Section within the time provided will be am Event of Default for which the Lease
may be terminated without further notice or cure period.
8.6 Notice of Lease. Neither party shall record this Lease, but each party
will, upon request of the other, execute a recordable notice of lease in form
reasonably approved by Landlord, and upon termination of the Term for whatever
reason a like notice of termination of lease.
8.7 Landlord's Default. Landlord shall use due diligence in performing its
covenants under this Lease. In no event shall Landlord be in default unless
notice thereof has been given to Landlord and all mortgagees of which Tenant has
notice and Landlord fails to perform within thirty (30) days (provided, however,
that such 30-day period shall be reasonably extended if such performance begins
within such period and thereafter is diligently pursued) and such mortgagee
fails to perform within the time provided in section 9.1 below.
8.8 Brokers. Each party warrants and represents to the other that it has
not dealt with any broker in connection with this Lease or the Premises except
for the Landlord's Broker and the Tenant's Broker listed in Section 1.1, whose
commission will be paid by Landlord pursuant to a separate agreement; and each
agrees to indemnify and save the other harmless in the manner elsewhere
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provided in this Lease from any breach of this warranty and representation,
which will survive the termination of the Term.
8.9 Vacancy at End of Term. If Tenant vacates more than 25,872 rentable
square feet of the Building at any time within the last six months of the Term,
Landlord may with Tenant's consent, which will not be unreasonably withheld or
delayed, enter the vacated Premises (or such portions) and commence demolition
work or construction of leasehold improvements for future tenants. The exercise
of such right by Landlord will not affect Tenant's obligations to pay Annual
Base Rent or; not affect Tenant's additional rent with respect to the Premises
vacated (or such portions), which obligations shall continue without abatement
until the end of the Term. If Tenant remains in occupancy of portions of the
Premises and Landlord exercises its rights under this Section, then as a
condition of giving its consent Tenant may require that Landlord pay for any
reasonable additional security services required by Tenant.
8.10 Tenant as Business Entity. Tenant warrants and represents that (a)
Tenant is duly organized, validly existing and in good standing under the laws
of the jurisdiction in which such entity was organized; (b) Tenant has the
authority to own its property and to carry on its business as contemplated under
this Lease; (c) to the best knowledge of Tenant's chief financial officer,
Tenant is in compliance with all laws and orders of public authorities
applicable to Tenant; (d) Tenant has duly executed and delivered this Lease; and
(e) the execution, delivery and performance by Tenant of this Lease (i) are
withing the powers of Tenant, (ii) have been duly authorized by all requisite
action, (iii) will not violate any provision of law or any order of any court or
agency of government, or any agreement or other instrument to which Tenant is a
party or by which it or, any of its property is bound, or (iv) will not result
in the imposition of any lien or charge on any of Tenant's property, except by
the provisions of this Lease. Tenant agrees that breach of the foregoing
warranty and representation shall at Landlord's election be a default under this
Lease. This warranty and representation shall survive the termination of the
Term.
8.11 Security. Upon the execution of this Lease, Tenant shall deposit with
Landlord either the Cash Security or the Letter of Credit in the form described
in Section 1.1 and Appendix B attached, as security for the payment and
performance by Tenant of all its obligations hereunder. Unless Tenant elects to
deliver the Cash Security to Landlord, then during the Term Tenant will keep the
Letter of Credit in full force and in compliance with the provisions of this
Lease, including Appendix B. So long as no Event of Default has occurred, the
Cash Security or Letter of Credit (as appropriate) may be reduced by $250,000 at
the end of the First Lease Year; and so long as no Event of Default has
thereafter occurred in any subsequent Lease Year, the Cash Security or Letter of
Credit (as appropriate) may be reduced by an
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additional $300,000 at the and of each subsequent Lease Year; provided, however,
that the Cash Security or Letter of Credit (as appropriate) will never be
reduced below $284,098.00 during the Initial Term (except that if Tenant pays to
Landlord the Buydown Amount then the minimum amount of the Cash Security or
Letter of Credit (as appropriate) during the Initial Term shall be reduced to
$114,992.00). If Tenant is in default under this Lease but the applicable cure
period as specified in this Lease (if any) has not expired as of the end of a
Lease Year, then provided that Tenant cures such default prior to the expiration
of such applicable cure period (if any), Tenant shall be entitled to the
appropriate reduction in amount of the Cash Security or Letter of Credit upon
the completion of such cure.
If no Event of Default has occurred during the Initial Term, then upon
commencement of the First Extension Term the Cash Security or Letter of Credit
(as appropriate) shall be adjusted as appropriate to equal one (1) month's
Annual Base Rent payable during the First Extension Term, but if an Event of
Default has occurred during the Initial Term, then the Cash Security or Letter
of Credit shall be adjusted to equal two (2) month's Annual Base Rent payable
during the First Extension Term. Similarly, if no Event of Default has occurred
prior to the Second Extension Term, then upon commencement of the Second
Extension Term the Cash Security or Letter of Credit (as appropriate) shall be
adjusted as appropriate to equal one (1) month's Annual Base Rent payable during
the Second Extension Term, but if an Event of Default has occurred prior to the
Second Extension Term, then the Cash Security or Letter of Credit shall be
adjusted to equal two (2) month's Annual Base Rent payable during the Second
Extension Term.
In the event that (i) any default of Tenant occurs hereunder and continues
beyond the applicable cure period (if any), or (ii) Landlord transfers its
ownership of the Premises to a third party and the bank(s) issuing the Letter of
Credit does not consent to the transfer of any beneficial interest in the Letter
of Credit to such third party or issue a replacement Letter of Credit in
identical form to such third party, or (iii) any such Letter of Credit will
expire by its terms in less than thirty (30) days and Tenant has failed to
provide a successor Letter of Credit, then Landlord may draw on the Letter of
Credit and the proceeds shall be held and applied as security under this Section
8.11. Said proceeds (or any Cash Security) may be commingled with other funds of
Landlord and no fiduciary relationship shall be created with respect to such
deposit, nor shall Landlord be liable to pay Tenant interest thereon.
In the event that Landlord draws upon and applies any portion or all of the
proceeds of the Letter of Credit, or applies all or any portion of the Cash
Security, towards the cure of a default uncured by Tenant hereunder, Tenant
shall restore the amount so expended by Landlord within ten (10) business days
of the
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applicable draw of such amounts (or application of the Cash Security) so that at
all times (subject the ten day grace period herein referenced) Landlord shall be
entitled to draw down upon the full aggregate amount of the Letter of Credit (or
hold the full Cash Security) from time to time required to be deposited with
Landlord hereunder any failure of Tenant to deliver to Landlord the Cash
Security or Letter of Credit as prescribed herein or to restore any amount drawn
under the Letter of Credit or expended from the Cash Security within the time
and manner specified shall constitute an Event of Default under the Lease and
entitle Landlord to immediately draw down the Letter of Credit then in force or
effect and Landlord shall retain such cash amounts (or the Cash Security, as
appropriate) as security pursuant to the provisions of this Section.
In the event of a transfer of Landlord's interest in the Premises, Landlord
shall have the right and the obligation (where permitted by the institution
which issued the Letter of Credit) to transfer the Cash Security or Letter of
Credit (as appropriate) to the transferee, and Landlord shall thereupon be
released by Tenant from all liability for the return of such security; and
Tenant shall look solely to the new landlord or the return of said security; the
provisions hereof shall apply to every transfer or assignment made of the
security to a new landlord. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the proceeds of the Letter of Credit
and that neither Landlord nor its successors or assigns shall be bound by any
such assignment, encumbrance, attempted assignment or attempted encumbrance.
Within thirty (30) days after the expiration or sooner termination of the
Term the remaining Cash Security or the original Letter of Credit (or the
remaining proceeds thereof if previously drawn and not applied to cure a default
by Tenant hereunder), to the extent not applied, shall be returns to the Tenant
without interest.
Tenant shall pay all costs associated with obtaining, replacing,
supplementing, transferring, extending and maintaining the Letter of Credit in
accordance with the requirements of this Lease other than Landlord's expenses
incurred in reviewing the initial Letter of Credit or any Letter of Credit
subsequently delivered to Landlord hereunder.
No notice or cure periods provided elsewhere in this Lease, including
without limitation those set forth in Section 7.1 above, shall apply to this
section 8.11.
8.12 Financial Information. Tenant shall provide to Landlord when requested
by Landlord, but not more frequently than quarterly (unless an Event of Default
has occurred hereunder, in which event Landlord may make such request not more
frequently than monthly),
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current financial statements relating to its business in reasonable detail,
including income and expense statements and balance sheets, certified by the
chief financial officer to be true and complete and prepared in accordance with
generally accepted accounting principles consistently applied. Tenant shall
provide to Landlord, without the necessity of any request therefor, copies of
(i) all financial statements provided by Tenant from time to time to any of its
investors, and (ii) all audited financial statements prepared for Tenant, in
each case to be provided to landlord at the time that Tenant provides such
information to such parties (or promptly after Tenant's receipt of such audited
financial statements). Notwithstanding the foregoing, if at any time during the
Term Tenant's stock becomes listed on a stock exchange or NASDAQ (or any
successor entity), Tenant shall thereafter be required to provide to Landlord
only such financial information as Tenant is required to provide to the United
States Securities and Exchange Commission, and Tenant shall provide the same to
Landlord promptly after filing it with the appropriate governmental agency.
ARTICLE IX
Landlord's Financing
9.1 Subordination and Superiority of Lease. Tenant agrees that this Lease
and the rights of Tenant hereunder will be subject and subordinate to any lien
of the holder of any existing or future mortgage, and to the rights of any
lessor under any ground or improvements lease of the Premises (all mortgages and
ground or improvements leases of any priority are collectively referred to in
this Lease as "mortgage," and the holder or lessor thereof from time to time as
a "mortgagee"), and to all advances and interest thereunder and all
modifications, renewals, extensions and consolidations thereof; provided
however, that with respect to future liens of any mortgage hereafter granted the
mortgagee executes and delivers to Tenant an agreement in which the mortgagee
agrees that such mortgagee shall not disturb Tenant in its possession of the
Premises upon Tenant's attornment to such mortgagee as Landlord and performance
of its Lease covenants (both of which conditions Tenant now agrees that it will
confirm with all future mortgagees). Tenant agrees that any mortgagee may at its
option unilaterally elect to subordinate, in whole or in part and by instrument
in form and substance satisfactory to such mortgagee alone, the lien of its
mortgage (or the priority of its ground lease) to some or all provisions of this
Lease.
Tenant agrees that this Lease shall survive the merger of estates of ground
(or improvements) lessor and lessee. Until a mortgagee (either superior or
subordinate to this Lease) forecloses Landlord's equity of redemption (or
terminates in the case of a ground or improvements lease) no mortgagee shall be
liable for failure to perform any of Landlord's Obligations (and such mortgagee
shall thereafter be liable only after it succeeds to and
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holds Landlord's interest and then only as limited herein). No mortgagee shall
be bound by any payment of rent more than one month in advance except the
payment by Tenant to Landlord of the Buydown Amount. Tenant shall, if requested
by Landlord or any mortgagee, give notice of any alleged non-performance on the
part of Landlord to any such mortgagee provided that an address for such
mortgagee has been designated such third party beneficiary; and Tenant agrees
that such mortgagee shall have a separate, consecutive reasonable cure period of
no less than 30 days (to be reasonably extended in the same manner Landlord's
cure period is to be extended) following Landlord's cure period during which
such mortgagee may, but need not, cure any non-performance by Landlord The
agreements in this Lease with respect to the rights and powers of a mortgagee
constitute a continuing offer to any such, third party beneficiary which may be
accepted by taking a mortgage (or entering into a ground or improvements lease)
of the Premises. Should any prospective mortgagee or ground lessor require a
modification or modifications of this Lease, which modification or modifications
will not cause an increased cost or expense to Tenant or in any other way
materially and adversely change the rights and obligations of Tenant hereunder,
in the reasonable judgment of Tenant, then and in such event, Tenant agrees that
this Lease may be so modified and agrees to execute whatever documents are
required therefor and deliver the same to Landlord within 15 days following the
request therefor.
9.2 Rent Assignment. If from time to time Landlord assigns this Lease or
the rents payable hereunder to any person whether such assignment is conditional
in nature or otherwise, such assignment shall not be deemed an assumption by the
assignee of any obligations of Landlord; but the assignee shall be responsible
only for non-performance of Landlord's obligations which occur after it succeeds
to and only while it holds Landlord's interest in the Premises.
9.3 Other Instruments. The provisions of this Article shall be
self-operative; nevertheless, Tenant agrees to execute, acknowledge and deliver
any subordination, attornment or priority agreements or other instruments
conforming to the provisions of this Lease (and being otherwise commercially
reasonable) from time to time requested by Landlord or any mortgagee, and
further agrees that its failure to do so within ten days after written request
shall be a default for which this Lease may be terminated as set forth in
Section 7.1. Without limitation, where Tenant in this Lease indemnities or
otherwise covenants for the benefit of mortgagees, such agreements are for the
benefit of mortgagees as third party beneficiaries; and at the request of
Landlord, Tenant from time to time will confirm such matters directly with such
mortgagees.
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ARTICLE X
Right of First Offer to Purchase
10.1 Right of First Offer to Purchase. In consideration of the execution
by Tenant of this Leaser Landlord hereby covenants and agrees that Landlord
shall not during the Term of this Lease convey or transfer title to the Premises
or make the Premises available for purchase by any third party nor solicit any
offers for such a purchase without first offering the Premises to Tenant on the
terms and conditions set forth in this Article X.
Landlord shall give notice to Tenant (the "First Offer Notice") that
Landlord desires to make the Premises available for purchase, which notice shall
be accompanied by a statement of the principal business terms and conditions on
which Landlord is willing to sell the Premises, including the cash purchase
price which Landlord is willing to accept therefor (the "Cash Purchase Price").
Tenant shall exercise its right of first offer, if at all, by giving written
notice to Landlord that it accepts such offer and paying to Landlord the "good
faith" depposit requested by Landlord in its notice to Tenant. If Tenant accepts
landlord's offer to sell the Premises, such acceptance shall be conditioned upon
the parties entering into a mutually-satisfactory purchase and sale agreement
within thirty (30) days after or gives Tenant the First Offer Notice. If the
parties are unable to execute such a purchase and sale agreement within such
time, then Tenant's acceptance of Landlord's offer shall be automatically deemed
to be rescinded, Landlord shall return the "good faith" deposit to Tenant, and
Tenant shall be deemed to have declined to exercise its right of first offer.
Tenant shall not have the right to exercise its right of first offer, and any
attempted exercise shall be void, while any Event of Default on the part of
Tenant exists under this Lease.
If Tenant does not exercise its right of first offer in the manner and
within the time provided in this section (or if Tenant by notice to Landlord
earlier waives its right to purchase), Landlord shall be free at any time within
one (1) year of the mailing of the First offer Notice to sell the Premises for a
price whose cash component is not less than the Cash Purchase Price and on other
terms and conditions no less favorable to Landlord than the terms and conditions
set forth in the First Offer Notice. If Landlord does not so convey the Premises
within such (1) year period, the Premises shall again be subject to this right
of first offer.
The right of first offer set forth herein shall not prevent the mortgaging
of the Premises, but any mortgage shall be subject hereto, as shall title in the
hands of a successor to the title to the Premises taking upon foreclosure, under
a deed in lieu of foreclosure, or otherwise as a result of tie mortgage,
throughout
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the Term of this Lease. The provisions of this Article X shall not
apply to any transfer of title by operation, but the title of those taking
thereby shall remain subject to %he provisions of this Article throughout the
Term of this Lease.
10.2 Default under Purchase and Sale Agreement by Tenant. If Tenant shall
exercise the right of first offer herein granted and enter into a purchase and
sale agreement with Landlord and thereafter fails to purchase the Premises, such
failure shall entitle Landlord to retain all deposits made by Tenant under the
purchase and sale agreement.
10.3 General. The right of first offer set forth in this Article X shall
terminate upon the expiration or earlier termination of the Term of this Lease
unless Tenant shall have duly exercised such right of first of first offer prior
to the expiration or termination of the Term, in which event this right of first
offer shall continue in full force and effect on the terms of this Article X.
ARTICLE XI
Landlord's Obligations
11.1 Landlord's Maintenance. Landlord shall, at its sole cost and expense,
maintain in good condition (subject to reasonable wear and tear), repair,
replace, and keep in compliance with all building codes applicable to the use of
the Premises for general office use all exterior walls, roof decks, floor slabs,
foundations, and the "Devac" exterior window system, and shall refill cracks and
holes which appear in the portions of the paved surface of the parking area or
access drive located on the Land which were not repaved in connection with
Tenant's initial occupancy of the Premises. Notwithstanding the provisions of
the preceding sentence, Landlord shall not by required to repair or replace any
of the foregoing which are damaged (a) by fire or other casualty or taking which
Landlord is not otherwise required by the terms of this Lease to repair or
restore, or (b) through the negligent acts or omissions or willful misconduct of
Tenant, anyone claiming by, through or under Tenant, or any of the officers,
employees, agents, servants, contractors or invitees of any of the foregoing to
the extent to which the same is not covered by available insurance proceeds, or
(c) in the performance of any Base Building Work, Tenant's Work or any
Alterations made by or on behalf of Tenant, in each of which cases Tenant shall
be solely responsible for such repair or replacement. All of Landlord's
obligations under this Section 11.1 shall be performed in accordance with
standards befitting comparable quality suburban buildings in the Boston
metropolitan area.
11.2 Landlord's Indemnity. Landlord shall indemnify, save harmless and
defend (with legal counsel selected by Landlord
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against whom Tenant makes no reasonable objection) Tenant and Tenant's
officers, directors, agents employees, independent contractors and invitees
from all liability, claim, demand, action, proceeding or assertion of
liability, whether accrued, contingent or determinable, and any damage, cost
or loss (including reasonable costs of litigation and legal counsel selected
as set forth above) arising in whole or in part out of, or any manner related
to, the presence of Hazardous Materials in, under or on the surface of the
Land, the Premises or in the Building other than contamination resulting from
Tenant's operations (whether commencement of the Term). Landlord
indemnification includes, without limit at any time relating to the existing
regional and groundwater as described in that certain before or after the
edges that such matters arising contamination of soil report titled "Level I
Environmental and Hazardous Materials Site Evaluation at 4 Maguire Road,
Lexington, Massachusetts prepared for MONY Real Estate Investment Management"
dated November 22, 1991, prepared by Kaselaan & D'Angelo Associates, Inc.
Without limiting the foregoing obligation of Landlord, if applicable Legal
Requirements require the investigation, response action, removal or
remediation or other action with respect to Hazardous Materials which are
present in, under or on the surface of the Land, the Premises or in the
Building other than those for which Tenant is responsible as provided in
Section 5.1.10 of this Lease, Landlord shall, at its sole expense and (except
with respect to asbestos-containing materials in or on the Building (with
respect to which see section 5.1.4 above)) from funds other than the Tenant's
Work Allowance, Base Building Work Allowance and the Additional Base Building
Work Allowance, promptly undertake such investigation, response action,
removal or remediation or other action and shall perform the same in
accordance with all applicable Legal Requirements and, to the extent
consistent with Legal Requirements, any accepted and relevant industry
practices and otherwise in a manner so as to minimize interference with
Tenant's business operations on the Premises to the maximum extent reasonably
practicable. Without implying that other covenants do not survive, the
covenants of this Section shall survive the Term.
ARTICLE XII
Index of Defined Terms
<TABLE>
<CAPTION>
Defined in
Term Section
- ---- ----------
<S> <C>
Additional Base Building Work Allowance................. Appendix C
Annual Base Rent--Extension Terms....................... 1.1; 4.1.3
Annual Base Rent--Initial Term.......................... 1.1; 4.1.1
Base Building Work...................................... Appendix C
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<PAGE>
Base Building Work Allowance............................ Appendix C
Building................................................ 1.1
Buydown Amount.......................................... 4.1.2
Cash Purchase Price..................................... 10.1
Cash Security........................................... 1.1
Closing................................................. 10.2
Closing Date............................................ 10.2
Commencement Date....................................... 1.1
Commercial General Insurance............................ 1.1
Construction Authorizations............................. Appendix C
Construction Documents.................................. Appendix C
Contracting Parties..................................... Appendix C
Date of Lease Execution................................. 1.1
Event of Default........................................ 7.1
Extension Terms......................................... 1.1; 2.5
Fair Market Rent........................................ 4.1.3
Final Arbiter........................................... 4.1.3
First Offer Notice...................................... 10.1
General Contractor...................................... Appendix C
Hazardous Materials..................................... 5.1.10
Hazardous Materials Activities.......................... 5.1.10
Indemnitees............................................. 5.1.6
Initial Term............................................ 1.1
Insurance Requirements.................................. 5.1.4
Landlord................................................ 1.1
Landlord's Agent........................................ 4.2.3
46
<PAGE>
Landlord's Broker....................................... 1.1
Landlord's Construction Representative.................. Appendix C
Landlord's Taxes........................................ 4.2.1
Lease Year.............................................. 4.1.4
Legal Requirements...................................... 5.1.4
Letter of Credit........................................ 1.1; 8.11
Major Trade Contractors................................. Appendix C
Mortgage................................................ 9.1
Mortgagee............................................... 9.1
Notice Address of Landlord.............................. 1.1
Notice Address of Tenant................................ 1.1
Permitted Exceptions.................................... 2.1
Permitted Transfers..................................... 5.1.13
Permitted Uses.......................................... 1.1
Premises................................................ l.1; 2.1
Reletting Expenses...................................... 7.1
Tenant.................................................. 1.1
Tenant Inducements...................................... 7.1
Tenant's Architect...................................... Appendix C
Tenant's Broker......................................... l.1
Tenant's Construction Representative.................... Appendix C
Tenant's Transfer Expenses.............................. 5.1.13
Tenant's Work........................................... Appendix C
Tenant's Work Allowance................................. Appendix C
Term.................................................... l.1; 2.3
Threshold Amount........................................ 5.1.2.1
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Transfer................................................ 5.1.13
Work Letter............................................. Appendix C
</TABLE>
THE NEXT PAGE (SIGNATURE PAGE) IS PAGE 50
48
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[BLANK PAGE]
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Executed under seal as of the date first written above.
TENANT: LANDLORD:
FOCAL, INC. THE MUTUAL OF NEW YORK LIFE INSURANCE
COMPANY
By: /s/ David M.Clapper By: /s/ [signature unreadable]
------------------- --------------------------
President & CEO Duly Authorized
Vice President
By: /s/ W. Bradford Smith
---------------------
Vice President-- Finance
50
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APPENDIX A
Property Description
A certain parcel of land situate in Lexington, Middlesex County,
Massachusetts, bounded and described as follows:
NORTHWESTERLY by land now or formerly of The Commonwealth
of Massachusetts, about 838 feet;
NORTHEASTERLY by Parcel 15 on the plan hereinafter
mentioned by three lines measuring together
as shown on said plan 367.83 feet;
SOUTHEASTERLY by land now or formerly of John T. Hinchey et
al, the line running through the middle of a
ditch, and by Parcel 6 on said plan, about
815 feet; and
SOUTHWESTERLY by the middle line of Kiln Brook (also known
as Tar Kiln Brook or Shawsheen River) as
shown on said plan.
Said parcel is shown as lot 7 on said plan.
All of said boundaries are determined by the Land Court to be located as
shown on a subdivision plan, as approved by the Court, filed in the Land
Registration Office, a copy of which is filed in the Registry of Deeds for the
South Registry District of Middlesex County in Registration Book 638, page 138,
with certificate 101688, being Land Court Plan No. 22677B.
There is appurtenant to Lot 7 a right of way over the way on said
Commonwealth of Massachusetts land as set forth in a judgment to Declaration of
Taking in a Decree issued by the District Court of U.S.A. (District of
Massachusetts) Misc. Civil Case No. 6587, duly recorded with Middlesex South
District Deeds on June 16, 1943 in Book 6686, Page 137, as amended by
proceedings in said Court, insofar as in force and applicable.
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<PAGE>
EXHIBIT A-1
PERMITTED EXCEPTIONS
1. Real estate taxes for the fiscal year commencing July 1, 1994, not yet due
and payable.
2. The flow of natural water courses running through Lot 7 and shown on the
plan in the description sheet annexed an Kiln Brook, also known as Tar
Kiln Brook or Showsheen River and a Brook.
3. So much of Lot 7 is as included within the limits of the ditches, shown on
said plan, is subject to such rights as may exist at the date of original
decree (December 4, 1952) in Land Court Case No. 22677.
4. The following matters disclosed by Plan entitled "Plan of Land in
Lexington, Mass (Middlesex county) for Horgan" dated January 19, 1984,
revised May 14, 1984, December 10, 1986 and August 12, 1987, drawn by
BBC-Bedford, ("Survey Plan") and Surveyor's Report dated August 12, 1987,
and prepared by Roger M. Corbin, R.L.S., BSC-Bedford (formerly Joseph W.
Moore Co.):
a) Water service appears to cross land of Cataldo and Maloney at
southeast corner of locus;
b) Elevation of 117' described as the 100 year flood elevation, is noted
on said Survey Plan;
c) Title to so much of the premises lying southerly and westerly of
"Record Location of Brook" as shown on said Survey Plan is not insured
since the southwest border of the locus, as described in Schedule A,
is the middle line of the record location, not the actual location, of
Kiln Brook:
d) Easement and electric service parallel with Maguire Road at northeast
corner of locus appear to cross the appurtenant right of way recorded
with said Deeds on June 16, 1943 in Book 6686, Page 137 which right of
way crosses the land of the Commonwealth of Massachusetts.
5. Easement for establishment and use of a glide angle plane for the flight
of aircraft more particularly described in Judgement entered in the
United States District Court for the District of Massachusetts Civil
Action No. 54-109-S, a copy of which is registered as Document No. 299076.
6. Sewer easement pursuant to Order by Town of Lexington for construction of
sewer in Hartwell Avenue dated September 30, 1968, registered as Document
No, 459868.
7. Water easement pursuant to order by Town of Lexington for construction of
a water main in Hartwell Avenue dated November 13, 1968 registered as
Document No. 461902.
8. Notice of Limited or Conditional Zoning Variance or Special Permit by
Town Of Lexington Board of Appeals registered as Document No. 454887,
affecting Lot 7 (the insured premises).
9. Order of Conditions by Commonwealth of Massachusetts Department of
Natural Resources registered as Document NO. 456995, as affected by
Certificate of Compliance registered as Document No. 655891 and relating
to Lot 7 (the insured premises).
52
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APPENDIX B
Letter of Credit
[Form]
53
<PAGE>
BANK OF BOSTON
THE FIRST NATIONAL BANK OF BOSTON
POST OFFICE BOX 1763
BOSTON, MASSACHUSETTS 02105 U.S.A.
(400)
akingClean Standby Undertaking -Irrevocable DATE: March 24, 1994
BENEFICIARY (95)MAIL
THE MUTUAL LIFE INSURANCE COMPANY Credit Number
OF NEW YORK C/O MONY REAL ESTATE (330) (58I-023-CFSI-50058240
INVESTMENT MANAGEMENT: Opener's Reference No
ONE ATLANTIC STREET N/A
STAMFORD, CT 06901
Gentlemen:
BY ORDER OF: FOCAL INC.
ONE KENDALL SQUARE
BLDG 600
CAMBRIDGE, MA
BY ORDER OF FOCAL, INC., WE HEREBY OPEN IN YOUR FAVOR OUR IRREVOCABLE CREDIT
NO. 50058240 FOR THE ACCOUNT OF MUTUAL OF NEW YORK FOR A SUM OR SUMS NOT
EXCEEDING A TOTAL OF USD1,750,000.00 (ONE MILLION SEVEN HUNDRED FIFTY THOUSAND
AND 00/100 U.S. DOLLARS) AVAILABLE BY YOUR DRAFT(S) AT SIGHT ON THE FIRST
NATIONAL BANK OF BOSTON, BOSTON, MA EFFECTIVE MARCH 29, 1994 AND EXPIRING AT
BOSTON, MA ON SEPTEMBER 29, 1995.
DRAFTS MUST BE ACCOMPANIED BY:
YOUR SIGNED STATEMENT CERTIFYING EITHER:
"THE AMOUNT 0F OUR DRAFT DRAWN HEREUNDER REPRESENTS FUNDS DUE US AS A RESULT
OF THE FAILURE OF FOCAL, INC. TO COMPLY WITH THE TERMS OF LEASE DATED BETWEEN
FOCAL, INC. (THE LESSEE) AND THE MUTUAL LIFE INSURANCE ANY OF NEW YORK, C/O
MONY REAL ESTATE INVESTMENT MANAGEMENT (THE LESSOR) (THE "LEASE")."
OR
"THE LETTER 0F CREDIT WILL EXPIRE BY ITS TERMS IN LESS THAN THIRTY (30) DAYS
AND FOCAL, INC. HAS NOT PROVIDED A REPLACEMENT LETTER OF CREDIT AS REQUIRED BY
THE TERMS Or THE LEASE DATED BETWEEN FOCAL, INC. (THE LESSOR) AND THE
MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, C/O MONY REAL ESTATE INVESTMENT
MANAGEMENT (THE LESSOR) (THE "LEASE")."
Each draft must bear upon its face the clause "Drawn under Letter of Credit
No. 50159240 dated MARCH 24, 1994 of The
54
<PAGE>
First National Bank of Boston, Boston, MA".
(continued)
BANK OF BOSTON
THE FIRST NATIONAL BANK OF BOSTON
POST OFFICE BOX 1763
BOSTON, MASSACHUSETTS 02105 U.S.A.
Except so far as otherwise expressly stated herein, this letter of credit is
subject to the Uniform Customs and Practices for Documentary Credits (1993
Revision), international Chamber of Commerce Publication No. 500".
We hereby agree that drafts drawn under and in compliance with the terms of
this letter of credit will be duly honored, presented to the above-mentioned
drawee bank on or before SEPTEMBER 29, 1995.
(240)Kindly address all correspondence regarding this letter of credit to the
attention of our Letter of Credit Operations, P.O. BOX 1763, BOSTON, MA
02105, attention William Carlson, mentioning our reference number as it
appears above. Telephone inquiries can be made to William Carlson at (617)
434-5493.
Very truly yours,
---------------------------------
(291) AUTHORIZED OFFICIAL
55
<PAGE>
APPENDIX C
Work Letter
This Work Letter is incorporated by reference into the Lease dated April
1, 1994, by and between the Mutual Life Insurance Company of New York , as
landlord, and Focal, Inc., as Tenant. Terms defined in or by reference in the
Lease not otherwise defined herein shall have the same meaning herein as
therein.
1. Additional Definitions. Each of the following terms shall have the
meaning stated immediately after it:
Additional Base Building Work Allowance. An amount not to exceed
$100,000 to be made available by Landlord to Tenant to complete the
Base Building Work as described on Schedule 1 attached hereto.
Base Building Work. That portion of the improvements alterations and
additions to be made to Premises as part of the initial preparation
thereof for Tenant's occupancy, including all demolition and other
preparatory work, described on Schedule 1 attached hereto, including
designing, supervising, managing and performing such work.
Base Building Work Allowance. An amount not to exceed $750,000.00 to
be made available by Landlord to Tenant towards the cost of performing
the Base Building Work as described on Schedule 1 attached hereto.
Construction Authorizations. Collectively, all permits, licenses and
other consents and approvals required from any governmental authority
for the construction of Base Building Work or Tenant's Work.
Construction Documents. Complete and consistent construction
drawings and specifications showing in reasonable detail all Base
Building Work and Tenant's Work, which shall be prepared by Tenant's
Architect pursuant to the process set forth in this Work Letter. The
Construction Documents shall be prepared in compliance with all
applicable Legal Requirements and stamped by registered
Massachusetts professionals, and shall consist of all structural,
architectural, mechanical, electrical and site layout plans and
specifications which are required to perform Base Building Work and
Tenant's Work or to obtain any Construction Authorization required
therefor. The Construction Documents shall be fully coordinated with
one another and with field conditions as they exist in the Premises,
and shall show all work necessary to
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<PAGE>
complete Base Building Work and Tenant's Work including all cutting,
fitting, and patching and all connections to the mechanical and
electrical systems and components of the Building.
Contracting Parties. Collectively and all consulting architects or
Tenant's Architect, engineers retained by Tenant's Architect, and
the General Contractor and each of the Major Trade Contractors.
General Contractor. A general contractor or construction manager
selected by Tenant and approved in writing by Landlord, who will be
engaged by Tenant to construct or to coordinate the construction of
Base Building Work and Tenant's Work.
Landlord's Construction Representative. John Moriarty Associates,
subject to change by written notice given by Landlord to Tenant from
time to time in the manner provided in the Lease.
Landlord's Contribution. An amount not to exceed $4,367,410.00
representing the sum of (i) the Base Building Work Allowance, (ii)
the Additional Base Building Work Allowance, and (iii) Tenant's Work
Allowance.
Major Trade Contractors. Collectively, all contractors hired by
Tenant or the General Contractor to perform any portion of Base
Building Work of Tenant's Work whose contract or bid price exceeds
$50,000.00. Each of the Major Trade Contractors shall be approved in
writing by Landlord before performing any work on the Premises,
which approval will not be unreasonably withheld.
Tenant's Architect. An architect experienced in the construction of
tenant space improvements in buildings in the greater Boston area
and approved in writing in advance by Landlord, such approval not to
be unreasonably withheld, who shall be responsible for the
preparation and stamping of the Construction Documents. Landlord
approves the selection of Olson Lewis Architects, but reserves the
right to approve all contracts executed or to be executed by Tenant
wit such architect in connection with Base Building Work and
Tenant's Work.
Tenant's Construction Representative. Cambridge Lab Consultants,
subject to change by written notice given by Tenant to Landlord from
time to time in the manner provided in the Lease.
Tenant's Work. All improvements, alterations and additions which
Tenant wishes to make to the Premises as part of the initial
preparation thereof for Tenant's occupancy, including all demolition
and other preparatory work, as shown on the approved Construction
Documents to be attached hereto as Appendix D. All Tenant's Work
shall be consistent with Base Building Work and the Building systems
as reconfigured by the Base Building Work, and shall be of a quality
equal to or better than that set forth therein.
Tenant's Work Allowance. The amount to be provided by Landlord to
Tenant in reimbursement of costs and expenses incurred by Tenant in
designing, supervising, managing and performing Tenant's Work, which
amount shall not exceed $3,517,410.00.
2. Preparation of the Premises. Tenant shall (i) cause Tenant's Architect
to design all Base Building Work and Tenant's Work, and (ii) cause the
General Contractor to perform all Base Building Work and Tenant's
Work. Landlord shall pay Landlord's Contribution towards the cost of
Base Building Work and Tenant's Work. All costs of designing,
supervising, managing, and performing Base Building Work or Tenant's
Work in excess of Landlord's Contribution shall be the sole
responsibility of Tenant.
3. Insurance and Bonds. Prior to the commencement of any design work on
Base Building Work or Tenant's Work, Tenant shall provide to Landlord
an original certificate of insurance, in customary form, for Tenant's
Architect
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<PAGE>
and each architect and engineer retained by Tenant's Architect in
connection with the design and/or construction of Base Building Work
or Tenant's Work, which certificate shall evidence a current "errors
and omissions" insurance policy as in effect, in an amount
reasonably acceptable to Landlord.
Prior to the commencement of the construction of any Base Building
Work or Tenant's Work, Tenant shall provide to Landlord an original
certificate of insurance for (i) Tenant, and (ii) the General
contractor (but if Tenant engages a construction manager rather than a
general contractor, then such certificates of insurance shall be
provided by such construction manager as well as by each of the Major
Trade Contractors and all other contractors and subcontractors
employed directly or indirectly by Tenant in connection with the
construction of Base Building work or Tenant's Work), which
certificates shall evidence current insurance coverages of the types
and in the amounts set forth on Schedule 2 attached.
Prior to the commencement of construction of any Base the Building
Work or Tenant's Work, Tenant shall provide to Landlord an original
performance and payment bond or statutory lien bond or such other
protection as Landlord may reasonably require, in each case for the
benefit of Landlord, for the General Contractor and each Major Trade
Contractor, such bonds to be issued by a surety reasonably
satisfactory to Landlord, in an amount not less than each such General
Contractor's or Major Trade Contractor's respective contract price or
bid price. Landlord may, at the request of Tenant and in its sole
discretion, waive such requirement as to specific contractors.
4. Construction Documents. Tenant shall be solely responsible for the
preparation and completion of all preliminary and final Construction
Documents. Tenant shall retain Tenant's Architect (who may, in turn,
retain such consulting architects and engineers as Tenant's Architect
deems necessary) to prepare Construction Documents, provided that
Landlord first approves Tenant's selection of Tenant's Architect and
each such consulting architect or engineer and the form of contract
between Tenant and Tenant's Architect.
Tenant shall provide copies of the preliminary versions of
Construction Documents to Landlord and to Landlord's Construction
Representative as they become available to Tenant. Landlord and
Landlord's Construction Representative shall review Construction
Documents as they are submitted and shall perform such review as
expeditiously as is reasonably possible. Landlord's Construction
Representative shall provide to Tenant within ten (10) business days
after receipt of any Construction Documents a list of corrections and
modifications which Landlord requires to be made to the Construction
Documents.
Tenant shall revise the Construction Documents to incorporate the
corrections and modifications requested by Landlord's Construction
Representative and shall submit final Construction Documents to
Landlord and to Landlord's Construction Representative for their
approval. Landlord and Landlord's Construction Representative shall
review the final Construction Documents as they are submitted and
shall perform such review as expeditiously as is reasonably possible.
Within five (5) business days after receipt by Landlord and Landlord's
Construction Representative of a complete set of the final
Construction Documents, Landlord's Construction Representative shall
either (a) notify Tenant that Landlord and Landlord's Construction
Representative have approved the final Construction Documents, or (b)
provide to Tenant a list of corrections and modifications which
Landlord's construction Representative requires to be made to the
Construction Documents. In the event Landlord's Construction
Representative returns the Construction Documents to Tenant
58
<PAGE>
for correction or modification, Tenant shall diligently correct the
Construction Documents and re-submit them to Landlord and to
Landlord's Construction Representative for approval pursuant to the
preceding provisions of this paragraph.
Submission of the Construction Documents to Landlord or to Landlord's
Construction Representative for approval shall be deemed a warranty by
Tenant and Tenant's Architect that all work described in the
Construction Documents (i) complies with all applicable Legal
Requirements, Insurance Requirements and design standards, (ii) is in
all respects compatible with the electrical and mechanical components
and systems of the Building which are not being replaced as part of
Base Building Work or Tenant's Work, (iii) conforms to floor loading
limits, and (iv) with respect to all materials, equipment and special
designs, processes, or products, does not infringe on any patent or
other proprietary rights of others.
The review and/or approval by Landlord or Landlord's Construction
Representative or Landlord's architect or engineers of any plans,
sketches or Construction Documents submitted by Tenant shall not (i)
constitute an opinion or representation by any approving party that
the same are in compliance with all applicable Legal Requirements and
Insurance Requirements, or as to the feasibility of constructing the
work shown thereon, or (ii) impose on any approving party any
responsibility for a design defect or coordination of any Construction
Document with any other Construction Document, it being agreed that
Tenant shall be solely responsible for the adequacy, accuracy, and
completeness of the Construction Documents.
Landlord shall not be obligated to make any payment out of Tenant's
Work Allowance, the Base Building Work Allowance or the Additional
Base Building Work Allowance for any work performed by any contractor
or subcontractor employed directly or indirectly by Tenant until
Landlord's Construction Representative has given its final written
approval of the Construction Documents applicable to such work.
Notwithstanding the foregoing, at any time after the approval by
Landlord's Construction Representative of preliminary Construction
Documents Tenant may, at its sole risk, cost and expense, direct any
contractor or subcontractor to perform the work shown thereon. Tenant
hereby acknowledges and agrees that if such work is commenced prior to
the approval by Landlord's Construction Representative of final
Construction Documents for such work: (i) Landlord's Construction
Representative shall not be stopped from disapproving or requesting
modifications to the Construction Documents or otherwise restricted in
its review of the final Construction Documents by reason of the
commencement of such work prior to
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the conclusion of such review, and (ii) if the final Construction
Documents as approved by Landlord's construction Representative differ
from the work as actually performed by Tenant's contractors or
subcontractors, then Tenant shall, at its sole cost and expense, cause
such contractors and subcontractors to remove and redo so much of such
work as is necessary to bring it into compliance with the approved
final Construction Documents. In no event shall such removal and
reconstruction affect the Commencement Date.
5. General Contractor and Major Trade Contractors. Tenant shall obtain
the prior reasonable written approval of Landlord as to the General
Contractor and each of the Major Trade Contractors. Landlord hereby
approves Sienna Construction Corporation as a General Contractor,
subject to Landlord's review and approval of the form of contract to
be executed by Tenant and said contractor. Tenant shall keep
Landlord's Construction Representative reasonably informed of the
status of bids and negotiations between Tenant and potential
contractors. Prior to the execution of any contract with the General
Contractor or any of the Major Trade Contractors, Tenant shall submit
a copy of such contract to Landlord for its review and approval, which
approval shall not be unreasonably withheld or delayed. Tenant shall
provide to Landlord a copy of each executed contract promptly after it
is executed.
6. Conditional Assignments of Contracts. Prior to the commencement of any
Base Building Work or Tenant's Work, Tenant shall deliver to Landlord
original executed counterparts of conditional assignments of Tenant's
contracts with each of the Contracting Parties, together with original
executed consents thereto by the respective Contracting Parties, in
form and content reasonably acceptable to Landlord and its counsel.
Such documents shall include, without limitation, provisions to the
effect that:
(a) Tenant's Architect and each such consulting architect and
engineer agrees to permit Landlord to use the Construction
Documents to construct all or any portions of Base Building
Work or Tenant's Work without requiring additional
compensation therefor,
(b) Each of the Contracting Parties will perform their obligations
under their respective contracts for
Landlord, and
(c) Landlord may terminate its obligation thereunder at any time by
paying only for goods or services delivered or performed after
Landlord's direction to such Contracting Party to perform work
on Landlord's behalf.
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7. Performance of the Work. Tenant shall be solely responsible for
obtaining all construction Authorizations required for Base Building
Work or Tenant's Work. Tenant shall apply for and maintain in full
force and affect (or cause the General Contractor to apply for and so
maintain) all Construction Authorizations required for the
construction thereof, and upon completion of Tenant's Work shall
obtain a certificate of occupancy for the Premises from the
Appropriate governmental authority. Tenant shall deliver to Landlord a
copy of all Construction Authorizations and certificates of occupancy
promptly after receiving the same.
Promptly after receiving all Construction Authorizations, Tenant
shall cause the General Contractor to commence construction and
diligently to proceed to completion thereof. All construction shall
be performed in a good and workmanlike manner, using new materials
and in compliance with the provisions of this Lease, the
Construction Documents, the Construction Authorizations, all
applicable Legal Requirements, and all applicable Insurance
Requirements.
Tenant shall not cause or permit any liens for such labor or
materials to attach to the Premises and shall bond or discharge any
such lien which may be filed or recorded within fifteen (15) days
after Tenant receives actual notice of such filing or recording.
Landlord's Construction Representative may inspect all work performed
on the Premises at any reasonable time or times and shall promptly
give notice to Tenant of any observed defects. Tenant shall correct
such defective work to the reasonable satisfaction of Landlord's
Construction Representative. Tenant shall indemnify, defend and hold
harmless Landlord from and against any and all liability, damage,
penalties or judgments and from and against any claims, actions,
proceedings and expenses and costs in connection therewith, including
reasonable attorneys fees, arising out of or resulting from the design
or constriction of Base Building Work or Tenant's Work.
The General Contractor, each of the Major Trade Contractors, and
each subcontractor thereto shall, by entry onto the Premises, be
deemed to have agreed to indemnify the Indemnitees in connection
with any act or neglect by such person or entity (or those acting
under such person or entity) to the same extent as Tenant has so
agreed elsewhere in the Lease, the indemnities of Tenant and each
such person or entity being joint and several.
Tenant shall obtain from the General Contractor and/or the Major Trade
Contractors a guaranty against construction
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defects in both Base Building Work and Tenant's Work for a period of
not less than one (1) year.
8. Delays. No delay by Tenant, Tenant's Architect (or its consulting
architects or engineers), the General Contractor, any of the Major
Trade Contractors, or any other contractor or subcontractor or
supplier shall delay or affect the Commencement Date.
If Landlord fails to respond to Tenant concerning its review of the
Construction Documents within the time period provided in Section 4 of
this Work Letter, then the Commencement Date shall be delayed one day
for each day which occurs between the end of such period and the day
on which Landlord provides its response to Tenant.
Notwithstanding the provisions of Section 8.3 of the Lease, the
Commencement Date shall be delayed one day for each day on which the
General Contractor and/or its subcontractors are prevented from
performing their work on the Premises solely by reason of war, civil
commotion, acts or regulations of government, moratoria and the like,
weather, fire, or other casualty.
9. Payment. Landlord has agreed to pay certain of the costs incurred in
designing and constructing Base Building Work and Tenant's Work. It is
the intention, and agreement of the parties that (i) not more than
$9.50 per rentable square foot of area be applied towards so-called
"soft costs", including, without limitation, architectural and
engineering services (including, without limitation, amounts to be
paid pursuant to "design/build" trade contracts for architectural or
engineering services), laboratory consultant services, design review
and construction supervision by Landlord's Construction
Representative, contingency, and all other fees (but no portion of
Tenant's Work Allowance shall be applied towards Tenant's legal or
accounting expenses), and that (ii) the balance of Tenant's Work
Allowance be allocated solely to those portions of Tenant's Work which
shall remain a part of the Premises after the expiration or earlier
termination of this Lease.
Landlord shall make all payments directly to Tenant's Architect, other
approved consultants and managers, the General Contractor, and all
trade contractors (whether major Trade Contractors or not) in the
amounts set forth in the requisition as approved by Landlord.
Tenant agrees to use its best efforts to obtain competitive market
prices for all design and construction work to be performed on the
Premises.
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Landlord shall make its payments on account of Base Building Work and
Tenant's Work monthly upon the satisfaction of the following
conditions:
(a) with respect to every requisition:
(i) Landlord shall have given final approval to all of the
Construction Documents applicable to any work for which
payment is requested on such requisition;
(ii) Landlord's Construction Representative has received and
approved a written requisition from the General Contractor
in the AIA form, duly certified by Tenant's Architect and
the General Contractor;
(iii) Landlord has received and approved an original executed
lien waiver or acknowledgement of payment from the
General Contractor and each contractor or subcontractor
employed directly or indirectly by Tenant or the General
Contractor on account of which payment is requested it
such requisition; and
(iv) such other conditions as Landlord may reasonably require
from time to time in light of typical construction lending
practice in the Boston area at such time.
(b) additional requirements with respect to the first requisition:
(i) Tenant shall have delivered to Landlord: (a) copies,
certified by an executive officer of Tenant, of Tenant's
contract with each of the Contracting Parties;
(b) originals of all insurance certificates and bonds
required by Paragraph 3 above; (c) original executed
counterparts of each of the conditional assignments and
consents thereto described in Paragraph 6 above; and (d)
copies, certified by an executive officer of Tenant, of all
Construction Authorizations required for the performance of
Tenant's Work.
In addition to satisfaction of the foregoing requirements, Landlord shall not be
required to make the final payment to the General Contractor or to any trade
contractor until fifteen (15) days after Tenant delivers to Landlord (i) a copy
of a final and permanent Certificate of occupancy issued by the Town of
Lexington for the entire Premises, (ii) a copy of a Certificate of Substantial
Completion (in the AIA form or other form reasonably acceptable to Landlord) for
Base Building Work and Tenant's Work signed by Tenant's Architect,
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(iii) the final requisition signed by the General Contractor, and (iv)
an original final lien waiver executed by the General Contractor and
each contractor and subcontractor employed directly or indirectly by
Tenant or the General Contractor.
Landlord may at any time apply a portion of Landlord's Contribution to
the discharge of any liens or other encumbrances upon the Land or the
Building arising out of the performance of Base Building Work or
Tenant's Work.
In the event that at any time Landlord reasonably determines that
the cost to complete Base Building Work and Tenant's Work exceeds
the remaining Landlord's Contribution, Landlord shall so notify
Tenant of the amount of such shortfall and Tenant shall deposit with
Landlord, within five (5) business days of such notice, the full
amount of such shortfall. If Tenant fails to deposit such amount
with Landlord within such time, then (i) Landlord shall have no
further obligation to make any payments on account of Base Building
Work or Tenant's Work until such deposit is made, and (ii) Tenant
shall indemnify and hold Landlord harmless from and against any and
all claims, loss, costs, expenses, debts, damages or liabilities,
including but not limited to reasonable attorney's fees, incurred by
Landlord as a consequence of Tenant's failure to make such deposit
with Landlord within such 5-business day period.
In light of the impossibility of accurately allocating each payment
from Landlord's Contribution to Base Building Work, on the one hand,
and Tenant's Work, on the other, the parties hereby agree that if
Landlord disburses less than the entire Landlord's Contribution on
Base Building work and Tenant's Work, Landlord shall be deemed to
have spent the entire Base Building Work Allowance and Tenant's Work
Allowance prior to disbursing any portion of the Additional Base
Building Work Allowance.
10. Unfinished Space. The parties acknowledge and agree that it is
Tenant's present intention not to finish for its initial use a portion
of the Building containing not more than 9,295 square feet of rentable
area to be devoted to future office use, laboratory use, manufacturing
use and storage use. Tenant agrees that in the portions of this area
designated as future office space, Tenant will, as part of Tenant's
Work, complete the installation of Building systems within the ceiling
plenum and install the ceiling, and install floor covering. Tenant
further agrees that with respect to the portions of this area
designated as future laboratory, manufacturing or storage space,
Tenant will, as part of Tenant's Work, bring the HVAC trunk line to
the perimeter of this space (but Tenant need not install any HVAC
distribution
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lines within the future manufacturing space as part of Tenant's Work).
11. Tenant's Access to the Premises. Tenant and Tenant's Architect,
engineers the General Contractor, the Major Trade Contractors and all
subcontractors and suppliers may, at Tenant's sole risk, enter upon
the Premises prior to the Commencement Date for the limited purpose of
constructing Base Building Work and Tenant's Work. Any such entry onto
the Premises shall be deemed to be under all of the terms, covenants,
conditions and provisions if this Lease except the covenant to pay
Annual Base Rent.
12. Landlord's and Tenant's Representatives. Landlord and Tenant have
designated Landlord's Construction
Representative and Tenant's Construction Representative, respectively,
which persons shall be available during ordinary business hours to
review the progress of the work and to respond to issues which arise
during construction. Landlord's Construction Representative shall be
permitted to attend all meetings relating to the design or
construction of Base Building Work or Tenant's Work, whether on the
Premises or elsewhere, and shall be given reasonable advance notice of
all such meetings. Each party may rely on the other's representative
with respect to all matters which pertain to this Work Letter, each
party having authorized its representative to make decisions binding
upon such party with respect to such matters.
13. General. A breach by Tenant of any provision of this work Letter shall
constitute a default under the Lease, for which Landlord shall have
all remedies therein provided.
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SCHEDULE 1
BASE BUILDING SPECIFICATIONS
FOUR MAGUIRE ROAD
LEXINGTON, MA
BASE BUILDING ITEM DESCRIPTION
PARKING LOT AND ENTRY DRIVE:
- The entry area circle will be repaved with a new 1" wearing course.
- The parking lot and access drive will be repaired, resealed and
restriped. (Lessor will be responsible for maintenance of the parking
lot surface).
- Six (6) supplemental pole lighting elements will be installed in the
parking areas.
* New concrete curbing will be installed at the entry drive.
* Extension of asphalt to loading area with curbing if needed.
LANDSCAPING
- Relocation and re-utilization of plantings at front of building.
- Additional planting around modified old main entry (approximately 25
new plants).
- Additional plantings and creation of landscape bed at front entry sign
on Maguire Road (approximately 15 new plants).
- Removal of up to 2' caliper branches to a height of 8' from growth
along Maguire Road and Hartwell Avenue.
- Planting of approximately six (6) 8' white pines to provide screening
at loading area,
- Relocation of plantings at north end of parking lot to be evenly
distributed.
- Mulch will be provided and installed over all altered or garden type
areas according to the plans and specifications provided by Focal Inc.
* New wall and yard hydrants.
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ENTRY AREA:
- Replacement of existing sidewalks with concrete sidewalks
incorporating ornamental brickwork. The existing sidewalk leading to
the parking lot will be relocated/straightened.
* Handicap access ramps from turnaround area.
- Install entry awning element in a mutually acceptable location.
- Two (2) 8' benches to create seating area, supplemented with two
built-in planters,
* All improvements to meet updated and current ADA requirements.
- An allowance of thirty (30) new plantings provided for this area.
- Walkway lighting (approximately eight (8) fixtures) will be provided.
- Construction of brick walls around current entry and creation of
access door to utilize area for storage.
EXTERIOR ENVELOPE:
* Repair masonry crack at brick parapet if needed.
General masonry repairs if needed.
* Roof flashing for new HVAC equipment.
* Repairs to skylights and flashing.
* Installation of roof drainage scuppers if requited by code.
DEMOLITION:
* Remove and dispose of the existing steel sunscreen.
- Clean the exterior masonry and repaint or finish with an architectural
element the remaining sunscreen connection points. The tenant will
participate in the final design selection of these elements.
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- Removal of existing brickwork and second egress to accommodate new
entry as outlined conceptually on plans.
* Remove and legally dispose of all out-buildings
- Identify and remove all exterior conduits and utility piping. Relocate
to interior chaseways any identified as in use or otherwise necessary.
- Clean the exterior of the building, including inspection of all
skylights.
LOBBY GRADE:
- The interior atrium area will be brought to the grade level of the
lobby with concrete and infill.
- All existing egress RTU supports will be reused and new framing for
the elevator shaft if required will be installed and the areas will be
re-roofed.
WINDOW/MAIN ENTRANCE/LOBBY:
- Store front at vestibule to be Kawneer 451-T system with two (2) glass
doors.
* Allowance to update existing stairways to code.
* New stairway construction if required by code.
LOADING AREA:
* Allowance for loading doors.
* Corridor leading from loading doors to elevator.
* One (1) gas fired ceiling hung heating unit.
DEMOLITION:
* Removal of oak sunscreens from atrium.
- Remove and legally dispose of benches, tables, planters, flooring and
nonstructural masonry work around columns and the existing entry
according to the plans and specifications provided by Focal Inc.
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ELEVATOR:
* Furnish and install one elevator.
- Unit features a hydraulic 2000# capacity with baked enamel 3' x 7'
sliding door and frame, suspended eggcrate ceiling with fluorescent
lighting and rear handrail.
CERAMIC TILE:
- Provide and install 4' x 4' ceramic tile in the new toilet rooms and
wet walls to six foot height
PAINT:
- Apply two (2) coats of latex paint to all common areas and lobby
partitions and stain and seal all common interior doors.
- Nail holes and other imperfections will be properly prepared prior to
paining.
PLUMBING:
- New toilet rooms will have laminate countertops, mirrors, wall hung
fixtures and floor mounted partitions.
- One set of new men's and ladies' rooms to be provided on the first
floor in a mutually acceptable location.
- Existing bathrooms on the second floor will be brought to ADA
compliance.
- Existing Pressure reducing stations will be refurbished to satisfy
Massachusetts Code requirements.
* Water cooler for each floor.
FIRE PROTECTION:
- Install fire protection system in accordance with code requirements
for a typical suburban office building.
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HEATING, VENTILATION AND AIR-CONDITIONING:
* $250,000.00 allowance for HVAC system.
ELECTRICAL:
* $50,000.00 allowance for electrical system.
With the exception of the electrical and H.V.A.C. allowance, any code
requirements relating to the property including A.D.A., fire
protection, plumbing, structural or Town of Lexington requirements
will be considered part of the base building specifications.
* END OF SPECIFICATIONS OUTLINE *
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Schedule 2
Tenant Work Insurance Requirements
1. Tenant shall purchase or shall cause each contractor or subcontractor
retained directly or indirectly by Tenant to Purchase, in a company or companies
against which the Landlord has no reasonable objection, such insurance as will
protect him from claims set forth below which may arise out of or result from
the contractor's operations on the Premises.
.1 claims under workers' compensation, disability benefit and other
similar employee benefit acts;
.2 claims for damages because of bodily injury, occupational sickness or
disease, or death of his employees;
.3 claims for damages because of bodily injury, sickness or disease, or
death of any person other than his employees;
.4 claims for damages insured by personal injury liability coverage which
are sustained (1) by any person as a result of an offense directly or
indirectly related to the employment of such person by the contractor
or subcontractor, or (2) by any other person;
.5 claims for damages, other than to the work being performed, because of
injury to or destruction of tangible property, including loss of use
resulting therefrom;
.6 claims for damages because of bodily injury or death of any person or
property damage arising out of the ownership, maintenance or use of
any motor vehicle; and
.7 claims for contractual liability (both oral and written) under this
undertaking with Tenant.
2. The insurance required by Section 1 of this Schedule shall include all
major divisions of coverage, and shall be on a comprehensive general basis. Such
insurance shall be written for not less than any limits of liability required by
law or those set forth below, whichever is greater.
.1 Worker's Compensation - as required by law.
.2 Commercial General Liability Single Limit (Combined) with a limit
of $1,000,000 Per Occurrence/$2,000,000 Annual Aggregate,
including Bodily Injury, Personal Injury, Property Damage,
Independent Contractors, Products and Completed operations and
Broad Form Contractor Coverages.
.3 Automobile Liability - Single Limit (Combined) Per Occurrence.
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Bodily Injury $1,000,000 Property Damage $1,000,000 per
Occurrence
.4 Independent Contractors - $1,000,000 Per Occurrence.
.5 Products and Completed Operations - $1,000,000 Per Occurrence,
covering liability for claims made within applicable statutes of
limitations following issuance of final Certificate of Payment.
.6 Broad Form Blanket Contractual Liability (both oral and written)
- $1,000,000 Per occurrence.
.7 Excess Liability Umbrella covering all above items $5,000,000 Per
Occurrence for the General Contractor performing the Base
Building/Tenant's Work; $2,000,000.00 per Occurrence for all
others (whether performing Base Building/Tzenant Work,
Alterations or other work).
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NON-DISTURBANCE,
ATTORNMENT AND RECOGNITION AGREEMENT
SAMUEL T. BYRNE, TRUSTEE OF FOUR MAGUIRE ROAD REALTY TRUST
UNDER DECLARATION OF TRUST DATED AS OF SEPTEMBER 15, 1996
(Master Lessor)
MAGUIRE ASSOCIATES LLC, A MASSACHUSETTS LIMITED LIABILITY COMPANY
(Master Lessee)
and--
FOCAL, INC.
(Tenant)
Dated: As of September 20, 1996
Location: 4 Maguire Road
Lexington, Massachusetts
PREPARED BY AND UPON
RECORDATION RETURN TO:
BROWN, RUDNICK, FREED & GESMER
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
Attention: Steven J. Mastrovick, Esquire
File No.: 18494/9
Document Date: 9/23/96 12:11 PM
Document Number: 516788
SNDA -- Focal
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NON-DISTURBANCE, ATTORNMENT AND RECOGNITION AGREEMENT
THIS SUBORDINATION, NON-DISTURBANCE, ATTORNMENT AND RECOGNITION AGREEMENT
(the "Agreement") is made as of the 20th day of September, 1996 by and among
SAMUEL T. BYRNE, TRUSTEE OF FOUR MAGUIRE ROAD REALTY TRUST UNDER DECLARATION OF
TRUST DATED SEPTEMBER 15, 1996, with an address c/o Boston Capital Institutional
Advisors, One Boston Place, 21st Floor, Boston, Massachusetts, 02108, ("Master
Lessor"), MAGUIRE ASSOCIATES LLC, a Massachusetts limited liability company,
with an address c/o The Athenaeum Group, 215 First Street Cambridge,
Massachusetts 02134 ("Master Lessee") and FOCAL, INC., -a Massachusetts
corporation, with an address of Four Maguire Road, Lexington, Massachusetts
02173 ("Tenant").
RECITALS:
A. Master Lessor is the present record title holder and Lessor under a
certain "Master Lease and Purchase Option Agreement" by and between Master
Lessor, as Lessor, and Master Lessee, as Lessee, dated as of September 15, 1996
("Master Lease") with respect to the land and improvements known as Four Maguire
Road in Lexington, Massachusetts (the "Property");
B. Legal title to the Property is held by Master Lessor. Under the terms of
the Master Lease, Master Lessor assigned and Master Lessee assumed and agreed to
perform all of Master Lessor's obligations under a certain Lease dated April 1,
1994 between The Mutual Life Insurance Company of New York, as landlord, and
Focal, Inc., as tenant with respect to the Property (the "Lease");
C. Master Lessee desires that Tenant acknowledge and agree that, until
Master Lessor notifies Tenant to the contrary, Master Lessee shall be
responsible for all of Landlord's obligations wider the Lease mid have the
rights and remedies of Lessor under the Lease during the term of the Master
Lease.
D. Tenant desires that Master Lessor acknowledge and agree that any
termination of the Master Lease will not disturb Tenant's use and occupancy of
the Property pursuant to the Lease;
E. Master Lessor desires that upon any such termination of the Master Lease
Tenant will acknowledge Master Lessor as landlord under the Lease and perform
all tenant's obligations thereunder for the benefit of Master Lessor.
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AGREEMENT:
For good and valuable consideration, Master Lessor, Master Lessee, and
Tenant agree as follows:
1. Recognition of Master Lessee as Holder of Landlord's Interest Under the
Lease. Tenant acknowledges and agrees that Master Lessor has assigned all of its
right, title and interest in and to the Lease to Master Lessee and Master Lessee
has assumed and agreed to perform and be liable for all of the landlord's
obligations thereunder as assignee of Master Lessor's interest in the Lease.
Tenant acknowledges such assignment and assumption and agrees that Master Lessee
shall have all of the rights and obligations of the landlord under the Lease and
agrees to recognize Master Lessee as Landlord thereunder, and accordingly,
Tenant shall pay all rent and other amounts due and payable under due Lease to
Master Lessee and perform all of tenant obligations under the Lease for the
benefit of Master Lessee, all with the same force and effect as if Master Lessee
were the original landlord under the Lease.
2. Waiver of Right of First Refusal. Tenant hereby agrees to waive and does
hereby waive its right of first offer to purchase the Premises in connection
with any exercise by Master Lessee of its right to purchase the Property as set
forth in Section 14 of the Master Lease.
3. Non-Disturbance. Master Lessor agrees that if any action or proceeding
is commenced by Master Lessor for the termination or cancellation of the Master
Lease or the eviction of Master Lessee from the Property, or the sale of the
Property, or the transfer of Master Lessor's interest under the Master Lease,
Tenant shall not be named as a party therein unless such joinder shall be
required by law, provided, however, such joinder shall not disturb Tenants
possession or use of the premises demised thereunder, and the sale of the
Property in any such action or proceeding and the exercise by Master Lessor of
any of its other rights under the Master Lease shall be made subject to all
rights of Tenant under the Lease, provided that at the time of the commencement
of any such action or proceeding or at the time of any such sale or exercise of
any such other rights (a) the term of the Lease shall have commenced pursuant to
the provisions thereof, (b) Tenant shall be in possession of the premises
demised under the Lease, (c) the Lease shall be in full force and effect and (d)
Tenant shall not be in default under any of the terms, covenants or conditions
of the Lease or of this Agreement on Tenant's part to be observed or performed.
4. Recognition and Attornment. Master Lessor and Tenant agree that if
Master Lessor shall become the holder of landlord's interest under the Lease by
reason of the termination or cancellation of the Master Lease or eviction of
Master Lessee thereunder, or otherwise, the Lease shall continue in full force
and effect as a direct lease between Master Lessor and Tenant upon all of the
terms, covenants and conditions set forth in the Lease and in that event, Tenant
agrees to recognize and attorn to Master Lessor and Master Lessor agrees to
accept such attornment, provided, however, Master Lessor shall not be (a)
obligated to complete any construction work required to be done by Master Lessee
pursuant to the provisions of the Lease or to reimburse
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Tenant for any construction work done by Tenant prior to the time Master Lessor
succeeds to Master Lessee's interest thereunder, (b) liable (i) for Master
Lessee's failure to perform, any of its obligations under the Lease which have
accrued prior to the date on which Master Lessor shall become the owner of the
Property, or (ii) for any act or omission of Master Lessee, whether prior to or
after such termination of the Lease, (c) required to make any repairs to the
Property or to the premises demised under the Lease required as a result of
fire, or other casualty or by reason of condemnation unless Master Lessor shall
be obligated under the Lease to make such repairs and shall have received
sufficient casualty insurance proceeds or condemnation awards to finance me
completion of such repairs, (d) required to make any capital improvements to the
Property or to the premises demised under the Lease which Master Lessee may have
agreed to make, but had not completed, or to perform or provide any services not
related to possession or quiet enjoyment of the premises demised under the
Lease, (e) subject to any offsets, defenses, abatements or counterclaims which
shall have accrued to Tenant against Master Lessee prior to the date upon which
Master Lessor shall succeed to Master Lessee's interest as Landlord under the
Lease; (f) liable for the return of rental security deposits, if any; paid by
Tenant to Master Lessee in accordance with the Lease unless such sums are
actually received by Master Lessor, (g) bound by any payment of rents,
additional rents or other sums which Tenant may have paid more than one (1)
month in advance to any prior landlord unless (i) such sums are actually
received by Master Lessor or (ii) such prepayment shall have been expressly
approved of by Master Lessor, (h) bound to make any payment to Tenant which was
required under the Lease, or otherwise, to be made prior to the time Master
Lessor succeeded to Master Lessee's interest, (i) bound by any agreement
amending, modifying or terminating me Lease made without Master Lessor's prior
written consent prior to the time Master Lessor succeeded to Landlord's interest
or (j) bound by any assignment of the Lease or sublease of the Property, or any
portion thereof, made prior to the time Master Lessor succeeded to Landlor's
interest other than if pursuant to the provisions of the Lease.
5. Notice to Tenant. After notice is given to Tenant by Master Lessor that
Master Lessee is in default under me Master Lease and that the rentals under the
Lease should be paid to Master Lessor pursuant to the terms of the Master Lease,
Tenant shall thereafter pay to Master Lessor or as directed by the Master
Lessor, all rentals and all other monies due or to become due to landlord under
the Lease and Master Lessee hereby expressly authorizes Tenant to make such
payments to Master Lessor and hereby releases and discharges Tenant from any
liability to Master Lessee on account of any such payments; provided, however,
that nothing herein shall limit Tenant's rights, if any under the Lease, to
withhold payments of rentals to Master Lessee or Master Lessor in the event that
Master Lessee or Master Lessor fails to comply with the terms and conditions of
the Lease, except that in the case of Master Lessor, Master Lessor shall not
have any liability for any defaults by landlord nor shall Tenant have any right
of offset or abatement of rent as against Master Lessor on account thereof,
prior to the time that Master Lessor succeeds to Master Lessee's interest under
the Lease.
6. Master Lessor's Consent. Tenant shall not, without obtaining the prior
written consent of Master Lessor, (a) enter into any agreement amending,
modifying or terminating the Lease, (b) prepay any of the rents, additional
rents or other sums due under the Lease for more than
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one (1) month in advance of the due dates thereof, (c) voluntarily surrender
the premises demised under the Lease or terminate the Lease without cause or
shorten the term thereof, or (d) assign the Lease or sublet the premises demised
under the Lease or any part thereof other than pursuant to the provisions of the
Lease; and any such amendment, modification, termination, prepayment, voluntary
surrender, assignment or subletting, without Master Lessor's prior consent,
which consent shall not be unreasonably withheld, shall not be binding upon
Master Lessor.
7. Representations and Warranties. Tenant hereby represents and warrants to
Master Lessor that as of the date hereof (a) Tenant is the owner and holder of
the tenants interest under the Lease, (b) the Lease has not been modified or
amended, (c) the Lease is in full force and effect and the term thereof
commenced on September 1, 1994, pursuant to the provisions thereof, (d) the
premises demised under the Lease have been completed and Tenant has taken
possession of the same on a rent paying basis, (e) neither Tenant nor Landlord
is in default under or in breach of any of the terms, covenants or provisions of
the Lease and Tenant to the best of its knowledge knows of no event which but
for the passage of time or the giving of notice or both would constitute an
event of default or breach by Tenant or Landlord under the Lease, (f) neither
Tenant nor Landlord has commenced any action or given or received any notice for
the purpose of terminating the Lease, (g) all rents, additional rents or other
sums due and payable under the Lease have been paid in full and no rents,
additional rents or other sums payable under the Lease have been paid for more
than one (1) month in advance of the due dates thereof, (h) there are no offsets
or defenses to the payment of the rents, additional rents, or other sums payable
under the Lease, (i) Tenant has no option or right of first refusal to purchase
the premises demised under the Lease or any portion thereof or any right or
option for additional space with respect to the premises demised other than as
set forth in the Lease, (j) no action, whether voluntary or otherwise, is
pending against Tenant under the bankruptcy, insolvency or similar laws of the
United States or any state thereof, and (k) if applicable, Tenant has deposited
all security deposits set forth in the Lease with Landlord.
8. Master Lessor to Receive Notices. Tenant shall provide Master Lessor
with copies of all written notices sent to Master Lessee pursuant to the Lease
simultaneously with the transmission of such notices to Master Lessee and Master
Lessor shall have the right, but not the obligation, to cure any such defaults
of Landlord within such grace periods provided Master Lessee under the Lease.
Tenant shall notify Master Lessor of any default by Master Lessee under the
Lease which would entitle Tenant to cancel the Lease or to an abatement of the
rents, additional rents or other sums payable thereunder, and agrees that,
notwithstanding any provisions of be Lease to the contrary, no notice of
cancellation thereof or of such an abatement shall be effective unless Master
Lessor shall have received notice of default giving rise to such cancellation or
abatement and shall have failed within sixty (60) days after receipt of such
notice to cure such default, or if such default cannot be cured within sixty
(60) days, shall have failed within sixty (60) days after receipt of such notice
to commence and thereafter diligently pursue any action necessary to cure such
default
3
<PAGE>
9. Notices. All notices or other written communications hereunder shall
be deemed to have been properly given (i) upon delivery, if delivered in
person or by facsimile transmission with receipt acknowledged by the
recipient thereof and confirmed by telephone by sender, (ii) one (1) Business
Day (hereinafter defined) after having been deposited for overnight delivery
with any reputable overnight courier service, or (iii) three (3) Business
Days after having been deposited in any post office or mail depository
regularly maintained by the U.S. Postal Service and sent by registered or
certified mail, postage prepaid, return receipt requested, addressed as
follows:
If to Tenant: FOCAL, INC.
Four Maguire Road
Lexington, Massachusetts 02173
Attention: W. Bradford Smith,
Chief Financial Officer
If to Master Lessor: Samuel T. Byrne, Trustee of Four Maguire
Road Realty Trust
c/o Boston Capital Institutional Advisors
One Boston Place, 21st Floor
Boston, Massachusetts 02108
Attention: Samuel T. Byrne, Trustee
Telephone No. (617) 624-8310
Facsimile No. (617) 624-8999
With a copy to: Brown, Rudnick, Freed & Gesmer, P.C.
One Financial Center
Boston, MA 02109
Attention: Steven J. Mastrovich, Esq.
Telephone No. (617) 856-8513
Facsimile No. (617) 856-8201
If to Master Lessee: Maguire Associates LLC
c/o The Athenaeum Group
215 First Street
Cambridge, Massachusetts 02134
Attention: Allan R. Jones
Telephone No. (617) 492-2155
Facsimile No. (617) 492-3729
With a copy to: Richard Berkman, Esquire
Hale & Dorr
60 State Street
Boston, Massachusetts 02109
Telephone No.: (617) 526-6212
Facsimile No.: (617) 526-5000
4
<PAGE>
or addressed as such party may from time to time designate by written notice
to the other parties. For purposes of this Section 9, the term "Business Day"
shall mean a day on which commercial banks are not authorized or required by
law to close in Boston, Massachusetts.
Either party by notice to the other may designate additional or different
addresses for subsequent notices or communications.
10. Joint and Several Liability. If Tenant consists of more than one
person, the obligations and liabilities of each such person hereunder shall be
joint and several; provided, however, that nothing contained herein shall be
deemed to expand Tenant's liability under the Lease and Tenant's liability
hereunder shall be the same as Tenant's liability thereunder. This Agreement
shall be binding upon and inure to the benefit of Master Lessor and Tenant and
their respective successors and assigns.
11. Definitions. The term "Master Lessor" as used herein shall include the
successors and assigns of Master Lessor and any person, party or entity which
shall succeed to Master Lessor's interest under the Master Lease. The term
"Master Lessee" as used herein shall mean and include the present tenant under
the Master Lease and such Master Lessee's predecessors and successors in
interest under the Lease, but shall not mean or include Master Lessor. The term
"Property" as used herein shall mean the Property, the improvements now or
hereafter located thereon and the estates therein encumbered by the Master
Lease.
12. No Oral Modifications. This Agreement may not be modified in any manner
or terminated except by an instrument in writing executed by the parties hereto.
13. Governing Law. This Agreement shall be deemed to be a contract entered
into pursuant to the laws of the Commonwealth of Massachusetts located and shall
in all respects be governed, construed, applied and enforced in accordance with
the laws of the Commonwealth of Massachusetts.
14. Inapplicable Provisions. If any term, covenant or condition of this
Agreement is held to be invalid, illegal or unenforceable in any respect, this
Agreement shall be construed without such provision.
15. Duplicate Originals: Counterparts. This Agreement may be executed in
any number of duplicate originals and each duplicate original shall be deemed to
be an original. This Agreement may be executed in several counterparts, each of
which counterparts shall be deemed an original instrument and all of which
together shall constitute a single Agreement. The failure of any party hereto to
execute this Agreement, or any counterpart hereof, shall not relieve the other
signatories from their obligations hereunder.
5
<PAGE>
16. Number and Gender. Whenever the context may require, any pronouns used
herein shall include the corresponding masculine, feminine or neuter forms, and
the singular form of nouns and pronouns shall include the plural and vice versa.
17. Assignment of Master Lease. Master Lessor may sell, transfer, assign or
otherwise dispose of, in whole or in part, its interest under the Master Lease,
this Agreement and the other documents executed in connection therewith or sell
or dispose of the Property. In connection with such sale, Master Lessor may
retain or assign responsibility for servicing the Master Lease, this Agreement
and the other documents executed in connection therewith, or may delegate some
or all of such responsibility and/or obligations to a servicer including, but
not limited to, any subservicer or master servicer. All references to Master
Lessor herein shall refer to and include any such servicer to the extent
applicable. In the event of any such transfer, Master Lessor or Master Lessor's
transferee shall notify Tenant in writing which notice shall include the name
and address of such transferee.
18. Further Acts. Tenant will, at the cost of Tenant, and without expense
to Master Lessor, do, execute, acknowledge and deliver all and every such
further acts and assurances as Master Lessor shall, from time to time, require,
and which are required of Tenant under the Lease, for the better assuring and
confirming unto Master Lessor the property and rights hereby intended now or
hereafter so to be, or for carrying out the intention or facilitating the
performance of the terms of this Agreement or for filing, registering or
recording this Agreement, or for complying with all applicable laws.
19. Sole Discretion of Master Lessor. Wherever pursuant to this Agreement
(a) Master Lessor exercises any right given to it to approve or disapprove, (b)
any arrangement or term is to be satisfactory to Master Lessor, or (c) any other
decision or determination is to be made by Master Lessor, the decision of Master
Lessor to approve or disapprove, all decisions that arrangements or terms are
satisfactory or not satisfactory and all other decisions and determinations made
by Master Lessor, shall be in the sole and absolute discretion of Master Lessor
and shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
[SIGNATURES FOLLOW ON NEXT PAGE]
6
<PAGE>
IN WITNESS WHEREOF, Master Lessor, Master Lessee and Tenant have duly
executed this Agreement as of the date first above written.
MASTER LESSOR:
FOUR MAGUIRE ROAD REALTY TRUST
By: __________________________________
Samuel T. Byrne, Trustee
as aforesaid and not individually
MASTER LESSEE
MAGUIRE ASSOCIATES LLC
By: __________________________________
Name:
Title
TENANT:
FOCAL, INC
By: /s/ W. Bradford Smith
---------------------------------
Name: W. Bradford Smith
Title: VP-Finance
7
<PAGE>
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. September , 1996
Then personally appeared the above named Samuel T. Byrne, Trustee as aforesaid
and acknowledged the foregoing instrument to be his free act and deed, and the
free act and deed of Four Maguire Road Realty Trust before me,
Notary Public
----------------------------
My Commission Expires:
----------------------------
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK ss. September , 1996
Then personally appeared the above named and acknowledged the foregoing
instrument to be his/her free act and deed, before me,
Notary Public
----------------------------
My Commission Expires:
----------------------------
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK ss. September , 1996
Then personally appeared the above named who swore that [he/she] is the
President of Focal, Inc. and acknowledged that the foregoing to be his free act
and deed and the Ate act and deed of Focal, Inc, before me,
Notary Public
----------------------------
My Commission Expires:
----------------------------
8
<PAGE>
EXHIBIT A
(Description of Property)
9
<PAGE>
FIRST AMENDMENT TO LEASE
This First Amendment to Lease dated as of the 26 day of September, 1997 by
and among Samuel T. Byrne, Trustee of Four Maguire Road Realty Trust, under
Declaration of Trust dated September 15, 1996 ("Landlord"), Maguire Property
LLC, a Massachusetts limited liability company with an address c/o The Athenaeum
Group, 215 First Street, Cambridge, Massachusetts 02134 ("Master Lessee") and
Focal, Inc., with an address of Four Maguire Road, Lexington, Massachusetts
02173 ("Tenant").
RECITALS
1. Landlord is successor-in-interest to the Mutual Life Insurance Company
of New York ("Mutual Life"), the original landlord under a certain
Lease dated April 1, 1994 between Mutual Life, as landlord and Focal,
Inc., as tenant (the "Lease") for which a Notice of Lease was filed
for registration with the Middlesex County (South) Registry District
of Land Court as Document No. 967794 on February 3, 1995.
2. Landlord's obligations under the Lease have been assigned to and
assumed by Master Lessee under a certain Master Lease and Purchase
Option Agreement between Landlord and Master Lessee dated October 4,
1996;
3. Landlord, Master Lessee, and Tenant desire to make certain
modifications to the Lease as more specifically set forth herein.
NOW, THEREFORE, for good and valuable consideration in receipt and legal
sufficiency of which are hereby acknowledged the parties hereto agree to amend
the Lease as follows:
1. Article 1.1 of the Lease is hereby amended by deleting in its entirety
the information opposite the terms "Landlord" and "Notice Address of
Landlord" and substituting the following therefor:
Landlord: Samuel T. Byrne, Trustee of Four Maguire
Road under Declaration of Trust dated as of
September 15, 1996
Notice Address of Landlord: Samuel T. Byrne, Trustee of Four Maguire
Road Realty Trust, c/o Boston Capital
Institutional Advisors, One Boston Place,
21st Floor, Boston, Massachusetts 02108
<PAGE>
with a copy to: Steven J. Mastrovich, Esquire
Squire, Sanders & Dempsey
350 Park Avenue
New York, New York 10022
2. Section 4.1.1 of the Lease entitled "Initial Term" shall be modified
by substituting a "." for the ";" in the second line after the term
"Section 1.1" and deleting the remainder of that sentence which states
"provided, however, that if Tenant duly pays the Buy Down Amount as
provided in Section 4.1.2 below, then the Annual Base Rent for the
remainder of the Initial Term shall be as set forth in that Section".
Section 4.1.1 will accordingly read as follows: "Annual Base Rent
during the Initial Term will be as set forth in Section 1.1."
3. Section 4.1.2 entitled "Tenant's Buy Down Option" is hereby deleted in
its entirety.
4. Section 6.3(j) is hereby deleted in its entirety.
5. The last paragraph of Section 6.4 providing as follows, is hereby
deleted in its entirety:
"In the event this Lease is terminated pursuant to this Section 6.4
after Tenant has paid the Buy Down Amount, Landlord agrees to pay to
Tenant promptly after the Effective Date of such termination an amount
equal to the product of (i) the Buy Down Amount and (ii) a fraction,
the numerator of which is the number of whole months remaining in the
Initial Term after the Effective Date of such termination, and the
denominator of which is 120, but Landlord shall be entitled to deduct
therefrom the unamortized principal amount of the Additional Base
Building "Work Allowance.".
6. Article 1.1 of the Lease is hereby amended by deleting in its entirety
the term "Security" and the text appearing after such term requiring
Tenant to establish a security deposit in the original amount of
$1,750,000.00 and any references to "Cash Security" or "Letter of
Credit" wherever appearing in the Lease are also hereby deleted in
their entirety.
7. Section 8.11 entitled "Security" is hereby deleted in its entirety, as
is Appendix B of the Lease, the purpose of such deletion being to
eliminate any required Security under the Lease.
8. Except as expressly amended and modified herein, the Lease is hereby
ratified and affirmed in all respects.
<PAGE>
LANDLORD:
FOUR MAGUIRE ROAD REALTY TRUST
By: /s/ Samuel T. Byrne
----------------------------
Samuel T. Byrne, Trustee
MASTER LESSEE:
MAGUIRE PROPERTY LLC
By: /s/ Allan R. Jones
--------------------------
Name: Allan R. Jones
Title: Member
Maguire Investors LLC
FOCAL, INC.
By: /s/ W. Bradford Smith
---------------------------
Name: W. Bradford Smith
Title: V-P Finance, CFO
<PAGE>
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. September 26, 1997
Then personally appeared the above-named Samuel T. Byrne, Trustee as
aforesaid, and acknowledged the foregoing instrument to be his free act and deed
and the free act and deed of said trust, before me.
/s/ Karen L. Finocchio
---------------------------------
Notary Public
My commission expires: December 13, 2002
COMMONWEALTH OF MASSACHUSETTS
Middlesex, ss. September 26, 1997
Then personally appeared the above-named Allan R. Jones, of Maguire
Property LLC and acknowledged the foregoing instrument to be his free act and
deed and the free act and deed of said corporation, before me.
/s/ Elaine M. Giles
---------------------------------
Notary Public
My commission expires: Jan. 27, 2000
COMMONWEALTH OF MASSACHUSETTS
Middlesex, ss. September 26, 1997
Then personally appeared the above-named to W. Bradford Smith VP, Finance,
of Focal, Inc. and acknowledged the foregoing instrument to be his free act and
deed and the free act and deed of said corporation, before me.
/s/ Maureen Wrobel
---------------------------------
Notary Public
My commission expires: Aug. 24, 2001
<PAGE>
Exhibit 10.7
MASTER LEASE AGREEMENT
Comdisco, Inc.--Lessor
MASTER LEASE AGREEMENT dated as of October 30, 1992 by and between
COMDISCO, INC. (hereinafter called "Lessor") having its principal office and
place of business at 6111 North River Road, Rosemont, Illinois 60018 and
Focal, Inc. (hereinafter called "Lessee") having its principal office and
place of business at One Kendall Square, Suite 2200, Cambridge, Massachusetts
02139.
1. PROPERTY LEASED. In consideration of the rent to be paid by Lessee and the
covenants and agreements of Lessee hereinafter set forth, Lessor agrees to
lease to Lessee and Lessee to lease from Lessor all of the tangible personal
property listed on each Equipment Schedule executed, from time to time,
pursuant to this Master Lease (with respect to any Equipment Schedule,
hereinafter called the "Equipment"). Each Equipment Schedule shall be
substantially in the form annexed hereto as Exhibit A and made a part hereof,
shall incorporate therein all of the terms and conditions of this Master
Lease and shall contain such additional terms and conditions as Lessor and
Lessee shall agree upon.
2. TERM, COMMENCEMENT DATE AND SUMMARY EQUIPMENT SCHEDULE. 2.1 Term. The term
of this Master Lease shall commence on the date set forth above and shall
continue in effect thereafter so long as any Equipment Schedule entered into
pursuant to this Master Lease remains in effect. Lessor and Lessee agree that
all Equipment Schedules entered into pursuant to this Master Lease Agreement
shall be effective from the date set forth on such Schedule and shall remain
in force until termination by either party upon not less than one hundred
twenty (120) days prior written notice to the other party at its address as
set forth in the applicable Equipment Schedule, which notice shall be
effective upon the first day of the month following receipt (or upon receipt
if such date is the first day of the month); provided, however, that no such
termination shall be effective prior to the expiration of the Initial Term.
2.2 COMMENCEMENT DATE. The commencement date (hereinafter called the
"Commencement Date") with respect to any item of Equipment leased pursuant to
the terms of each applicable Equipment Schedule shall be the date Lessee
accepts such item of Equipment from the Equipment vendor, which date shall be
confirmed by Lessee to Lessor as evidenced by Lessee forwarding an Acceptance
Certificate in the form provided by Lessor, within ten (10) days following
such acceptance. The lease term shall commence on the Commencement Date and
shall continue for the number of full calendar quarters set forth in such
Equipment Schedule (the "Initial Term"). The Initial Term with respect to any
such item of Equipment shall begin on the first day of the calendar quarter
next following the Commencement Date (or commencing on the Commencement Date
if such date is the first day of the calendar quarter) for all items of
Equipment to be leased under the applicable Equipment Schedule.
Notwithstanding the foregoing, if the Equipment subject to such Equipment
Schedule pertains to (i) installed Equipment, the Commencement Date shall be
the date Lessor tenders the purchase price, or (ii) Equipment supplied from
Lessor's inventory, the Commencement Date shall be the date the Equipment is
installed or the seventh day after delivery if a delay in installation is
caused by Lessee.
2.3 SUMMARY EQUIPMENT SCHEDULE. Lessor shall, with respect to any Equipment
Schedule which contemplates the acceptance of Equipment during any period
which exceeds one calendar quarter, summarize all items of Equipment for
which Acceptance Certificates (or "Installation Advice Form" in the case of
IBM Equipment) have been received in the same calendar quarter and which
therefore have an Initial Term which begins on the same date, into a Summary
Equipment Schedule in the form of Exhibit 1 hereto. Each Summary Equipment
Schedule shall incorporate the terms and conditions of this Master Lease and
each applicable Equipment Schedule with respect to those items of Equipment
Listed in the Summary Equipment Schedule. The Summary Equipment Schedule
shall be referred to as an Equipment Schedule and shall constitute a separate
Equipment Schedule for purposes of this Master Lease, including without
Limitation, Section 5.3 thereof. The Initial Term for Equipment listed in
Acceptance Certificates received more than seven (7) days after the end of a
calendar quarter and having an Acceptance Date in the calendar quarter just
<PAGE>
ended, shall begin on the first day of the calendar quarter following receipt
of Acceptance Certificates.
3. RENT AND PAYMENT AND LESSOR'S COST. 3.1 Rent and Payment. Lessee shall pay
to Lessor, as rental for the Equipment during each month of the Initial Term
of any Equipment Schedule, an amount equal to the Lease Rate Factor set forth
on each applicable Equipment Schedule multiplied by the total of Lessor's
Cost (as hereinafter defined), which amount (hereinafter called "Monthly
Rent"), shall be due and payable in advance on the first day of each calendar
month during such Initial Term (each such date being hereinafter called a
"Monthly Rent Payment Date"). If the Commencement Date of any Equipment
Schedule shall be other than the first day of the calendar quarter, Lessee
shall make rental payments ("Interim Rent") equal to one-thirtieth of the
Monthly Rent set forth in the Equipment Schedule for each day from and
including the Commencement Date through and including the Last day of the
calendar quarter prior to the beginning of the Initial Term. Rent shall be
paid to Lessor by check or wire transfer so as to constitute immediately
available funds at the address of Lessor set forth above or at such other
place as Lessor shall designate in writing, or, if to an Assignee of Lessor,
at such place as such Assignee shall designate in writing, and shall be paid
free and clear of all claims, demands or setoffs against Lessor or such
Assignee. Whenever any payment (of rent or otherwise) is not made when due
hereunder, Lessee shall pay interest on such amount at the rate of two
percent (2%) per month or the maximum allowable rate of interest permitted by
the law of the state where the Equipment is located, whichever is less (the
"Overdue Rate"), to the date of payment.
3.2 Monthly Rent in Advance. Upon Lessee's execution of each Equipment
Schedule, Lessee agrees to pay to Lessor the amount set forth on the
applicable Equipment Schedule (the "Advance"). So long as Lessee is not in
default of the applicable Equipment Schedule, Lessor shall apply the Advance
against Lessee's Last Monthly Rent Payment. It is agreed that no interest
shall be payable by Lessor to Lessee on the Advance.
3.3 Lessor's Cost. The "Lessor's Cost" as used herein or in such Equipment
Schedule shall be equal to the purchase price which Lessor actually pays for
such Equipment.
4. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES. 4.1 Selection. Lessee
acknowledges, represents and warrants that it has made the selection of the
Equipment based on its own judgment, has reviewed and approved any purchase
2
<PAGE>
documentation rotated thereto and expressly disclaims any reliance upon
statements made by the Lessor. Lessee authorizes Lessor to insert in each
Equipment Schedule the serial number and other identifying data of the
Equipment.
4.2 Warranty and Disclaimer of Warranties. Lessor warrants to Lessee that, so
long as Lessee shall not be in default of any of the provisions of the
applicable Equipment Schedule, neither owner, Lessor, nor any Assignee or
Secured Party (as defined in section 5.3) of Lessor will disturb Lessee's
quiet and peaceful possession of the Equipment and Lessee's unrestricted use
thereof for its intended purpose. LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR
IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE
DESIGN OR CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS OR
CAPACITY OR DURABILITY FOR ANY PARTICULAR PURPOSE, THE QUALITY OF THE
MATERIAL OR WORKMANSHIP OF THE EQUIPMENT OR CONFORMITY OF THE EQUIPMENT TO
THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE ORDER OR ORDERS RELATING
THERETO; AND, AS TO LESSOR, LESSEE LEASES THE EQUIPMENT "AS IS". Lessor shall
not be liable, to any extent whatever, for the selection, quality, condition,
merchantability, suitability, fitness, operation or performance of the
Equipment. Without limiting the generality of the foregoing, Lessor shall not
be liable to Lessee for any liability, claim, loss, damage or expense of any
kind or nature (including strict liability in tort) caused, directly or
indirectly, by the Equipment or any inadequacy thereof for any purpose, or
any deficiency or defect therein, or the use or maintenance thereof, or any
repairs, servicing or adjustments thereto; or any delay in providing or
failure to provide any part thereof, or any interruption or loss of service
or use thereof, or any loss of business, or any damage whatsoever and
howsoever caused except for any such loss or damage caused by the willful
misconduct of the Lessor or its agents or representatives. In addition, in no
event shall either Lessor or Lessee be liable to the other for special and
consequential damages arising from or as a result of a default or failure to
perform any term and covenant contained in this Master Lease Agreement.
Lessor hereby appoints Lessee as Lessor's agent to assert, during the term of
the applicable Equipment Schedule, any right Lessor may have to enforce the
manufacturer's warranties, if any; provided, however, that Lessee shall
indemnify and hold Lessor or its Assignee harmless from and against any and
all claims, costs, expenses, damages, losses and liabilities incurred or
suffered by Lessor as a result of or incident to any action by Lessee in
connection therewith. Lessee hereby agrees that Lessee shall not exercise any
rights or warranties which may adversely affect Lessor's title to the
Equipment without prior written consent of Lessor and its assigns.
5. TITLE AND ASSIGNMENT. 5.1 Title. Nothing contained in any Equipment
Schedule shall give or convey to Lessee any right, title or interest in or to
the Equipment, except as a Lessee as set forth therein, and Lessee represents
and agrees that Lessee shall hold the Equipment subject and subordinate to
the rights of the owner, Lessor, any Assignee and any Secured Party (as
defined in Section 5.3) and Lessee shall furnish Lessor with such
documentation as Lessor shall reasonably require with respect thereto. Lessor
is hereby authorized by Lessee, at Lessee's expense, to cause this Master
Lease, any Equipment Schedule or any statement or other instrument in respect
of any Equipment Schedule as may be required by law showing the interest of
Lessor, any Assignee and any secured Party in the Equipment to be filed, and
Lessee agrees to execute and deliver Uniform Commercial Code financing
statements requested by Lessor for such purpose. Lessee shall, at its
expense, protect and defend Lessor's title as well as the interest of any
Assignee and any Secured Party against all persons claiming against or
through Lessee and shall at all times keep the Equipment free and clear from
any legal process, liens or encumbrances whatsoever and shall give Lessor
immediate written notice thereof and shall indemnify and hold Lessor, any
Assignee and any Secured Party harmless from and against any loss caused
thereby.
5.2 ASSIGNMENT, SUBLEASE OR RELOCATION BY LESSEE, UPON THE WRITTEN CONSENT OF
LESSOR, ANY ASSIGNEE AND ANY SECURED PARTY (AS DEFINED IN SECTION 5.3)
OBTAINED AT LEAST SIXTY (60) DAYS IN ADVANCE (WHICH CONSENT WILL NOT BE
UNREASONABLY WITHHELD), LESSEE MAY ASSIGN OR SUBLEASE THE EQUIPMENT TO ANY
PARTY, OR RELOCATE THE EQUIPMENT TO ANY LOCATION WITHIN ANY STATE OF THE
CONTINENTAL UNITED STATES WHICH SHALL HAVE IN EFFECT THE UNIFORM COMMERCIAL
CODE, PROVIDED (1) THAT ALL COSTS OF ANY NATURE WHATSOEVER (INCLUDING ANY
3
<PAGE>
ADDITIONAL PROPERTY TAXES OR OTHER TAXES AND ANY ADDITIONAL EXPENSES OF
INSURANCE COVERAGE) RESULTING FROM ANY RELOCATION, ASSIGNMENT OR SUBLEASE
SHALL BE PROMPTLY PAID BY LESSEE UPON PRESENTATION TO LESSEE OF EVIDENCE
SUPPORTING SUCH COST, AND (II) ANY ASSIGNMENT OR SUBLEASE SHALL BE MADE
EXPRESSLY SUBJECT AND SUBORDINATE TO THE TERMS OF THIS LEASE AND LESSEE SHALL
ASSIGN ITS RIGHTS UNDER SAID ASSIGNMENT OR SUBLEASE TO LESSOR, ANY ASSIGNEE
AND ANY SECURED PARTY AS ADDITIONAL COLLATERAL AND SECURITY FOR LESSEE'S
OBLIGATIONS HEREUNDER. If Lessee fails to so notify Lessor and, as a result
of such failure, Lessor has paid or is required by the jurisdiction where the
Equipment was originally located to continue to pay taxes of the sort for
which Lessee is responsible under Section 6.2 below, then Lessee shall
reimburse Lessor for such taxes, which payment (less Lessor's reasonable
costs and expenses) will be refunded to Lessee if and when Lessor receives a
corresponding refund from said jurisdiction. In the event of a relocation,
assignment or sublease, Lessee, its assignee, or its sublessee, if any, shall
cooperate with Lessor in taking all reasonable measures to protect the title
of Lessor or any Assignee and the interest of any Secured Party to and in the
Equipment. No relocation, assignment or sublease permitted hereunder shall
relieve Lessee from any of its obligations under this Lease. Lessee hereby
grants to Lessor the right and opportunity to submit or match the last
proposal for the sublease or assignment of the Equipment, and to submit a
proposal for the financing of any equipment which is replacing Equipment
leased pursuant to this Master Lease.
5.3 Assignment by Lessor. Lessee acknowledges and understands that the terms
and conditions of each Equipment Schedule have been fixed by Lessor in
anticipation of its ability to sell and assign its interest or grant a
security interest under each Equipment Schedule and the Equipment Listed
therein in whole or in part to a security assignee (the "Secured Party") for
the purpose of securing a Loan to the Lessor. The Lessor may also sell and
assign its rights as owner and Lessor of the Equipment under any Equipment
Schedule to an assignee (the "Assignee"). After such assignments the term
Lessor shall mean, as the case may be, such Assignee and/or any Secured
Party. Notwithstanding the foregoing, any assignment by Lessor shall not
relieve Lessor of its obligations to Lessee. The Lessee hereby consents to
such assignment or assignments as shall be designated by written notice given
by Lessor to Lessee and further covenants and agrees that (a) any such
Secured Party shall have and be entitled to exercise any and all discretions,
rights and powers of Lessor hereunder or under any Equipment Schedule, but
such Secured Party shall not be obligated to perform any of the obligations
of Lessor hereunder or under any Equipment schedule, provided, however that
such Secured Party shall not disturb Lessee's quiet and peaceful possession
of the Equipment and unrestricted use thereof for its intended purpose during
the term hereof so long as Lessee is not in default of any of the provisions
hereof and such Secured Party continues to receive all amounts of Monthly
Rent payable under such Equipment Schedule; (b) Lessee will pay all Monthly
Rent and any and all other amounts payable by Lessee under any Equipment
schedule to such Secured Party, notwithstanding any defense or claim of
whatever nature, whether by reason of breach of such Equipment Schedule or
otherwise which it may or might now or hereafter have as against Lessor
(Lessee reserving its right to have recourse directly against Lessor on
account of any such defense or claim); and (c) Subject to and without
impairment of Lessee's leasehold rights in and to the Equipment, Lessee holds
the Equipment for such Secured Party to the extent of such Secured Party's
rights therein.
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6. NET LESSEE TAXES AND FEES. 6.1 Net Lease. Lessor and Lessee acknowledge
and agree that each Equipment Schedule constitutes a net lease and that
Lessee's obligation to pay all Monthly Rent and any and all amounts payable
by Lessee under any Equipment Schedule shall be absolute and unconditional
and shall not be subject to any abatement, reduction, set-off, defense,
counterclaim, interruption, deferment or recoupment for any reason
whatsoever, and that such payments shall be and continue to be payable in all
events.
6.2 Taxes and Fees. Lessee covenants and agrees to pay when due or reimburse
and indemnify and hold the Lessor harmless from and against all taxes, fees
or other charges of any nature whatsoever (together with any related interest
or penalties) now or hereafter imposed or assessed during the term of each
Equipment Schedule against Lessor, Lessee or the Equipment by any Federal,
state, county, or local governmental authority upon or with respect to the
Equipment or upon the ordering, purchase, safe, ownership, delivery, leasing,
possession, use, operation, return or other disposition thereof or upon the
rents, receipts or earnings arising therefrom or upon or with respect to any
Equipment Schedule (excepting only Federal, state and local taxes based on or
measured solely by the net income of Lessor). Notwithstanding the foregoing,
unless otherwise specified in the Equipment Schedule, Lessor shall be
responsible for the filing of all personal property tax returns in respect of
the Equipment and shall pay all taxes indicated thereon. Lessee shall
reimburse Lessor for all such taxes within ten (10) days of receipt of
Lessor's invoice therefor.
7. CARE AND USE, MAINTENANCE AND REPAIR, AND INSPECTION BY LESSOR. 7.1 Care,
Use and Maintenance. Lessee shall, at its sole expense, at all times during
the term of each Equipment Schedule, maintain the Equipment in good operating
order, repair, condition and appearance and protect the Equipment from
deterioration, other than normal wear and tear. Lessee shall not use the
Equipment for any purpose other than that for which it was designed. Lessee
shall, at its sole expense, enter into and maintain in force, for the term of
each Equipment Schedule, an appropriate maintenance contract with the
manufacturer of the Equipment, or such other party as shall be acceptable to
Lessor, and shall provide Lessor with a copy of such contract and all
supplements thereto which are applicable to the Equipment. If Lessee has the
Equipment maintained by a party other than the manufacturer, Lessee shall
assume any costs necessary to have the manufacturer recertify the Equipment
upon the expiration of the Initial Term or any extension thereof, and
further, said Equipment will remain on lease pursuant to the applicable
Equipment Schedule until such Equipment shall be recertified. For the
purposes of this Section, any reference to "Equipment" shall include any
software included in any such Equipment Schedule and any reference to
"manufacturer" shall mean the Licensor thereof.
7.2 Alterations and Attachments. Lessee will not, without the prior written
consent of Lessor (which consent shall not be unreasonably withheld), affix
or install any accessory, equipment or device on the Equipment which cannot
be removed or would otherwise reduce the value of the Equipment below the
value the Equipment would have had if such accessory equipment or device had
not been attached. All such accessories, equipment and devices furnished,
attached or affixed to the Equipment shall thereupon become the property of
Lessor (except such as may be readily removed without causing material damage
to the Equipment), Lessee will not, without the prior written consent of
Lessor and subject to such conditions as Lessor may Impose for its
protection, affix the Equipment to any real property if, as a result thereof,
the Equipment wilt become a fixture under applicable law.
7.3 Inspection by Lessor. Upon the request of Lessor, Lessee shall at
reasonable times during business hours make the Equipment available to Lessor
for inspection at the place where it is normally located and shall make
Lessee's log and maintenance records, if applicable, pertaining to the
Equipment available to Lessor for inspection.
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8. REPRESENTATION AND WARRANTIES OF LESSEE. Lessee hereby represents,
warrants and covenants that, with respect to the Master Lease and each
Equipment Schedule executed hereunder:
(a) The Lessee is a corporation duly organized and validly existing in
good standing under the Laws of the jurisdiction of its incorporation, is
duly qualified to do business in each jurisdiction (including the
jurisdiction where the Equipment is, or is to be, located) where its
ownership or lease of property or the conduct of its business requires such
qualification; and has full corporate power and authority to hold property
under the Master Lease and each Equipment Schedule and to enter into and
perform its obligations under such Lease.
(b) The execution and delivery by the Lessee of the Master Lease and each
Equipment Schedule and its performance thereunder have been duly authorized
by all necessary corporate action on the part of the Lessee, and the Master
Lease and each Equipment Schedule are not inconsistent with the Lessee's
Certificate of incorporation or Bylaws, do not contravene any law or
governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it
is bound, and the Master Lease and each Equipment Schedule constitute legal,
valid and binding agreements of the Lessee, enforceable in accordance with
their terms.
(c) There are no actions, suits or proceedings pending or, to the
knowledge of the Lessee, threatened against or affecting the Lessee in any
court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of
the Lessee to perform its obligations under the Master Lease and each
Equipment Schedule.
(d) The Equipment is personal property and when subjected to use by the
Lessee will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have not been, in any case or in the aggregate,
materially adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses,
has access to, or can become licensed on reasonable terms under all patents,
patent applications, trademarks, trade names, inventions, franchises,
licenses, permits, computer software and copyrights necessary for the
operation of its business as now conducted, with no known infringement of, or
conflict with, the rights of others.
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(g) The Lessee has in full force and effect insurance policies, with
extended coverage, insuring the Lessee and its property and business against
such losses and risks, and in such amounts, as are customary for corporations
engaged in a similar business and similarly situated.
(h) All material contracts, agreements and instruments to which the
Lessee is a party are in full force and effect in all material respects, and
are valid, binding and enforceable by the Lessee in accordance with their
respective terms, subject to the effect of applicable bankruptcy and other
similar laws affecting the rights of creditors generally, and rules of law
concerning equitable remedies.
(i) No representation or warranty of or information provided by Lessee
contained in this Master Lease any other documents (including Lessee's
business plan), certificate or exhibit furnished or to be furnished to Lessor
pursuant thereto or in connection herewith (when read together) contains any
untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein, in light of the
circumstances under which they are made, not misleading.
(j) The Lessee has not granted rights to manufacture or assemble its
products to any other entity.
(k) With the exception of minor indebtedness incurred in the ordinary
course of business, the Lessee is not indebted to any employee, shareholder,
officer or director of the Lessee, and no such employee, shareholder, officer
or director is indebted to the Lessee.
(l) The information contained in Lessee's business plan provided to
Lessor (the "Business Plan"), is true and correct in all material respects
and; as of the date hereof, such Business Plan is currently in effect and
there have been no material changes to the Business Plan or the forecasts or
projections contained therein.
9. DELIVERY AND RETURN OF EQUIPMENT. Lessee hereby assumes the full expense
of transportation and in-transit insurance to Lessee's premises and
installation thereat of the Equipment. Upon termination (by expiration or
otherwise) of each Equipment Schedule, Lessee shall, pursuant to Lessor's
instructions and at Lessee's full expense (including, without limitation,
expenses of transportation and in-transit insurance), return the Equipment to
Lessor in the same operating order, repair, condition and appearance as when
received, less normal depreciation and wear and tear. Lessee shall return the
Equipment to Lessor at its address set forth herein or at such other address
within the continental United States as directed by Lessor, provided,
however, that Lessee's expense shall be Limited to the cost of returning the
equipment to Lessor's address as set forth herein.
10. LABELING. Lessee covenants and agrees that, upon the request of Lessor,
it shall cause the Equipment to be plainly, permanently and conspicuously
marked, by stenciling or by metal tag or plate affixed thereto, indicating
Lessor's interest in the Equipment. Lessee shall replace any such stenciling,
tag or plate which may be removed or destroyed or become illegible. Lessee
shall keep all Equipment free from any marking or labeling which might be
interpreted as a claim of ownership thereof by Lessee or any party other than
Lessor or anyone so claiming through Lessor.
11. INDEMNITY. Lessee shall and does hereby indemnify and hold Lessor, any
Assignee and any Secured Party harmless from and against any and all claims,
costs, expenses, damages and liabilities, including reasonable attorneys'
fees, arising out of bodily injury and property damage liability as it
relates to the ownership (as it relates to strict liability in tort only),
selection, possession, Leasing, renting, operation, control, use,
maintenance, delivery, return or other disposition of the Equipment. Lessee
shall, at its own expense, carry bodily injury and property damage liability
insurance during the term of the Master Lease in amounts and against risks
customarily insured against by the Lessee
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on equipment owned by it. Any amounts received by Lessor with respect to such
insurance shall be credited against the Lessee's obligations hereunder.
12. RISK OF LOSS. (a) Effective upon delivery of the Equipment to Lessee and
until the Equipment is returned to Lessor as provided in the Master Lease,
Lessee relieves Lessor of responsibility for all risks of physical damage to
or loss or destruction of the Equipment, howsoever caused. During the
continuance of the Master Lease as to any Equipment Schedule, Lessee shall,
at its own expense, cause to be carried and maintained casualty insurance
with respect to each item of Equipment designated in the Equipment schedule
in an amount not less than the Casualty Value (as hereinafter defined). If
requested by the Lessor, all policies with respect to such insurance shall
name the Lessor as additional insured and (together with any Secured Party)
as loss payee, and shall provide for at least thirty (30) days prior written
notice to the Lessor, Assignee and Secured Party by the underwriter or
insurance company in the event of cancellation or expiration. The Lessee
shall, upon request of the Lessor, furnish appropriate evidence of such
insurance; (b) If any item of Equipment is lost or rendered unusable as a
result of any physical damage to or destruction of such item of Equipment,
Lessee shall give to Lessor prompt notice thereof and the Master Lease and
the Equipment Schedule shall continue in effect without any abatement of
rent. Lessee shall determine, within fifteen (15) days after the date of
occurrence of such loss, damage or destruction, whether such item of
Equipment can be repaired. If Lessee determines that such item of Equipment
can be repaired, Lessee, at its expense, shall cause such item of Equipment
to be promptly repaired. If Lessee determines that such item of Equipment is
Lost or cannot be repaired, Lessee shall promptly notify the Lessor and such
Equipment shall be deemed to have suffered a "Casualty Loss" for purposes of
this Section as of the date of the occurrence of such Loss. Within said
fifteen (15) days Lessee shall notify the Lessor of the Equipment which has
suffered a Casualty Loss and Lessee shall either (A) replace Equipment which
has suffered a Casualty Loss with equipment of the same mode, type and
feature configuration, in which case the replacement equipment shall become
the Equipment, this Lease shall continue in full force and effect, and title
in such Equipment shall vest in Lessor free and clear of all liens, claims
and encumbrances or (B) pay the Casualty Value, as defined below. If the
Casualty Value is paid, any installment of rent with respect to such
Equipment due prior to the date of the Casualty Loss shall remain due and
payable. After the payment of such Casualty Value and all other amounts due
and owing with respect to such Equipment, Lessee's obligation to pay further
rent for such Equipment shall cease. Except in the case of loss or total
destruction, Lessor will be entitled to recover all Equipment for which a
Casualty Value has been paid; provided, however, that Lessee shall dispose of
such Equipment for the best price obtainable (on an "as-is, where-is" basis
without representation or warranty express or implied), and Lessee shall be
entitled to retain all amounts received for the Equipment up to the Casualty
Value and Lessee's reasonable costs of disposition attributable thereto, and
shall remit the excess, if any, to Lessor. As used herein, "Casualty Value"
shall mean the Casualty Value set forth in the Casualty Value Table (attached
to the applicable Equipment Schedule) applicable on the Rent Payment Date
next preceding the date of Casualty Loss.
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13. DEFAULT AND REMEDIES. (a) Lessee shall be in default of any Equipment
Schedule upon (i) failure to pay any installment of Monthly Rent or other
charge payable by Lessee under such Equipment schedule as and when the same
becomes due and payable and such default continues for a period of five (5)
days after written notice; (ii) failure to perform any other term, covenant
or condition of such Equipment Schedule or the inaccuracy in any material
respect of any representation or warranty made by the Lessee in such
Equipment Schedule or in any document or certificate furnished to the Lessor
in connection therewith, which default or inaccuracy shall continue for a
period of ten (10) days after written notice; (iii) the making of an
assignment by Lessee for the benefit of its creditors or the admission by
Lessee in writing of its inability to pay its debts as they become due, or
the insolvency of Lessee, or the filing by Lessee of a voluntary petition in
bankruptcy, or the adjudication of Lessee as a bankrupt, or the filing by
Lessee of any petition or answer seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or similar
relief under any present or future statute, Law or regulation, or the filing
of any answer by Lessee admitting, or the failure by Lessee to deny, the
material allegations of a petition filed against it for any such relief, or
the seeking or consenting by Lessee to, or acquiescence by Lessee in, the
appointment of any trustee, receiver or liquidator of Lessee or of all or any
substantial part of the properties of Lessee, or the inability of Lessee to
pay its debts when due, or the commission by Lessee of any act of bankruptcy
as defined in the Federal Bankruptcy Act, as amended; (iv) failure by Lessee,
within sixty (60) days after the commencement of any proceeding against
Lessee seeking any reorganization, arrangement, composition, readjustment,
Liquidation, dissolution or similar relief under any present or future
statute, law or regulation, to obtain the dismissal of such proceeding or,
within sixty (60) days after the appointment, without the consent or
acquiescence of Lessee, of any trustee, receiver or liquidator of Lessee or
of all or any substantial part of the properties of Lessee, to vacate such
appointment; or (v) default by Lessee under any other Equipment Schedule or
other agreement between Lessee and Lessor or its assignee or Secured Party
hereunder.
(b) Upon default, Lessor, at its option, may (1) proceed by appropriate
court action or actions either at law or in equity to enforce performance by
Lessee of the applicable covenants and term of the applicable Equipment
schedule, or to recover from Lessee any and all damages or expenses,
including reasonable attorneys' fees, which Lessor shall have sustained by
reason of Lessee's default of any covenants of the applicable Equipment
Schedule or on account of Lessor's enforcement of its remedies thereunder, or
(2) upon notice, accelerate the balance of the Monthly Rent thereafter
accruing under the applicable Equipment Schedule, to the present value
thereof (discounted at a rate equal to nine (9%) per annum), which, together
with all rent and other amounts then due shall become immediately due and
payable, as liquidated damages and not as a penalty, and Lessor shall have
the right to the extent permitted by law: (i) to recover all sums so due
thereunder; (ii) to retake immediate possession of the Equipment without any
process of law and for such purpose Lessor may enter upon premises where the
Equipment may be located and may remove the same therefrom without notice,
and without being liable to Lessee therefor except for damage caused by the
gross negligence or willful misconduct of Lessor or its agents or
representatives; (iii) to sell, lease or otherwise dispose of all or any
portion of the Equipment, with the privilege of becoming the purchaser
thereof, at public or private sale, for cash or on credit and without notice
of its intention to do so or of its doing so, in which event Lessor shall
apply the cash proceeds from any sale or other disposition (less the
estimated Fair Market Value of the Equipment at the expiration of the Initial
Term or any extension thereof), or the present value (discounted at the
Overdue Rate) of the monthly rent under any other lease for a term not to
exceed the expiration of the Initial Term or any extension thereof (all such
amounts to be called "Proceeds" hereinafter), less all costs and expenses
incurred in connection with the recovery, repair or storage of the Equipment
or the transaction itself, against all sums due from Lessee and to the extent
and in the manner permitted by law; Lessee shall be liable to Lessor for, and
Lessor may recover from Lessee, the amount by which the Proceeds of any such
transaction, less the expenses of retaking, storing, repel ring and the
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transaction itself, including reasonable attorneys, fees incurred by Lessor,
are less than all sums due from Lessee under the applicable Equipment
Schedule; and (iv) to pursue any other remedy permitted by law or equity. The
above remedies, to the extent permitted by law, any one of which Lessor need
not, in its discretion, exercise, shall be deemed cumulative and may be
exercised successively or concurrently. Lessee shall reimburse Lessor for all
costs and expenses incurred in connection with the enforcement of any right
or remedy under such Equipment Schedule, including reasonable attorneys'
fees. Except as set forth in this Section and to the extent permitted by
applicable law, Lessee hereby waives any rights now or hereafter conferred by
statute or otherwise which may require Lessor to sell, Lease or otherwise use
any Equipment in mitigation of Lessor's damage or which may otherwise limit
or modify any of Lessor's rights or remedies, provided, however, that Lessor
shall use its best efforts to sell or re-lease the Equipment in accordance
with its usual business procedures and the proceeds therefrom shall be
applied against the amounts owed by Lessee in accordance with the formula set
forth above. Fair Market Value of the Equipment shall be determined on the
basis of and shall be the aggregate amount which would be obtainable at the
expiration of the Initial Term or any extension thereof in an arms-length
transaction between an informed and willing buyer/user under no compulsion to
buy and an informed and willing seller under no compulsion to sell.
14. BOARD ATTENDANCE. Lessor or its duly appointed representative shall have
the right to attend Lessee's corporate Board of Directors meetings and Lessee
shall give Lessor reasonable notice in advance of any special Board of
Directors meeting, which notice shall provide an agenda of the subject matter
to be discussed at such board meeting. Lessee shall provide Lessor with a
certified copy of the minutes of each Board of Directors meeting within
thirty (30) days following the date of such meeting held during the term of
this Lease.
15. FINANCIAL STATEMENTS. (a) Notwithstanding anything to the contrary
contained herein, Lessee shall provide to Lessor the financial statements
specified in this Section 15, prepared in accordance with generally accepted
accounting principles, consistently applied (the "Financial Statements");
provided, however, after the effective date of the initial registration
statement covering a public offering of Lessee's securities, the term
"Financial Statements" shall be deemed to refer to only those statements
required by the Securities and Exchange Commission, to be provided no less
frequently than quarterly. For purposes of complying with this Section 15,
Lessee shall provide to Lessor (i) as soon as practicable (and in any event
within thirty (30) days) after the end of each month, a reasonably detailed
statement of revenues, costs, expenses, orders received, backlog, shipments,
commitments, contingencies, and changes in the financial position and capital
structure of the Lessee incurred during such month (including the
commencement of any material litigation by or against Lessee and a trial
balance of all accounts on both an adjusted and unadjusted basis), certified
by Lessee's Chief Executive or Financial officer to be true and correct; and
(ii) as soon as practicable (and in any event within ninety (90) days) after
the end of each fiscal year, audited balance sheets as of the end of such
year (consolidated if applicable), and related statements of income or toss,
retained earnings or deficit and changes in the financial position and
capital structure of Lessee for such year, setting forth in comparative form
the corresponding figures for the preceding fiscal year, and accompanied by
an audit report and opinion of the independent certified public accountants
selected by Lessee.
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(b) Lessee shall promptly furnish to Lessor any additional information
(including but not limited to tax returns, income statements, balance sheets,
and names of principal creditors) as Lessor reasonably believes necessary to
evaluate Lessee's continuing ability to meet financial obligations (the
"Additional Information").
16. MERGER, SALE, ETC. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN
SECTION 5.2 HEREIN, UPON ANY CONSOLIDATION OR MERGER OF THE LESSEE WITH OR
INTO MY OTHER CORPORATION OR CORPORATIONS (WHETHER OR NOT AFFILIATED WITH THE
LESSEE), OR SUCCESSIVE CONSOLIDATIONS OR MERGERS IN WHICH THE LESSEE OR ITS
SUCCESSOR OR SUCCESSORS SHALL BE A PARTY OR PARTIES, OR UPON MY SALE OR
CONVEYANCE OF ALL OR SUBSTANTIALLY ALL OF THE PROPERTY OF THE LESSEE TO ANY
OTHER PERSON OR ENTITY, THE LESSEE SHALL OBTAIN THE WRITTEN CONSENT OF LESSOR
PRIOR TO SUCH MERGER, SALE OR CONSOLIDATION ("MERGER"), WHICH CONSENT MAY BE
WITHHELD AT THE DISCRETION OF LESSOR, AND IN THE EVENT LESSOR WITHHOLDS
CONSENT, THEN ALL LEASES ENTERED INTO PURSUANT TO THIS MASTER LEASE AGREEMENT
PRIOR TO SUCH MERGER SHALL BE DEEMED TERMINATED EFFECTIVE THE DATE OF THE
CLOSING OF SUCH MERGER, AND LESSEE SHALL, ON THE DATE OF SUCH CLOSING, PAY
LESSOR, AS A TERMINATION FEE, ALL RENTS WHICH ARE DUE OR WOULD BECOME DUE
DURING THE INITIAL TERM, BUT FOR SUCH TERMINATION, DISCOUNTED AT SIX PERCENT
(6%). IF LESSOR CONSENTS TO SUCH MERGER, LESSEE WILL CAUSE ANY SUCH SUCCESSOR
TO CONTINUE TO MAKE THE DUE AND PUNCTUAL PAYMENT OF ALL MONTHLY RENT, AND THE
DUE AND PUNCTUAL PERFORMANCE AND OBSERVANCE OF ALL COVENANTS AND OBLIGATIONS
OF THE LESSEE HEREUNDER AND UNDER THE LEASE TO BE ASSUMED BY THE CORPORATION
(IF OTHER THAN THE LESSEE) FORMED BY SUCH CONSOLIDATION, OR THE CORPORATION
INTO WHICH THE LESSEE SHALL HAVE BEEN MERGED OR BY THE PERSON OR ENTITY WHICH
SHALL HAVE ACQUIRED SUCH PROPERTY.
17. MISCELLANEOUS. 17.1 Entire Agreement. Lessor and Lessee acknowledge that
there are no agreements or understandings, written or oral, between Lessor
and Lessee with respect to the Equipment, other then as set forth herein and
in each Equipment Schedule and that this Master Lease Agreement and each
Equipment schedule contains the entire agreement between Lessor and Lessee
with respect thereto. Neither this Master Lease nor any Equipment Schedule
may be altered, modified, terminated or discharged except by a writing signed
by the party against whom such alteration, modification, termination or
discharge is sought.
17.2 NO WAIVER. No omission, or delay, by Lessor at any time to enforce any
right or remedy reserved to it, or to require performance of any of the
terms, covenants or provisions hereof by Lessee at any time designated, shall
be a waiver of any such right or remedy to which Lessor is entitled, nor
shall it in any way affect the right of Lessor to enforce such provisions
thereafter.
17.3 BINDING NATURE. Each Equipment Schedule shall be binding upon, and shall
inure to the benefit of Lessor, Lessee, and their respective successors,
legal representatives and assigns, except, in the case of any Secured Party,
to the extent set forth in Section 5.3.
17.4 SURVIVAL OF OBLIGATIONS. All agreements, representations and warranties
contained in this Master Lease, in any Equipment Schedule or in any document
delivered pursuant hereto or in connection herewith shall be for the benefit
of Lessor and any assignee or Secured Party and shall survive the execution
and delivery of this Master Lease and the expiration or other termination of
this Master Lease.
17.5 NOTICES. Any notice, request or other communication to either party by
the other as provided for herein shall be given in writing and only shall be
deemed received upon the earlier of receipt or three (3) days after mailing
if mailed postage prepaid by regular or airmail to Lessor (to the attention
of "Lease Administrator") or Lessee, as the case may be,
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at the address for such party set forth in the Equipment Schedule or at such
changed address as may be subsequently submitted by written notice of either
party.
17.6 APPLICABLE LAW. This Master Lease has been, and each Equipment Schedule
will have been made, executed and delivered in the State of Illinois and
shall be governed and construed for all purposes under and in accordance with
the laws of the State of Illinois.
17.7 SEVERABILITY. In the event any one or more of the provisions of this
Master Lease and/or any Equipment Schedule shall for any reason be held
invalid, illegal or unenforceable, the remaining provisions of this Master
Lease and/or any such Equipment Schedule shall be unimpaired, and the
invalid, illegal or unenforceable provision shall be replaced by a mutually
acceptable valid, legal and enforceable provision which comes closest to the
intention of the parties underlying the invalid, illegal or unenforceable
provision.
17.8 COUNTERPARTS. This Master Lease and any Equipment Schedule may be
executed in any number of counterparts, each of which shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument. If Lessor grants a security interest in all or any part of
an Equipment Schedule, the Equipment covered thereby and/or sums payable
thereunder, only that counterpart Equipment Schedule marked "Secured Party's
Original" shall be effective to transfer Lessor's rights therein and all
other counterparts shall be marked "Duplicate" to indicate that they are not
the "Secured Party's Original".
17.9 RELEASE OF LESSOR'S OBLIGATIONS TO LEASE EQUIPMENT. If there is (i) a
failure by Lessee to make Lease payments on the first day of each month as
due; (ii) a default under this Master Lease or any Equipment Schedule
hereunder; (iii) any default by Lessee with respect to any indebtedness of
the Lessee for borrowed money, by virtue of which the holders of such
indebtedness shall have the right to demand immediate payment of such
indebtedness (regardless of whether such right shall have been exercised);
(iv) there is an adverse change in Lessee's credit standing; or (v) Lessor,
in the reasonable exercise of its judgment and in good faith, shall have
determined that the Lessee is unable to perform its obligations under this
Lease; then Lessor, at its option and upon prior written notice to Lessee,
shall be relieved of its obligation to tease any equipment hereunder with a
Commencement Date occurring after the date of such notice. In addition Lessee
agrees to reaffirm the representations, warranties and covenants contained
herein from time to time as requested by Lessor's written notice.
17.10 LANDLORD/MORTGAGEE WAIVER. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be
in a form satisfactory to Lessor.
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17.11 EQUIPMENT PROCUREMENT CHARGES/PROGRESS PAYMENTS. Lessee hereby agrees
that Lessor shall not, by virtue of its entering into this Lease, be required
to remit any payments to any manufacturer or other third party until Lessee
accepts the Equipment subject to this Lease and in accordance with Section
2.2 "Commencement Date" hereof.
17.12 ADDITIONAL MATTERS. (a) Lessee, upon execution of this Master Lease and
thereafter upon execution of each Equipment Schedule, shall provide Lessor
with certification with respect to incumbency and authority and an opinion
from Lessee's counsel addressed to Lessor or any Secured Party with respect
to the representations and warranties set forth in subparagraphs (a) through
(e) of Section 8 above and shall also supply such other documents as Lessor
may reasonably request. If Lessee shall fail to timely and properly deliver
any of the aforesaid documents within fourteen (14) days of the execution of
this Master Lease and each Equipment Schedule, Lessor, in its discretion and
notwithstanding anything to the contrary contained in Section 2 hereof, may
postpone the commencement of the Initial Term to the first day of the
calendar quarter following receipt of all required documents. Lessor shall
give Lessee prompt written notice of any such postponement; (b) Section
headings are for convenience only and shall not be construed as part of this
Master Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on
or as of the day and year first above written.
LESSEE: FOCAL, INC. LESSOR, COMDISCO INC.,
By:/s/ W. Bradford Smith By: /s/ [unreadable signature]
Title: Director of Finance Title: President
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EXHIBIT #1
SUMMARY EQUIPMENT SCHEDULE
LESSEE: C
EQUIPMENT SCHEDULE NO. C SL NUMBER C
FOR PERIOD BEGINNING C AND ENDING C
MASTER LEASE DATE C
INITIAL TERM START DATE C INITIAL TERM C
TOTAL LESSOR'S COST C RENT C
LEASE RATE FACTOR C
ACCEPTANCE DOC TYPE C
[ ] IF BOX IS CHECKED, THERE ARE AMENDMENTS TO THIS EQUIPMENT SCHEDULE WHICH
ARE SHOWN ON THIS DOCUMENT AND/OR AN ATTACHMENT. PLEASE CALL 708-698-3000
X5451 WITH QUESTIONS REGARDING THIS LEASE.
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<PAGE>
Exhibit 10.8
MASTER LEASE AGREEMENT
MMC/GATX PARTNERSHIP NO. I - LESSOR
MASTER LEASE AGREEMENT dated as of February 28, 1994 by and between
MMC/GATX Partnership No. I (hereinafter called "Lessor") having its principal
office and place of business at c/o GATX Capital Corporation, Four
Embarcadero Center, Suite 2200, San Francisco, California 94111 and FOCAL,
INC. (hereinafter called "Lessee") having its principal office and place of
business at One Kendall Square, Building 600, Cambridge, Massachusetts 02139.
1. PROPERTY LEASED. In consideration of the rent to be paid by Lessee and the
covenants and agreements of Lessee hereinafter set forth, Lessor agrees to
lease to Lessee and Lessee to lease from Lessor all of the tangible personal
property listed on each Equipment Schedule executed, from time to time,
pursuant to this Master Lease (with respect to any Equipment Schedule,
hereinafter called the "Equipment"). Each Equipment Schedule shall be
substantially in the form annexed hereto as Exhibit A and made a part hereof,
shall incorporate therein all of the terms and conditions of this Master
Lease and shall contain such additional terms and conditions as Lessor and
Lessee shall agree upon.
2. TERM AND COMMENCEMENT DATE. 2.1 Term. The term of this Master Lease shall
commence on the date set forth above and shall continue in effect thereafter
so long as any Equipment Schedule entered into pursuant to this Master Lease
remains in effect. Lessor and Lessee agree that all Equipment Schedules
entered into pursuant to this Master Lease Agreement shall be effective from
the date set forth on such Schedule and shall remain in force until
termination by either party upon not less than one hundred twenty (120) days
prior written note to the other party at it address as set forth in the
applicable Equipment Schedule, which notice shall be effective upon the first
day of the month following receipt (or upon receipt if such date is the first
day of the month); provided, however, that no such termination shall be
effective prior to the expiration of the Initial Term. Except with the prior
written consent of Lessor, (i) Lessor's Cost for the Equipment subject to any
Equipment Schedule shall be at least $75,000, (ii) there shall be no more
than one (1) Equipment Schedule entered into in any 30-day period, (iii)
there shall be no more than four (4) Equipment Schedules in the aggregate,
and (iv) Lessor's Cost of all Equipment under all Equipment Schedules shall
not exceed $1,000,000 in the aggregate.
2.2 Commencement Date. The commencement date (hereinafter called the
"Commencement Date") with respect to any item of Equipment leased pursuant to
the terms of each applicable Equipment Schedule shall be the Commencement
Date set forth in such Equipment Schedule. The lease term shall commence on
the Commencement Date and shall continue for the number of full calendar
months set forth in such Equipment Schedule (the "Initial Term"). The Initial
Term with respect to any such item of Equipment shall begin on the first day
of the calendar quarter next following the Commencement Date (or commencing
on the Commencement Date if such date is the first day of the calendar
quarter) for all items of Equipment to be leased under the applicable
Equipment Schedule.
3. RENT AND PAYMENT AND LESSOR'S COST. 3.1 Rent and Payment. Lessee shall pay
to Lessor, as rental for the Equipment during each month of the Initial Term
of any Equipment Schedule, an amount equal to the Lease Rate Factor set forth
on each applicable Equipment Schedule multiplied by the total of Lessor's
Cost (as hereinafter defined), which amount (hereinafter called "Monthly
Rent"), shall be due and payable in advance on the first day of each calendar
month during such Initial Term (each such date being hereinafter called a
"Monthly Rent Payment Date"). If the Commencement Date of any Equipment
Schedule shall be other than the first day of the calendar quarter, Lessee
shall make rental payments ("Interim Rent") equal to one-thirtieth of the
Monthly Rent set forth in the Equipment Schedule for each day from and
including the Commencement Date through and including the last day of the
calendar quarter prior to the beginning of the Initial Term. Rent shall be
paid to Lessor by check or wire transfer so as to constitute immediately
available funds at the address of Lessor set forth above or at such other
place as Lessor shall designate in writing, or, if to an Assignee of Lessor,
at such place as such Assignee shall designate in
<PAGE>
writing, and shall be paid free and clear of all claims, demands or setoffs
against Lessor or such Assignee. Whenever any payment (of rent or otherwise)
is not made when due hereunder, Lessee shall pay interest on such amount at
the rate of two percent (2%) per month or the maximum allowable rate of
interest permitted by the law of the state where the Equipment is located,
whichever is less (the "Overdue Rate"), to the date of payment.
3.2 Monthly Rent in Advance. Upon Lessee's execution of each Equipment
Schedule, Lessee agrees to pay to Lessor the amount set forth on the
applicable Equipment Schedule (the "Advance"). So long as Lessee is not in
default of the applicable Equipment Schedule, Lessor shall apply the Advance
against Lessee's last Monthly Rent Payment. It is agreed that no interest
shall be payable by Lessor to Lessee on the Advance.
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3.3 Lessor's Cost. The "Lessor's Cost" as used herein or in such Equipment
Schedule shall be equal to the purchase pirce which Lessor actually pays for
such Equipment.
4. SECTION; WARRANTY AND DISCLAIER of Warranties. 4.1 Selection. Lessee
acknowledges, represents and wanants that it has made the selection of the
Equipment based on its own judgment, has reviewed and approved any purchase
documentation related thereto and expressly disclaims any reliance upon
statements made by the Lessor. Lessee authorizes Lessor to insert in each
Equipment Schedule the serial number and other identifying data of the
Equipment.
4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor wanants to Lessee that, so
long as Lessee shall not be in default of any of the provisions of the
applicable Equipment Schedule, neither Lessor, nor any Assignee or Secured
Party (as defined in Section 5.3) of Lessor will disturb Lessee's quiet and
peaceful possession of the Equipment and Lessee's unrestricted use thereof
for its intended purpose. LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED,
AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE DESIGN OR
CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS OR CAPACITY OR
DURABILITY FOR ANY PARTICULAR PURPOSE, THE QUALITY OF THE MATERIAL OR
WORKMANSHIP OF THE EQUIPMENT OR CONFORMITY OF THE EQUIPMENT TO THE PROVISIONS
AND SPECIFICATIONS OF ANY PURCHASE ORDER OR ORDERS RELATING THERETO; AND, AS
TO LESSOR, LESSEE LEASES THE EQUIPMENT "AS IS". Lessor shall not be liable,
to any extent whatever, for the selection, quality, condition,
merchantability, suitability, fitness, operation or performance of the
Equipment. Without limiting the generality of the foregoing, Lessor shall not
be liable to Lessee for any liability, claim, loss, damage or expense of any
kind or nature (including strict liability in tort) caused, directly or
indirectly, by the Equipment or any inadequacy thereof for any purpose, or
any deficiency or defect therein, or the use or maintenance thereof, or any
repairs, servicing or adjustments thereto; or any delay in providing or
failure to provide any part thereof, or any interruption or loss of service
or use thereof, or any loss of business, or any damage whatsoever and
howsoever caused except for any such loss or damage caused by the wilful
misconduct of the Lessor or its agents or representatives. In addition, in no
event shall either Lessor or Lessee be liable to the other for special and
consequential damages arising from or as a result of a default or failure to
perform any term and covenant contained in this Master Lease Agreement.
Lessor hereby appoints Lessee as Lessor's agent to assert, during the term of
the applicable Equipment Schedule, any right Lessor may have to enforce the
manufacturer's warranties, if any; provided, however, that Lessee shall
indemnify and hold Lessor or its Assignee harmless from and against any and
all claims, costs, expenses, damages, losses and liabilities incurred or
suffered by Lessor as a result of or incident to any action by Lessee in
connection therewith. Lessee hereby agrees that Lessee shall not exercise any
rights or warranties which may adversely affect Lessor's title to the
Equipment without prior written consent of Lessor and its assigns.
5. TITLE AND ASSIGNMENT. 5.1 Title. Nothing contained in any Equipment
Schedule shall give or convey to Lessee any right, title or interest in or to
the Equipment, except as a Lessee as set forth therein, and Lessee represents
and agrees that Lessee shall hold the Equipment subject and subordinate to
the rights of the Lessor, any Assignee and any Secured Party (as defined in
Section 5.3) and Lessee shall furnish Lessor with such documentation as
Lessor shall reasonably require with respect thereto. Lessor is hereby
authorized by Lessee, at Lessee's expense, to cause this Master Lease, any
Equipment Schedule or any statement or other instrument in respect of any
Equipment Schedule as may be required by law showing the interest of Lessor,
any Assignee and any Secured Party in the Equipment to be filed, and Lessee
agrees to execute and deliver Uniform Commercial Code financing statements
requested by Lessor for such purpose. Lessee shall, at its expense, protect
and defend Lessor's title as well as the interest of any Assignee and any
Secured Party against all persons claiming against or through Lessee and
shall at all times keep the Equipment free and clear from any legal process,
liens or encumbrances whatsoever and shall give Lessor immediate written
notice thereof and shall indemnify and hold Lessor, any Assignee and any
Secured Party harmless from and against any loss caused thereby.
5.2 ASSIGNMENT, SUBLEASE OR RELOCATION BY LESSEE. UPON THE WRITTEN CONSENT OF
LESSOR,
3
<PAGE>
ANY ASSIGNEE AND ANY SECURED PARTY (AS DEFINED US SECTION 5.3) OBTAINED AT
LEAST SIXTY (60) DAYS IN ADVANCE (WHICH CONSENT WILL NOT BE UNREASONABLY
WITHHELD), LESSEE MAY ASSIGN OR SUBLEASE THE EQUIPMENT TO ANY PARTY, OR
RELOCATE THE EQUIPMENT TO ANY LOCATION WITHIN ANY STATE OF THE CONTINENTAL
UNITED STATES WHICH SHALL HAVE IN EFFECT THE UNIFORM COMMERCIAL CODE,
PROVIDED (I) THAT ALL COSTS Of ANY NATURE WHATSOEVER (INCLUDING ANY
ADDITIONAL PROPERTY TAXES OR OTHER TAXES AND ANY ADDITIONAL EXPENSES OF
INSURANCE COVERAGE) RESULTING FROM ANY RELOCATION, ASSIGNMENT OR SUBLEASE
SHALL BE PROMPTLY PAID BY LESSEE UPON PRESENTATION TO LESSEE OF EVIDENCE
SUPPORTING SUCH COST, AND II ANY ASSIGNMENT OR SUBLEASE SHALL BE MADE
EXPRESSLY SUBJECT AND SUBORDINATE TO THE TERMS OF THIS LEASE AND LESSEE SHALL
ASSIGN ITS RIGHTS UNDER SAID ASSIGNMENT OR SUBLEASE 'TO LESSOR, ANY ASSIGNEE
AND ANY SECURED PARTY AS ADDITIONAL COLLATERAL AND SECURITY FOR LESSEE'S
OBLIGATIONS HEREUNDER. If Lessee fails to so notify Lessor and, as a result
of such failure,
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<PAGE>
Lessor has paid or is required by the jurisdiction where the Equipment was
originally located to continue to pay taxes of the sort for which Lessee is
responsible under Section 6.2 below, then Lessee shall reimburse Lessor for
such taxes, which payment (less Lessor's reasonable costs and expenses) will
be refunded to Lessee if and when Lessor receives a corresponding refund from
said jurisdiction. In the event of a relocation, assignment or sublease,
Lessee, its assignee, or its sublessee, if any, shall cooperate with Lessor
in taking all reasonable measures to protect the title of Lessor or any
Assignee and the interest of any Secured Party to and in the Equipment. No
relocation, assignment or sublease permitted hereunder shall relieve Lessee
from any of its obligations under this Lease. Lessee hereby grants to Lessor
the right and opportunity to submit or match the last proposal for the
sublease or assignment of the Equipment, and to submit a proposal for the
financing of any equipment which is replacing Equipment leased pursuant to
this Master Lease.
5.3 Assignment by Lessor. Lessee acknowledges and understands that the terms
and conditions of each Equipment Schedule have been fixed by Lessor in
anticipation of its ability to sell and assign its interest or grant a
security interest under each Equipment Schedule and the Equipment listed
therein in whole or in part to a security assignee (the "Secured Party") for
the purpose of securing a loan to the Lessor. The Lessor may also sell and
assign its rights as owner and lessor of the Equipment under any Equipment
Schedule to an assignee (the "Assignee"). After such assignments the term
Lessor shall mean, as the case may be, such Assignee and/or any Secured
Party. Notwithstanding the foregoing, any assignment by Lessor shall not
relieve Lessor of its obligations to Lessee. The Lessee hereby consents to
such assignment or assignments as shall be designated by written notice given
by Lessor to Lessee and further covenants and agrees that (a) any such
Secured Party shall have and be entitled to exercise any and all discretions,
right and powers of Lessor hereunder or under any Equipment Schedule, but
such Secured Party shall not be obligated to perform any of the obligations
of Lessor hereunder or under any Equipment Schedule, provided, however that
such Secured Party shall not disturb Lessee's quiet and peaceful possession
of the Equipment and unrestricted use thereof for its intended purpose during
the term hereof so long as Lessee is not in default of any of the provisions
hereof and such Secured Party continues to receive all amounts of Monthly
Rent payable under such Equipment Schedule; (b) Lessee will pay all Monthly
Rent and any and all other amounts payable by Lessee under any Equipment
Schedule to such Secured Party, notwithstanding any defense or claim of
whatever nature, whether by reason of breach of such Equipment Schedule or
otherwise which it may or might now or hereafter have as against Lessor
(Lessee reserving its right to have recourse directly against Lessor on
account of any such defense or claim); and (c) Subject to and without
impairment of Lessee's leasehold rights in and to the Equipment, Lessee holds
the Equipment for such Secured Party to the extent of such Secured Party's
rights therein.
6. NET LEASE, TAXES AND FEES. 6.1 Net Lease. Lessor and Lessee acknowledge
and agree that each Equipment Schedule constitutes a net lease and that
Lessee's obligation to pay all Monthly Rent and any and all amounts payable
by Lessee under any Equipment Schedule shall be absolute and unconditional
and shall not be subject to any abatement, reduction, set-off, defense,
counterclaim, interruption, deferment or recoupment for any reason
whatsoever, and that such payments shall be and continue to be payable in all
events. This Lease, and Lessee's obligation to pay all rent and other sums
hereunder, shall constitute a "finance lease" under the California Uniform
Commercial Code ("UCC"). Lessee waives any and all rights and remedies
conferred upon Lessee by UCC Sections 10508 through 10522, including (without
limitation) Lessee's rights to (i) cancel or repudiate this Lease, (ii)
reject or revoke acceptance of the leased property, (iii) recover damages
from Lessor for breach of warranty or for any other reason, (iv) claim a
security interest in any rejected property in Lessee's possession or control,
(v) deduct from rental payments all or any part of any claimed damages
resulting from Lessor's default under this Lease, (vi) accept partial
delivery of the Equipment, (vii) "cover" by making any purchase or lease of
other property in substitution for property due from Lessor, (viii) recover
from Lessor any general, special, incidental or consequential damages, for
any reason whatsoever, and (ix) seek specific performance, replevin or the
like for any of the Equipment. The Equipment
5
<PAGE>
shall be leased for commercial purposes only, and not for consumer, personal,
home or family purposes.
6.2 Taxes and Fees. Lessee covenants and agrees to pay when due or reimburse
and indemnify and hold the Lessor harmless from and against all taxes, fees
or other charges of any nature whatsoever (together with any related interest
or penalties) now or hereafter imposed or assessed during the term of each
Equipment Schedule against Lessor, Lessee or the Equipment by any Federal,
state, county, or local governmental authority upon or with respect to the
Equipment or upon the ordering, purchase, sale, ownership, delivery, leasing,
possession, use, operation, return or other disposition thereof or upon the
rents, receipts or earnings arising therefrom or upon or with respect to any
Equipment Schedule (excepting only Federal, state and local taxes based on or
measured solely by the net income of Lessor). Notwithstanding the foregoing,
unless otherwise specified in the Equipment Schedule, Lessor shall be
responsible for the filing of all personal property tax returns in respect of
the Equipment and shall pay all taxes indicated thereon; provided that Lessee
shall reimburse Lessor for all such taxes within ten (10) days of receipt of
Lessor's invoice therefor.
7. CARE AND USE, MAINTENANCE AND REPAIR, AND INSPECTION BY LESSOR. 7.1 Care,
Use and Maintenance. Lessee shall, at its sole expense, at all times during
the term of each Equipment Schedule, maintain the Equipment in good operating
order, repair, condition and appearance and protect the Equipment from
deterioration, other than normal wear and tear. Lessee shall not use the
6
<PAGE>
Equipment for any purpose other than that for which it was designed. Lessee
shall comply with all laws, ordinances and regulations to which the use and
operation of the Equipment may be or become subject. Lessee shall, at its
sole expense, enter into and maintain in force, for the term of each
Equipment Schedule, an appropriate maintenance contract with the manufacturer
of the Equipment, or such other party as shall be acceptable to Lessor, and
shall provide Lessor with a copy of such contract and all supplements thereto
which are applicable to the Equipment. If Lessee has the Equipment maintained
by a party other than the manufacturer, Lessee shall assume any costs
necessary to have the manufacturer recertify the Equipment upon the
expiration of the Initial Term or any extension thereof, and further, said
Equipment will remain on lease pursuant to the applicable Equipment Schedule
until such Equipment shall be re-certified. For the purposes of this Section,
any reference to "Equipment" shall include any software included in any such
Equipment Schedule and any reference to "manufacturer" shall mean the
licensor thereof.
7.2 Alterations and Attachments. Lessee will not, without the prior written
consent of Lessor (which consent shall not be unreasonably withheld), affix
or install any accessory, equipment or device on the Equipment which cannot
be removed or would otherwise reduce the value of the Equipment below the
value the Equipment would have had if such accessory equipment or device had
not been attached. All such accessories, equipment and devices furnished,
attached or affixed to the Equipment shall thereupon become the property of
Lessor (except such as may be readily removed without causing material damage
to the Equipment). Lessee will not, without the prior written consent of
Lessor and subject to such conditions as Lessor may impose for its
protection, affix the Equipment to any real property if as a result thereof
the Equipment will become a fixture under applicable law.
7.3 Inspection by Lessor. Upon the request of Lessor, Lessee shall at
reasonable times during business hours make the Equipment available to Lessor
for inspection at the place where it is normally located and shall make
Lessee's log and maintenance records, if applicable, pertaining to the
Equipment available to Lessor for inspection.
8. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents,
warrants and covenants that, with respect to the Master Lease and each
Equipment Schedule executed hereunder:
(a) The Lessee is a corporation duty organized and validly existing in
good standing under the laws of the jurisdiction of its incorporation, is
duly qualified to do business in each jurisdiction (including the
jurisdiction where the Equipment is, or is to be, located) where its
ownership or lease of property or the conduct of its business requires such
qualification; and has full corporate power and authority to hold property
under the Master Lease and each Equipment Schedule and to enter into and
perform its obligations under such Lease.
(b) The execution and delivery by the Lessee of the Master Lease and each
Equipment Schedule and its performance thereunder have been duly authorized
by all necessary corporate action on the part of the Lessee, and the Master
Lease and each Equipment Schedule are not inconsistent with the Lessee's
Certificate of Incorporation or Bylaws, do not contravene any law or
governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it
is bound, and the Master Lease and each Equipment Schedule constitute legal,
valid and binding agreements of the Lessee, enforceable in accordance with
their terms.
(c) There are no actions, suits or proceedings pending or, to the
knowledge of the Lessee, threatened against or affecting the Lessee in any
court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of
the Lessee to perform its obligations under the Master Lease and each
Equipment Schedule.
(d) The Equipment is personal property and when subjected to use by the
Lessee will not be or become fixtures under applicable law.
7
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(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have not been, in any case or in the aggregate,
materially adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses,
has access to, or can become licensed on reasonable terms under all patents,
patent applications, trademarks, trade names, inventions, franchises,
licenses, permits, computer software and copyrights necessary for the
operation of its business as now conducted, with no known infringement of, or
conflict with, the rights of others.
8
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(g) The Lessee has in full force and effect insurance policies, with
extended coverage, insuring the Lessee and its property and business against
such losses and risks, and in such amounts, as are customary for corporations
engaged in a similar business and similarly situated.
(h) All material contracts, agreements and instruments to which the
Lessee is a party are in full force and effect in all material respects, and
are valid, binding and enforceable by the Lessee in accordance with their
respective terms, subject to the effect of applicable bankruptcy and other
similar laws affecting the rights of creditors generally, and rules of law
concerning equitable remedies.
(i) No representation or warranty of or information provided by Lessee
contained in this Master Lease, any other documents (including Lessee's
business plan), certificate or exhibit furnished or to be furnished to Lessor
pursuant thereto or in connection herewith (when read together) contains any
untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein, in light of the
circumstances under which they are made, not misleading.
(j) The Lessee has not granted rights to manufacture or assemble in
products to any other entity.
(k) With the exception of minor indebtedness incurred in the ordinary
course of business, the Lessee is not indebted to any employee, shareholder,
officer or director of the Lessee, and no such employee, shareholder, officer
or director is indebted to the Lessee.
9. DELIVERY AND RETURN OF EQUIPMENT. Lessee hereby assumes the full expense
of transportation and in-transit insurance to Lessee's premises and
installation thereat of the Equipment. Upon termination (by expiration or
otherwise) of each Equipment Schedule, Lessee shall, pursuant to Lessor's
instructions and at Lessee's full expense (including, without limitation,
expenses of transportation and in-transit insurance), return the Equipment to
Lessor in the same operating order, repair, condition and appearance as when
received, less normal depreciation and wear and tear. Lessee shall return the
Equipment to Lessor at its address set forth herein or at such other address
within the continental United States as directed by Lessor, provided,
however, that Lessee's expense shall be limited to the cost of returning the
equipment to Lessor's address as set forth herein.
10. LABELING. Lessee covenants and agrees that, upon the request of Lessor,
it shall cause the Equipment to be plainly, permanently and conspicuously
marked, by stenciling or by metal tag or plate affixed thereto, indicating
Lessor's interest in the Equipment. Lessee shall replace any such stenciling,
tag or plate which may be removed or destroyed or become illegible. Lessee
shall keep all Equipment free from any marking or labeling which might be
interpreted as a claim of ownership thereof by Lessee or any party other than
Lessor or anyone so claiming through Lessor.
11. INDEMNITY. Lessee shall and does hereby indemnify and hold Lessor, any
Assignee and any Secured Party and their respective partners, agents and
employees harmless from and against any and all claims, costs, expenses,
damages and liabilities, including reasonable attorneys' fees, arising out of
bodily injury and property damage liability as it relates to the ownership,
selection, possession, leasing, renting, operation, control, use,
maintenance, delivery, return or other disposition of the Equipment. During
the continuance of the Master Lease as to any Equipment Schedule, Lessee
shall, at its own expense, carry commercial general liability insurance
reasonably satisfactory to Lessor. In addition, before Lessee commences
clinical trials for any product, Lessee shall, at its own expense, obtain and
thereafter carry and maintain products liability insurance reasonably
satisfactory to Lessor and in an amount of at least $2,000,000 per
occurrence. Any amounts received by Lessor with respect to such insurance
shall be credited against the Lessee's obligations hereunder.
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<PAGE>
12. RISK OF LOSS. (a) Effective upon delivery of the Equipment to Lessee and
until the Equipment is returned to Lessor as provided in the Master Lease,
Lessee relieves Lessor of responsibility for all risks of physical damage to
or loss or destruction of the Equipment, howsoever caused. During the
continuance of the Master Lease as to any Equipment Schedule, Lessee shall,
at its own expense, cause to be carried and maintained "all-risk" casualty
insurance reasonably satisfactory to Lessor with respect to each item of
Equipment designated in the Equipment Schedule in an amount not less than the
Casualty Value (as hereinafter defined). All policies with respect to such
insurance and the insurance required by Section 11 hereof shall name the
Lessor as additional insured and (together with any Secured Party) as loss
payee, shall provide for at least thirty (30) days prior written notice to
the Lessor, Assignee and Secured Party by the underwriter or insurance
company in the event of cancellation or expiration and shall in all other
respects be reasonably satisfactory to Lessor. The Lessee shall, upon request
of the Lessor, furnish appropriate evidence of such insurance; (b) If any
item of Equipment is lost or rendered unusable as a result of any physical
damage to or destruction of such item of Equipment, Lessee shall give to
Lessor prompt notice thereof and the Master Lease and the Equipment Schedule
shall continue in effect without any abatement of rent. Lessee shall
determine, within fifteen (15) days after the date of occurrence of such
loss, damage or destruction, whether such item of Equipment can be repaired.
If Lessee determines that such item of Equipment can be repaired, Lessee, at
its expense, shall cause such item of Equipment to be promptly repaired.
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<PAGE>
If Lessee determines that such item of Equipment is lost or cannot be
repaired, Lessee shall promptly notify the Lessor and such Equipment shall be
deemed to have suffered a "Casualty Loss" for purposes of this Section as of
the date of the occurrence of such loss. Within said fifteen (15) days Lessee
shall notify the Lessor of the Equipment which has suffered a Casualty Loss
and Lessee shall either (A) replace Equipment which has suffered a Casualty
Loss with equipment of the same model, type and feature configuration and in
the condition required by this Lease, in which case the replacement equipment
shall become the Equipment, this lease shall continue in full force and
effect, and title in such Equipment shall vest in Lessor free and clear of
all liens, claims and encumbrances or (B) pay the Casualty Value, as defined
below. If the Casualty Value is paid, any installment of rent with respect to
such Equipment due prior to the date of the Casualty Loss shall remain due
and payable. After the payment of such Casualty Value and all other amounts
due and owing with respect to such Equipment, Lessee's obligation to pay
further rent for such Equipment shall cease. Except in the case of loss or
total destruction, Lessor will be entitled to recover all Equipment for which
a Casualty Value has been paid; provided, however, that Lessee shall dispose
of such Equipment for the best price obtainable (on an "as-is, where-is"
basis without representation or warranty express or implied), and Lessee
shall be entitled to retain all amounts received for the Equipment up to the
Casualty Value and Lessee's reasonable costs of disposition attributable
thereto, and shall remit the excess, if any, to Lessor. As used herein,
"Casualty Value" shall mean the Casualty Value set forth in the Casualty
Value Table (attached to the applicable Equipment Schedule) applicable on the
Rent Payment Date next preceding the date of Casualty Loss.
13. DEFAULT AND REMEDIES. (a) Lessee shall be in default of any Equipment
Schedule upon (i) failure to pay any installment of Monthly Rent or other
charge payable by Lessee under such Equipment Schedule as and when the same
becomes due and payable and such default continues for a period of five (5)
days after written notice; (ii) failure to perform any other term, covenant
or condition of such Equipment Schedule or the inaccuracy in any material
respect of any representation or warranty made by the Lessee in such
Equipment Schedule or in any document or certificate furnished to the Lessor
in connection therewith, which default or inaccuracy shall continue for a
period of ten (10) days after written notice; (iii) failure to maintain
insurance as required by this Lease; (iv) the making of an assignment by
Lessee for the benefit a is creditors or the admission by Lessee in writing
of its inability to pay its debts as they become due, or the insolvency of
Lessee, or the filing by Lessee of a voluntary petition in bankruptcy, or the
adjudication of Lessee as a bankrupt, or the filing by Lessee of any petition
or answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any present
or future statute, law or regulation, or the filing of any answer by Lessee
admitting, or the failure by Lessee to deny, the material allegations of a
petition filed against it for any such relief, or the seeking or consenting
by Lessee to, or acquiescence by Lessee in, the appointment of any trustee,
receiver or liquidator of Lessee or of all or any substantial part of the
properties of Lessee, or the inability of Lessee to pay its debts when due,
or the commission by Lessee of any act of bankruptcy as defined in the
Federal Bankruptcy Act, as amended; (v) failure by Lessee, within sixty (60)
days after the commencement of any proceeding against Lessee seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, to obtain the dismissal of such proceeding or, within sixty (60)
days after the appointment, without the consent or acquiescence of Lessee, of
any trustee, receiver or liquidator of Lessee or of all or any substantial
part of the properties of Lessee, to vacate such appointment; or (vi) default
by Lessee under any other Equipment Schedule or other agreement between
Lessee and Lessor or its assignee or Secured Party hereunder.
(b) Upon default, Lessor, at its option, may (1) proceed by appropriate
court action or actions either at law or in equity to enforce performance by
Lessee of the applicable covenants and terms of the applicable Equipment
Schedule, or to recover from Lessee any and all damages or expenses,
including reasonable attorneys' fees, which Lessor shall have sustained by
reason of Lessee's default of any covenants of the applicable Equipment
Schedule or on account of Lessor's enforcement of its remedies thereunder, or
(2) upon notice, accelerate the balance of the Monthly Rent thereafter
11
<PAGE>
accruing under the applicable Equipment Schedule, to the present value
thereof (discounted at a rate equal to nine (9%) per annum), which, together
with all rent and other amounts then due shall become immediately due and
payable, as liquidated damages and not as a penalty, and Lessor shall have
the right to the extent permitted by law: (i) to recover all sums so due
thereunder; (ii) to retake immediate possession of the Equipment without any
process of law and for such purpose Lessor may enter upon premises where the
Equipment may be located and may remove the same therefrom without notice,
and without being liable to Lessee therefor except for damage caused by the
gross negligence or willful misconduct of Lessor or its agents or
representatives; (iii) to sell, lease or otherwise dispose of all or any
portion of the Equipment, with the privilege of becoming the purchaser
thereof, at public or private sale, for cash or on credit and without notice
of its intention to do so or of its doing so, in which event Lessor shall
apply the cash proceeds from any sale or other disposition (less the
estimated Fair Market Value of the Equipment at the expiration of the Initial
Term or any extension thereof), or the present value (discounted at the
Overdue Rate) of the monthly rent under any other lease for a term not to
exceed the expiration of the Initial Term or any extension thereof (all such
amounts to be called "Proceeds" hereinafter), less all costs and expenses
incurred in connection with the recovery, repair or storage of the Equipment
or the transaction itself, against all sums due from Lessee and to the extent
and in the manner permitted by law; Lessee shall be liable to Lessor for, and
Lessor may recover from Lessee, the amount by which the Proceeds of any such
transaction, less the expenses of retaking, storing, repairing and the
transaction itself, including reasonable attorneys' fees incurred by Lessor,
are less than all sums due from Lessee under the
12
<PAGE>
applicable Equipment Schedule; and (iv) to pursue any other remedy permitted
by law or equity. The above remedies, to the extent permitted by law, any one
of which Lessor need not, in its discretion, exercise, shall be deemed
cumulative and may be exercised successively or concurrently. Lessee shall
reimburse Lessor for all costs and expenses incurred in connection with the
enforcement of any right or remedy under such Equipment Schedule, including
reasonable attorneys' fees. Except as set forth in this Section and to the
extent permitted by applicable law, Lessee hereby waives any rights now or
hereafter conferred by statute or otherwise which may require Lessor to sell,
lease or otherwise use any Equipment in mitigation of Lessor's damage or
which may otherwise limit or modify any of Lessor's rights or remedies,
provided, however, that Lessor shall use its best efforts to sell or re-lease
the Equipment in accordance with its usual business procedures and the
proceeds therefrom shall be applied against the amounts owed by Lessee in
accordance with the formula set forth above. Fair Market Value of the
Equipment shall be determined on the basis of and shall be the aggregate
amount which would be obtainable at the expiration of the Initial Term or any
extension thereof in an arms-length transaction between an informed and
willing buyer/user under no compulsion to buy and an informed and willing
seller under no compulsion to sell.
14. BOARD ATTENDANCE. Lessor or its duly appointed representative shall have
the right to attend Lessee's corporate Board of Directors meetings and Lessee
shall give Lessor reasonable notice in advance of any special Board of
Directors meeting, which notice shall provide an agenda of the subject matter
to be discussed at such board meeting. Lessee shall provide Lessor with a
certified copy of the minutes of each Board of Directors meeting within
thirty (30) days following the date of such meeting held during the term of
this Lease.
15. FINANCIAL STATEMENTS. (a) Notwithstanding anything to the contrary
contained herein, Lessee shall provide to Lessor the financial statements
specified in this Section 15, prepared in accordance with generally accepted
accounting principles, consistently applied (the "Financial Statements");
provided, however, after the effective date of the initial registration
statement covering a public offering of Lessee's securities, the term
"Financial Statements" shall be deemed to refer to only those statements
required by the Securities and Exchange Commission, to be provided no less
frequently than quarterly. For purposes of complying with this Section 15,
Lessee shall provide to Lessor (i) as soon as practicable (and in any event
within thirty (30) days) after the end of each month, a reasonably detailed
statement of revenues, costs, expenses, orders received, backlog, shipments,
commitments, contingencies, and changes in the financial position and capital
structure of the Lessee incurred during such month (including the
commencement of any material litigation by or against Lessee and a trial
balance of all accounts on both an adjusted and unadjusted basis), certified
by Lessee's Chief Executive or Financial Officer to be true and correct; and
(ii) as soon as practicable (and in any event within ninety (90) days) after
the end of each fiscal year, audited balance sheets as of the end of such
year (consolidated if applicable), and related statements of income or loss,
retained earnings or deficit and changes in the financial position and
capital structure of Lessee for such year, setting forth in comparative form
the corresponding figures for the preceeding fiscal year, and accompanied by
an audit report and opinion of the independent certified public accountants
selected by Lessee.
(b) Lessee shall promptly furnish to Lessor any additional information
(including but not limited to tax returns, income statements, balance sheets,
and names of principal creditors) as Lessor reasonably believes necessary to
evaluate Lessee's continuing ability to meet financial obligations (the
"Additional Information").
16. MERGER, SALE, ETC. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN
SECTION 5.2 HEREIN UPON ANY CONSOLIDATION OR MERGER OF THE LESSEE WITH OR
INTO ANY OTHER CORPORATION OR CORPORATIONS (WHETHER OR NOT AFFILIATED WITH
THE LESSEE), OR SUCCESSIVE CONSOLIDATIONS OR MERGERS IN WHICH THE LESSEE OR
ITS SUCCESSOR OR SUCCESSORS SHALL BE A PARTY OR PARTIES, OR UPON ANY SALE OR
CONVEYANCE OF ALL OR SUBSTANTIALLY ALL OF THE PROPERTY OF THE LESSEE TO ANY
OTHER PERSON OR ENTITY, THE LESSEE SHALL OBTAIN THE WRITTEN CONSENT OF LESSOR
PRIOR TO SUCH MERGER, SALE OR CONSOLIDATION ("MERGER"), WHICH CONSENT MAY BE
13
<PAGE>
WITHHELD AT THE DISCRETION OF LESSOR, AND IN THE EVENT LESSOR WITHHOLDS
CONSENT, THEN ALL LEASES ENTERED INTO PURSUANT TO THIS MASTER LEASE AGREEMENT
PRIOR TO SUCH MERGER SHALL BE DEEMED TERMINATED EFFECTIVE THE DATE OF THE
CLOSING OF SUCH MERGER, AND LESSEE SHALL, ON THE DATE OF SUCH CLOSING, PAY
LESSOR, AS A TERMINATION FEE, ALL RENTS WHICH ARE DUE OR WOULD BECOME DUE
DURING THE INITIAL TERM, BUT FOR SUCH TERMINATION, DISCOUNTED AT SIX PERCENT
(6%). IF LESSOR CONSENTS TO SUCH MERGER, LESSEE WILL CAUSE ANY SUCH SUCCESSOR
TO CONTINUE TO MAKE THE DUE AND PUNCTUAL PAYMENT OF ALL MONTHLY RENT, AND THE
DUE AND PUNCTUAL PERFORMANCE AND OBSERVANCE OF ALL COVENANTS AND OBLIGATIONS
OF THE LESSEE HEREUNDER AND UNDER THE LEASE TO BE ASSUMED BY THE CORPORATION
(IF OTHER THAN THE LESSEE) FORMED BY SUCH CONSOLIDATION, OR THE CORPORATION
INTO WHICH THE LESSEE SHALL HAVE BEEN MERGED OR BY THE PERSON OR ENTITY WHICH
SHALL HAVE ACQUIRED SUCH PROPERTY.
14
<PAGE>
7. MISCELLANEOUS. 17.1 Entire Agreement. Lessor and Lessee acknowledge that
there are no agreements or understandings, written or oral, between Lessor
and Lessee with respect to the Equipment, other than as set forth herein and
in each Equipment Schedule and that this Master Lease Agreement and each
Equipment Schedule contains the entire agreement between Lessor and Lessee
with respect thereto. Neither this Master Lease nor any Equipment Schedule
may be altered, modified, terminated or discharged except by a writing signed
by the party against whom such alteration, modification, termination or
discharge is sought.
17.2 No Waiver. No omission, or delay, by Lessor at any time to enforce any
right or remedy reserved to it, or to require performance of any of the
terms, covenants or provisions hereof by Lessee at any time designated, shall
be a waiver of any such right or remedy to which Lessor is entitled, nor
shall it in any way affect the right of Lessor to enforce such provisions
thereafter.
17.3 Binding Nature. Each Equipment Schedule shall be binding upon, and shall
inure to the benefit of Lessor, Lessee, and their respective successors,
legal representatives and assigns, except, in the case of any Secured Party,
to the extent set forth in Section 5.3.
17.4 Survival of Obligations. All agreements, representations and warranties
contained in this Master Lease, in any Equipment Schedule or in any document
delivered pursuant hereto or in connection herewith shall be for the benefit
of Lessor and any assignee or Secured Party and shall survive the execution
and delivery of this Master Lease and the expiration or other termination of
this Master Lease.
17.5 Notices. Any notice, request or other communication to either party by
the other as provided for herein shall be given in writing and only shall be
deemed received upon the earlier of receipt or three (3) days after mailing
if mailed postage prepaid by regular or airmail to Lessor (to the attention
of "Lease Administrator") or Lessee, as the case may be, at the address for
such party set forth in the Equipment Schedule or at such changed address as
may be subsequently submitted by written notice of either party.
17.6 Applicable Law. This Master Lease has been, and each Equipment Schedule
will have been made, executed and delivered in the State of California and
shall be governed and construed for all purposes under and in accordance with
the laws of the State of California without giving effect to principles of
conflicts of law or choice of law. LESSEE AGREES AND CONSENTS THAT THE
SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN FRANCISCO OR
THE FEDERAL DISTRICT COURT FOR THE JURISDICTION IN THAT COUNTY SHALL HAVE
JURISDICTION AND SHALL BE THE VENUE FOR DETERMINATION OF ALL CONTROVERSIES,
DISPUTES AND ACTIONS ARISING UNDER THIS LEASE, NOTHING CONTAINED HEREIN IS
INTENDED TO PRECLUDE LESSOR FROM COMMENCING ANY ACTION UNDER THIS LEASE IN
ANY COURT HAVING JURISDICTION THEREOF.
17.7 Severability. In the event any one or more of the provisions of this
Master Lease and/or any Equipment Schedule shall for any reason be held
invalid, illegal or unenforceable, the remaining provisions of this Master
Lease and/or any such Equipment Schedule shall be unimpaired, and the
invalid, illegal or unenforceable provision shall be replaced by a mutually
acceptable valid, legal and enforceable provision which comes closest to the
intention of the parties underlying the invalid, illegal or unenforceable
provision.
17.8 Counterparts. This Master Lease and any Equipment Schedule may be
executed in any number of counterparts, each of which shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument. If Lessor grants a security interest in all or any part of
an Equipment Schedule, the Equipment covered thereby and/or sums payable
thereunder, only that counterpart Equipment Schedule marked "Secured Party's
Original" shall be effective to transfer Lessor's rights therein and all
other counterparts shall be marked "Duplicate" to indicate that they are not
the "Secured Party's Original".
15
<PAGE>
17.9 Release of Lessor's obligations to lease Equipment. If there is (i) a
failure by Lessee to make lease payments on the first day of each month as
due; (ii) a default under this Master Lease or any Equipment Schedule
hereunder; (iii) any default by Lessee with respect to any indebtedness of
the Lessee for borrowed money, by virtue of which the holders of such
indebtedness shall have the right to demand immediate payment of such
indebtedness (regardless of whether such right shall have been exercised);
(iv) there is an adverse change in Lessee's credit standing; or (v) Lessor,
in the reasonable exercise of its judgment and in good faith, shall have
determined that the Lessee is unable to perform its obligations under this
Lease; then Lessor, at its option and upon prior written notice to Lessee,
shall be relieved of its obligation to lease any equipment hereunder with a
Commencement Date occurring after the date of such notice. In addition Lessee
agrees to reaffirm the representations, warranties and covenants contained
herein from time to time as requested by Lessor's written notice.
17.10 Landlord/Mortgagee Waiver Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be
in a form satisfactory to Lessor.
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<PAGE>
7.11 Equipment Procurement Charges/Progress Payments. Lessee hereby agrees
that Lessor shall not, by virtue of its entering into this Lease, be required
to remit any payments to any manufacturer or other third party until Lessee
accepts the Equipment subject to this Lane and in accordance with Section 2.2
"Commencement Date" hereof.
17.12 Additional Matters. (a) Lessee, upon execution of this Master Lease and
thereafter upon execution of each Equipment Schedule, shall provide Lessor
with certification with respect to incumbency and authority and an opinion
from Lessee's counsel addressed to Lessor or any Secured Party with respect
to the representations and warranties set forth in subparagraphs (a) through
(e) of Section 8 above and shall also supply such other documents as Lessor
may reasonably request. If Lessee shall fail to timely and properly deliver
any of the aforesaid documents within fourteen (14) days of the execution of
this Master Lease and each Equipment Schedule, Lessor, in its discretion and
notwithstanding anything to the contrary contained in Section 2 hereof, may
postpone the commencement of the Initial Term to the first day of the
calendar quarter following receipt of all required documents. Lessor shall
give Lessee prompt written notice of any such postponement; (b) Section
headings are for convenience only and shall not be construed as part of this
Master Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on
or as of the day and year first above written.
LESSEE: FOCAL, INC., LESSOR: MMC/GATX PARTNERSHIP NO.I
By: GATX Capital Corporation, as Agent
By: /s/ W. Bradford Smith By: /s/ Thomas C. Nord
-------------------------- -------------------------
Title: Vice President, Finance Title:
17
<PAGE>
EXHIBIT A
EQUIPMENT SCHEDULE NO.______ DATED AS OF _____________________
(the "Commencement Date")
TO MASTER LEASE AGREEMENT DATED AS OF February 28, 1994 ("MASTER LEASE")
LESSEE: FOCAL, INC. LESSOR: MMC/GATX PARTNERSHIP NO. I
Admin. Contact/Phone No.: Address for all Notices:
Brad Smith
(617) 374-9100 MMC/GATX Partnership No. I
c/o GATX Capital Corporation
Address for Notices: Four Embarcadero Center, Suite 2200
One Kendall Square, Building 600 Attn: Contract Administration
Cambridge, MA 02139
with a copy of required financial
information to:
Attn:
Meier Mitchell & Company
Central Billing Location: Four Orinda. Way, Suite 200-B
Orinda, California 94563
Same as above Attn: Mr, James V. Mitchell
PAYING AGENT:
Lessee Reference No.:_____________________ Same as above
(24 digits maximum)
Location of Equipment: Initial Term: 36 months commencing
on ________________________, 199__ .
Same as above
Lease Rate Factor: 3.07%
EQUIPMENT (as defined below): Advance: $30,700.00
<TABLE>
<CAPTION>
Machine Type/ Serial
No. Qty. Manufacturer Feature Description Number Rent
--- ---- ------------- ------- ----------- ------ ----
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
See Annex A hereto
Equipment specifically approved by Lessor, which shall be delivered to and
accepted by Lessee during the period February 28, 1994 through December 31,
1994, up to an aggregate Lessor's Cost of $1,000,000.00; not including
upgrades thereto and further excluding custom use equipment, leasehold
improvements, installation costs and delivery costs, rolling stock, special
tooling, custom
18
<PAGE>
equipment, "stand-alone" software, application software bundled into computer
hardware, hand held items, molds and fungible items. In no event shall any
furniture exceed ten percent (10%) of Lessor's aggregate cost hereunder.
19
<PAGE>
1. EQUIPMENT PURCHASE
This Equipment Schedule is contingent upon Lessor purchasing the
Equipment for an aggregate amount not to exceed $1,000,000.00 pursuant to
purchase documentation satisfactory to Lessor. Aggregate Equipment amount
shall include all Equipment purchased by Lessor, consisting of amounts
financed under Sections (i), (ii) and (iii) below. Lessee confirms that on
the Commencement Date hereof (i) all of the Equipment described in Annex A
attached hereto was duly accepted by Lessee and became subject to the Lease;
and (ii) Lessee became obligated to make rental payments to Lessor and
perform certain obligations with respect to such Equipment as provided in the
Lease and this Equipment Schedule.
(i) NEW EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at Lessee's
site and to which Lessee has clear title and ownership may be
considered by Lessor for inclusion under this Lease (the
"Sale-Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted) no later than April 30, 1994
Lessor will not perform a Sale-Leaseback Transaction for any request
or accompanying Equipment ownership documents which arrive after the
date marked above by an asterisk (*). Further, any sale-leaseback
Equipment will be place on lease subject to: (1) Lessor prior approval
of the Equipment; and (2) if approved, at Lessor's actual net
appraised Equipment value pursuant to the schedule below:
ORIGINAL EQUIPMENT
MANUFACTURER'S PERCENT OF ORIGINAL MANUFACTURER'S NET
SHIP DATE EQUIPMENT COST PAID BY LESSOR
Between 12/4/93 and 3/3/94 100%
Between 10/4/93 and 12/3/93 80%
Between 7/4/93 and 10/3/93 70%
Between 4/4/93 and 7/3/93 65%
Between 1/4/93 and 4/3/93 60%
(iii) USED EQUIPMENT. Lessor will purchase "used" Equipment which is
obtained from a third party by Lessee for its use subject
to: (1) Lessor's prior approval of the Equipment; and (2) at
Lessor's appraised value for such used Equipment.
2. OPTION TO EXTEND
So long as no Event of Default shall have occurred and be continuing,
Lessee shall have the right to extend the Initial Term of this Equipment
Schedule for a period of one-year by giving Lessor at least one hundred
twenty (120) days written notice prior to the expiration of the applicable
Initial Term. In such event, the rent to be paid during said extended period
shall be mutually agreed upon and if the parties cannot mutually agree, then
the Lease shall continue in full force and effect pursuant to the existing
terms and conditions until terminated in accordance with its terms. This
Equipment Schedule shall continue in effect following said extended period
until terminated by either party upon not less than one hundred twenty (120)
days prior written notice, which notice shall be effective as of the Monthly
Rent Payment Date next following receipt.
3. PURCHASE OPTION
20
<PAGE>
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than one hundred eighty (180) days and no
later than one hundred twenty (120) days prior to the expiration of the
Initial Term, Lessee shall have the option at the expiration of the Initial
Term of this Equipment Schedule to purchase all, but not less than all, of
the Equipment listed herein for a purchase price and upon terms and
conditions to be mutually agreed upon by the parties following Lessee's
written notice, plus any taxes applicable at time of purchase. Said purchase
price shall be paid to Lessor at least thirty (30) days before the expiration
date of the Initial Term. Title to the Equipment shall automatically pass to
Lessee upon payment in full of the purchase price but, in no event, earlier
than the expiration of the fixed Initial Term. The purchase of the Equipment
pursuant to its option herein shall be "AS IS, WHERE IS", without recourse to
or an, warranty by Lessor, other than a warranty that such Equipment is free
and clear of liens and encumbrances resulting from acts of Lessor. If the
parties are unable to agree
21
<PAGE>
on the purchase price or the terms and conditions with respect to said
purchase, then the Lease with respect to this Equipment shall remain in full
force and effect. It is agreed and understood that Lessor is retaining a
purchase money security interest in the Equipment listed herein and this
Equipment Schedule shall constitute a Security Agreement under the Uniform
Commercial Code of the state in which the Equipment is located. Lessor and
Lessee agree that for purposes of this paragraph, any licensed software shall
not be considered part of the Equipment.
4. SPECIAL TERMS
The terms and conditions of the Master Lease Agreement as they pertain to
this Equipment Schedule are hereby modified and amended as follows:
A. Intentionally omitted.
B. Section 5.1, "Title" ",except for such claims arising from
the actions of the Lessor, any Assignee or any Secured Party."
C. 5.2, "Assignment, Sublease or Relocation by Lessee"
Delete the period at the end of this section and insert the
following:
"; provided, however, Lessee shall be under no obligation to
accept Lessor's proposal.".
D. Section 5.3, "Assignment by Lessor"
In line 12, before the word "default" insert the word
"material".
In line 13, after the letter "(b)" insert the words "upon
notification from the Lessor,".
E. Section 8, "Representations and Warranties of Lessee"
In subparagraph (a), line 3, after the word "qualification"
insert the words "except where the failure to so quality would
no have a material adverse effect on the Company's business".
In subparagraph (b), line 4, after the word "contravene" insert
the words "in any material way".
In subparagraph (b), before the word "default" insert the word
"material".
Delete the period at the end of subparagraph (b) and insert
the following:
22
<PAGE>
", subject to the effect of applicable bankruptcy and other
similar laws affecting the rights of creditors generally and
rules of law concerning equitable remedies."
In subparagraph (k), line 2, before the words "no such
employee" insert the words "except for Lessee making loans
to employees in connection with the relocation of such
employees,".
F. Section 9, "Delivery and Return of Equipment"
23
<PAGE>
To the end of this Section, add the following:
"Notwithstanding the foregoing, the cost of returning the
Equipment shall be limited to the cost of transportation
between the location of the Equipment's last use and Lessor's
warehouse in California."
24
<PAGE>
G. Section 11, "Indemnity"
To the end of this Section, add the following:
"Notwithstanding the foregoing, Lessee shall not be responsible
under the terms of this Section 11 to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned
by the gross negligence or willful misconduct of Lessor or any
Assignee or Secured Party of Lessor."
H. Section 12, "Risk of Loss"
Add subsection (c) as follows:
"To the extent equipment insurance proceeds are paid directly to
Lessor, by virtue of being named a loss payee under Lessee's
equipment insurance policy, Lessee's obligation to pay Lessor,
pursuant to subsection 12(b) above, shall be decreased by the
amount of such insurance proceeds."
I. Section 15, "Financial Statements"
In line 7, after the words "each month," insert the following:
"monthly financial information, which shall include at a minimum, a
Balance Sheet as of the end of the month, an Income Statement for
the one month period and year-to-date and a Statement of Cash
Flow."
In lines 7-10, delete the words "a reasonably detailed statement of
revenues..." through "... and unadjusted basis),".
J. Section 16, "Merger, Sale, Etc.."
To the end of this section add the following:
"NOTWITHSTANDING THE FOREGOING, LESSOR HEREBY CONSENTS TO ANY
MERGER WHICH WELL RESULT IN THE FOLLOWING: (A) THE SURVIVING
ENTITY HAS A NET WORTH EQUAL TO OR GREATER THAN TEN (10) TIMES
THE PRESENT VALUE OF THE REMAINING MONTHLY RENTAL PAYMENTS TO
BECOME DUE UNDER THIS LEASE AND UNDER LESSEE'S LEASES WITH
COMDISCO, INC. AS THE ORIGINAL LESSOR, DISCOUNTED AT 8%, OR (B)
THE SURVIVING ENTITY HAS WORKING CAPITAL OF AT LEAST
$12,500,000.00."
MASTER LEASE: This Equipment Schedule is issued pursuant to the Master Lease
identified on page 1 hereof. All of the terms, conditions, representations
and warranties of the Master Lease are hereby incorporated herein and made a
part hereof as if they were expressly set forth in this Equipment Schedule
and this Equipment Schedule constitutes a separate lease with respect to the
Equipment described herein. By their execution and delivery of this Equipment
Schedule, the parties hereby reaffirm all of the terms, conditions,
representations and warranties of the Master Lease (including, without
limitation, the representations and warranties set forth in Section 8
thereof) except as modified herein.
Dated this____ day of ______________ , 19 __.
25
<PAGE>
FOCAL, INC., MMC/GATX PARTNERSHIP NO. I
as Lessee as Lessor
By: GATX Capital Corporation, as Agent
By:_______________________ By: _________________________
Title:_____________________ _________________________
26
<PAGE>
ANNEX A
DESCRIPTION OF EQUIPMENT
27
<PAGE>
CASUALTY VALUE TABLE
28
<PAGE>
TRANSAMERICA
BUSINESS CREDIT LETTERHEAD
Transamerica Business Credit
Technology Finance Division
76 Batterson Park Road
Farmington, CT 06032
(860) 677-6466
(860) 677-6766 Fax
June 3, 1997
Mr. W. Bradford Smith
Vice President of Finance
Focal Inc.
4 Maguire Road
Lexington, MA 02173
Re: CUSTOMER NO. 1043-001N AND 1043-001S
Dear Brad:
We would like to thank you for choosing Transamerica Business Credit
Corporation (TBCC) - Technology Finance Division for your recent
refinancing. For your files, we have enclosed copies of the various
documents executed by your organization in connection with the above
referenced transactions. These documents have been executed by
Transamerica and should be retained by you in a safe place.
Invoices will be sent to you on a monthly basis, with your payments due on
the first day of each month. THE REMITTANCE ADDRESS FOR PAYMENT IS 9399
WEST HIGGINS ROAD, SUITE 600, ROSEMONT, ILLINOIS 60018. Please indicate
your customer number on the face of your check.
Please be advised that you are responsible for the appropriate property tax
filing. Proof of filing and payment of property tax should be provided to
TBCC annually. All future payments should be made on or before the due
date indicated on each invoice. Payments arriving after ten days of the
due date will be subject to a 5% late charge. All remittances should be
sent to the above mentioned address.
We appreciate having been given the opportunity to serve you and we look
forward to do so again, in the future. Should you have any questions on
your account, please contact our Lease Administration Department at
860-677-6466 and we will be delighted to assist you.
Very truly yours,
Transamerica Business Credit
Corporation
/s/ Laura M. Robbins
Laura M. Robbins
Lease Administrator
encls.
<PAGE>
MASTER LOAN AND SECURITY AGREEMENT
THIS AGREEMENT dated as of April 18, 1997, is made by Focal,
Inc. (the "Borrower"), a Delaware corporation having its principal place of
business and chief executive office at 4 Maguire Road, Lexington, MA 02173,
in favor of Transamerica Business Credit Corporation, a Delaware
corporation (the "Lender"), having its principal office at Riverway II,
West Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018.
WHEREAS, the Borrower has requested that the Lender make Loans to
it from time to time; and
WHEREAS, the Lender has agreed to make such Loans on the terms
and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce
the Lender to extend credit, the Borrower hereby agrees with the Lender as
follows:
SECTION 1. DEFINITIONS.
------------
As used herein, the following terms shall have the following
meanings, and shall be equally applicable to both the singular and plural
forms of the terms defined:
Agreement shall mean this Master Loan and Security Agreement together with
- ---------
all schedules and exhibits hereto, as amended, supplemented, or otherwise
modified from time to time.
Applicable Law shall mean the laws of the State of Illinois (or any other
- --------------
jurisdiction whose laws are mandatorily applicable notwithstanding the
parties' choice of Illinois law) or the laws of the United States of America,
whichever laws allow the greater interest, as such laws now exist or may be
changed or amended or come into effect in the future.
Business Day shall mean any day other than a Saturday, Sunday, or public
- ------------
holiday or the equivalent for banks in New York City.
Code shall have the meaning specified in Section 8(d).
- ----
Collateral shall have the meaning specified in Section 2.
- ----------
Effective Date shall mean the date on which all of the conditions specified
- --------------
in Section 3.3 shall have been satisfied.
Equipment shall have the meaning specified in Section 2.
- ---------
Event of Default shall mean any event specified in Section 7.
- ----------------
Financial Statements shall have the meaning specified in Section 6.1.
- --------------------
GAAP shall mean generally accepted accounting principles in the United
- ----
States of America, as in effect from time to time.
Loans shall mean the loans and financial accommodations made by the Lender
- -----
to the Borrower in accordance with the terms of this Agreement and the Notes.
<PAGE>
Loan Documents shall mean, collectively, this Agreement, the Notes, and all
- --------------
other documents, agreements, certificates, instruments, and opinions executed
and delivered in connection herewith and therewith, as the same may be
modified, extended, restated, or supplemented from time to time.
Material Adverse Change shall mean, with respect to any Person, a material
- -----------------------
adverse change in the business, prospects, operations, results of operations,
assets, liabilities, or condition (financial or otherwise) of such Person
taken as a whole.
Material Adverse Effect shall mean, with respect to any Person, a material
- -----------------------
adverse effect on the business, prospects, operations, results of operations,
assets, liabilities, or condition (financial or otherwise) of such Person
taken as a whole.
Note shall mean each Promissory Note made by the Borrower in favor of the
- ----
Lender, as amended, supplemented, or otherwise modified from time to time, in
each case substantially in the form of Exhibit B.
Obligations shall mean all indebtedness, obligations, and liabilities of
- -----------
the Borrower under the Notes and under this Agreement, whether on account of
principal, interest, indemnities, fees (including, without limitation,
attorneys' fees, remarketing fees, origination fees, collection fees, and all
other professionals' fees), costs, expenses, taxes, or otherwise.
Permitted Liens shall mean such of the following as to which no
- ---------------
enforcement, collection, execution, levy, or foreclosure proceeding shall
have been commenced: (a) liens for taxes, assessments, and other governmental
charges or levies or the claims or demands of landlords, carriers,
warehousemen, mechanics, laborers, materialmen, and other like Persons
arising by operation of law in the ordinary course of business for sums which
are not yet due and payable, or liens which are being contested in good faith
by appropriate proceedings diligently conducted and with respect to which
adequate reserves are maintained to the extent required by GAAP; (b) deposits
or pledges to secure the payment of workmen's compensation, unemployment
insurance, or other social security benefits or obligations, public or
statutory obligations, surety or appeal bonds, bid or performance bonds, or
other obligations of a like nature incurred in the ordinary course of
business; (c) licenses, restrictions, or covenants for or on the use of the
Equipment which do not materially impair either the use of the Equipment in
the operation of the business of the Borrower or the value of the Equipment;
and (d) attachment or judgment liens that do not constitute an Event of
Default.
Person shall mean any individual, sole proprietorship, partnership, joint
- ------
venture, trust, unincorporated organization, association, corporation,
institution, entity, party, or government (including any division, agency, or
department thereof), and the successors, heirs, and assigns of each.
Schedule shall mean each Schedule in the form of Schedule A hereto
- --------
delivered by the Borrower to the Lender from time to time.
Solvent means, with respect to any Person, that as of the date as to which
- -------
such Person's solvency is measured:
(a) the fair saleable value of its assets is in excess of the
total amount of its liabilities (including contingent liabilities as valued
in accordance with GAAP) as they become absolute and matured;
(b) it has sufficient capital to conduct its business; and
(c) it is able generally to meet its debts as they mature.
Taxes shall have the meaning specified in Section 5.5.
- -----
2
<PAGE>
SECTION 2. CREATION OF SECURITY INTEREST; COLLATERAL. The
Borrower hereby -----------------------------------------
assigns and grants to the Lender a continuing general, first priority lien
on, and security interest in, all the Borrower's right, title, and interest
in and to the collateral described in the next sentence (the "Collateral")
to secure the payment and performance of all the Obligations. The
Collateral consists of all tenant improvements and equipment set forth on
all the Schedules delivered from time to time under the terms of this
Agreement (the "Equipment"), together with all present and future
additions, parts, accessories, attachments, substitutions, repairs,
improvements, and replacements thereof or thereto, and any and all proceeds
thereof, including, without limitation, proceeds of insurance and all
manuals, blueprints, know-how, warranties, and records in connection
therewith, all rights against suppliers, warrantors, manufacturers,
sellers, or others in connection therewith, and together with all
substitutes for any of the foregoing.
SECTION 3. THE CREDIT FACILITY.
--------------------
SECTION 3.1. BORROWINGS. Each Loan shall be in an amount
not less than $100,000.00, and in no event shall the sum of the aggregate
Loans made exceed the amount of the Lender's written commitment to the
Borrower in effect from time to time. Notwithstanding anything herein to
the contrary, the Lender shall be obligated to make the initial Loan and
each other Loan only after the Lender, in its sole discretion, determines
that the applicable conditions for borrowing contained in Sections 3.3 and
3.4 are satisfied. The timing and financial scope of Lender's obligation
to make Loans hereunder are limited as set forth in a commitment letter
executed by Lender and Borrower, dated as of April 10, 1997 and attached
hereto as Exhibit C (the "Commitment Letter").
SECTION 3.2. APPLICATION OF PROCEEDS. The Borrower shall
not directly or indirectly use any proceeds of the Loans, or cause, assist,
suffer, or permit the use of any proceeds of the Loans, for any purpose
other than for the purchase, acquisition, installation, or upgrading of
Equipment or the reimbursement of the Borrower for its purchase,
acquisition, installation, or upgrading of Equipment.
SECTION 3.3. CONDITIONS TO INITIAL LOAN.
(a) The obligation of the Lender to make the initial Loan is
subject to the Lender's receipt of the following, each dated the date of
the initial Loan or as of an earlier date acceptable to the Lender, in form
and substance satisfactory to the Lender and its counsel:
(i) completed requests for information (Form UCC-11)
listing all effective Uniform Commercial Code financing statement
naming the Borrower as debtor and all tax lien, judgment, and
litigation searches for the Borrower as the Lender shall deem
necessary or desirable;
(ii) Uniform Commercial Code financing statements (Form
UCC-1) duly executed by the Borrower (naming the Lender as
secured party and the Borrower as debtor and in form acceptable
for filing in all jurisdictions that the Lender deems necessary
or desirable to perfect the security interests granted to it
hereunder) and, if applicable, termination statements or other
releases duly filed in all jurisdictions that the Lender deems
necessary or desirable to perfect and protect the priority of the
security interests granted to it hereunder in the Equipment
related to such initial Loan;
(iii) a Note duly executed by the Borrower evidencing
the amount of such Loan;
(iv) certificates of insurance required under Section
5.4 of this Agreement together with loss payee endorsements for
all such policies naming the Lender as lender loss payee and as
an additional insured;
(v) a copy of the resolutions of the Board of
Directors of the Borrower (or a unanimous consent of directors
in lieu thereof) authorizing the execution, delivery, and
performance of this Agreement, the other Loan Documents, and the
transactions contemplated
3
<PAGE>
hereby and thereby, attached to which is a certificate of the
Secretary or an Assistant Secretary of the Borrower certifying
(A) that the copy of the resolutions is true, complete, and
accurate, that such resolutions have not been amended or modified
since the date of such certification and are in full force and
effect and (B) the incumbency, names, and true signatures of the
officers of the Borrower authorized to sign the Loan Documents to
which it is a party; and
(vi) such other agreements and instruments as the
Lender deems necessary in its sole and absolute discretion in
connection with the transactions contemplated hereby.
(b) There shall be no pending or, to the knowledge of the
Borrower after due inquiry, threatened litigation, proceeding, inquiry, or
other action (i) seeking an injunction or other restraining order, damages,
or other relief with respect to the transactions contemplated by this
Agreement or the other Loan Documents or thereby or (ii) which affects or
could affect the business, prospects, operations, assets, liabilities, or
condition (financial or otherwise) of the Borrower, except, in the case of
clause (ii), where such litigation, proceeding, inquiry, or other action
could not be expected to have a Material Adverse Effect in the judgment of
the Lender.
(c) The Borrower shall have paid all fees and expenses required
to be paid by it to the Lender as of such date.
(d) The security interests in the Equipment related to the
initial Loan granted in favor of the Lender under this Agreement shall have
been duly perfected and shall constitute first priority liens.
SECTION 3.4. CONDITIONS PRECEDENT TO EACH LOAN. The
obligation of the Lender to make each Loan is subject to the satisfaction
of the following conditions precedent:
(a) the Lender shall have received the documents, agreements,
and instruments set forth in Section 3.3(a)(i) through (v) applicable to
such Loan, each in form and substance satisfactory to the Lender and its
counsel and each dated the date of such Loan or as of an earlier date
acceptable to the Lender;
(b) the Lender shall have received a Schedule of the Equipment
related to such Loan, in form and substance satisfactory to the Lender and
its counsel, and the security interests in such Equipment related to such
Loan granted in favor of the Lender under this Agreement shall have been
duly perfected and shall constitute first priority liens;
(c) all representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct on and as
of the date of such Loan as if then made, other than representations and
warranties that expressly relate solely to an earlier date, in which case
they shall have been true and correct as of such earlier date;
(d) no Event of Default or event which with the giving of notice
or the passage of time, or both, would constitute an Event of Default shall
have occurred and be continuing or would result from the making of the
requested Loan as of the date of such request; and
(e) the Borrower shall be deemed to have hereby reaffirmed and
ratified all security interests, liens, and other encumbrances heretofore
granted by the Borrower to the Lender.
4
<PAGE>
SECTION 4. THE BORROWER'S REPRESENTATIONS AND WARRANTIES.
----------------------------------------------
SECTION 4.1. GOOD STANDING; QUALIFIED TO DO BUSINESS. The
Borrower (a) is duly organized, validly existing, and in good standing
under the laws of the State of its organization, (b) has the power and
authority to own its properties and assets and to transact the businesses
in which it is presently, or proposes to be, engaged, and (c) is duly
qualified and authorized to do business and is in good standing in every
jurisdiction in which the failure to be so qualified could have a Material
Adverse Effect on (i) the Borrower, (ii) the Borrower's ability to perform
its obligations under the Loan Documents, or (iii) the rights of the Lender
hereunder.
SECTION 4.2. DUE EXECUTION, ETC. The execution, delivery,
and performance by the Borrower of each of the Loan Documents to which it
is a party are within the powers of the Borrower, do not contravene the
organizational documents, if any, of the Borrower, and do not (a) violate
any law or regulation, or any order or decree of any court or governmental
authority, (b) conflict with or result in a breach of, or constitute a
default under, any material indenture, mortgage, or deed of trust or any
material lease, agreement, or other instrument binding on the Borrower or
any of its properties, or (c) require the consent, authorization by, or
approval of or notice to or filing or registration with any governmental
authority or other Person. This Agreement is, and each of the other Loan
Documents to which the Borrower is or will be a party, when delivered
hereunder or thereunder, will be, the legal, valid, and binding obligation
of the Borrower enforceable against the Borrower in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
or similar laws affecting creditors' rights generally and by general
principles of equity.
SECTION 4.3. SOLVENCY; NO LIENS. The Borrower is Solvent
and will be Solvent upon the completion of all transactions contemplated to
occur hereunder (including, without limitation, the Loan to be made on the
Effective Date); the security interests granted herein constitute and shall
at all times constitute the first and only liens on the Collateral other
than Permitted Liens; and the Borrower is, or will be at the time
additional Collateral is acquired by it, the absolute owner of the
Collateral with full right to pledge, sell, consign, transfer, and create a
security interest therein, free and clear of any and all claims or liens in
favor of any other Person other than Permitted Liens.
SECTION 4.4. NO JUDGMENTS, LITIGATION. No judgments are
outstanding against the Borrower nor is there now pending or, to the best
of the Borrower's knowledge after diligent inquiry, threatened any
litigation, contested claim, or governmental proceeding by or against the
Borrower except judgments and pending or threatened litigation, contested
claims, and governmental proceedings which would not, in the aggregate,
have a Material Adverse Effect on the Borrower.
SECTION 4.5. NO DEFAULTS. The Borrower is not in default
or has not received a notice of default under any material contract, lease,
or commitment to which it is a party or by which it is bound. The Borrower
knows of no dispute regarding any contract, lease, or commitment which
could have a Material Adverse Effect on the Borrower.
SECTION 4.6. COLLATERAL LOCATIONS. On the date hereof,
each item of the Collateral is located at the place of business specified
in the applicable Schedule.
SECTION 4.7. NO EVENTS OF DEFAULT. No Event of Default has
occurred and is continuing nor has any event occurred which, with the
giving of notice or the passage of time, or both, would constitute an Event
of Default.
SECTION 4.8. NO LIMITATION ON LENDER'S RIGHTS. Except as
permitted herein, none of the Collateral is subject to contractual
obligations that may restrict or inhibit the Lender's rights or abilities
to sell or dispose of the Collateral or any part thereof after the
occurrence of an Event of Default.
5
<PAGE>
SECTION 4.9. PERFECTION AND PRIORITY OF SECURITY INTEREST.
This Agreement creates a valid and, upon completion of all required filings
of financing statements, perfected first priority and exclusive security
interest in the Collateral, securing the payment of all the Obligations.
SECTION 4.10. ACCURACY AND COMPLETENESS OF INFORMATION.
All data, reports, and information heretofore, contemporaneously, or
hereafter furnished by or on behalf of the Borrower in writing to the
Lender or for purposes of or in connection with this Agreement or any other
Loan Document, or any transaction contemplated hereby or thereby, are or
will be true and accurate in all material respects on the date as of which
such data, reports, and information are dated or certified and not
incomplete by omitting to state any material fact necessary to make such
data, reports, and information not misleading at such time. There are no
facts now known to the Borrower which individually or in the aggregate
would reasonably be expected to have a Material Adverse Effect and which
have not been specified herein, in the Financial Statements, or in any
certificate, opinion, or other written statement previously furnished by
the Borrower to the Lender.
SECTION 5. COVENANTS OF THE BORROWER.
--------------------------
SECTION 5.1. EXISTENCE, ETC. The Borrower shall: (a)
retain its existence and its current yearly accounting cycle, (b) maintain
in full force and effect all licenses, bonds, franchises, leases,
trademarks, patents, contracts, and other rights necessary or desirable to
the profitable conduct of its business unless the failure to do so could
not reasonably be expected to have a Material Adverse Effect on the
Borrower, (c) continue in, and limit its operations to, the same general
lines of business as those presently conducted by it, and (d) comply with
all applicable laws and regulations of any federal, state, or local
governmental authority, except for such laws and regulations the violations
of which would not, in the aggregate, have a Material Adverse Effect on the
Borrower.
SECTION 5.2. NOTICE TO THE LENDER. As soon as possible,
and in any event within five days after the Borrower learns of the
following, the Borrower will give written notice to the Lender of (a) any
proceeding instituted or threatened to be instituted by or against the
Borrower in any federal, state, local, or foreign court or before any
commission or other regulatory body (federal, state, local, or foreign)
involving a sum, together with the sum involved in all other similar
proceedings, in excess of $50,000 in the aggregate, (b) any contract that
is terminated or amended and which has had or could reasonably be expected
to have a Material Adverse Effect on the Borrower, (c) the occurrence of
any Material Adverse Change with respect to the Borrower, and (d) the
occurrence of any Event of Default or event or condition which, with notice
or lapse of time or both, would constitute an Event of Default, together
with a statement of the action which the Borrower has taken or proposes to
take with respect thereto.
SECTION 5.3. MAINTENANCE OF BOOKS AND RECORDS. The
Borrower will maintain books and records pertaining to the Collateral in
such detail, form, and scope as the Lender shall require in its
commercially reasonable judgment. The Borrower agrees that the Lender or
its agents may enter upon the Borrower's premises at any time and from time
to time during normal business hours, and at any time upon the occurrence
and continuance of an Event of Default, for the purpose of inspecting the
Collateral and any and all records pertaining thereto.
SECTION 5.4. INSURANCE. The Borrower will maintain
insurance on the Collateral under such policies of insurance, with such
insurance companies, in such amounts, and covering such risks as are at all
times satisfactory to the Lender. All such policies shall be made payable
to the Lender, in case of loss, under a standard non-contributory "lender"
or "secured party" clause and are to contain such other provisions as the
Lender may reasonably require to protect the Lender's interests in the
Collateral and to any payments to be made under such policies.
Certificates of insurance policies are to be delivered to the Lender,
premium prepaid, with the loss payable endorsement in the Lender's favor,
and shall provide for not less than thirty days' prior written notice to
the Lender, of any alteration or cancellation of coverage. If the Borrower
fails to maintain such insurance, the Lender may arrange for (at the
Borrower's expense and without any responsibility on the Lender's part for)
obtaining the insurance. Unless the Lender shall otherwise agree with the
Borrower in writing, the Lender shall have the sole right, in the name of
the Lender or the Borrower, to file claims under any insurance policies, to
receive and give
6
<PAGE>
acquittance for any payments that may be payable thereunder, and to execute
any endorsements, receipts, releases, assignments, reassignments, or other
documents that may be necessary to effect the collection, compromise, or
settlement of any claims under any such insurance policies.
SECTION 5.5. TAXES. The Borrower will pay, when due, all
taxes, assessments, claims, and other charges ("Taxes") lawfully levied or
assessed against the Borrower or the Collateral other than taxes that are
being diligently contested in good faith by the Borrower by appropriate
proceedings promptly instituted and for which an adequate reserve is being
maintained by the Borrower in accordance with GAAP. If any Taxes remain
unpaid after the date fixed for the payment thereof, or if any lien shall
be claimed therefor, then, without notice to the Borrower, but on the
Borrower's behalf, the Lender may pay such Taxes, and the amount thereof
shall be included in the Obligations.
SECTION 5.6. BORROWER TO DEFEND COLLATERAL AGAINST CLAIMS;
FEES ON COLLATERAL. The Borrower will defend the Collateral against all
claims and demands of all Persons at any time claiming the same or any
interest therein. The Borrower will not permit any notice creating or
otherwise relating to liens on the Collateral or any portion thereof to
exist or be on file in any public office other than Permitted Liens. The
Borrower shall promptly pay, when payable, all transportation, storage, and
warehousing charges and license fees, registration fees, assessments,
charges, permit fees, and taxes (municipal, state, and federal) which may
now or hereafter be imposed upon the ownership, leasing, renting,
possession, sale, or use of the Collateral, other than taxes on or measured
by the Lender's income and fees, assessments, charges, and taxes which are
being contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate reserves are maintained to the
extent required by GAAP.
SECTION 5.7. NO CHANGE OF LOCATION, STRUCTURE, OR IDENTITY.
The Borrower will not (a) change the location of its chief executive office
or establish any place of business other than those specified herein or (b)
move or permit the movement of any item of Collateral from the location
specified in the applicable Schedule, except that the Borrower may change
its chief executive office and keep Collateral at other locations within
the United States provided that the Borrower has delivered to the Lender
(i) prior written notice thereof and (ii) duly executed financing
statements and other agreements and instruments (all in form and substance
satisfactory to the Lender) necessary or, in the opinion of the Lender,
desirable to perfect and maintain in favor of the Lender a first priority
security interest in the Collateral. Notwithstanding anything to the
contrary in the immediately preceding sentence, the Borrower may keep any
Collateral consisting of motor vehicles or rolling stock at any location in
the United States provided that the Lender's security interest in any such
Collateral is conspicuously marked on the certificate of title thereof and
the Borrower has complied with the provisions of Section 5.9.
SECTION 5.8. USE OF COLLATERAL; LICENSES; REPAIR. The
Collateral shall be operated by competent, qualified personnel in
connection with the Borrower's business purposes, for the purpose for which
the Collateral was designed and in accordance with applicable operating
instructions, laws, and government regulations, and the Borrower shall use
every reasonable precaution to prevent loss or damage to the Collateral
from fire and other hazards. The Collateral shall not be used or operated
for personal, family, or household purposes. The Borrower shall procure
and maintain in effect all orders, licenses, certificates, permits,
approvals, and consents required by federal, state, or local laws or by any
governmental body, agency, or authority in connection with the delivery,
installation, use, and operation of the Collateral. The Borrower shall
keep all of the Equipment in a satisfactory state of repair and
satisfactory operating condition in accordance with industry standards, and
will make all repairs and replacements when and where necessary and
practical. The Borrower will not waste or destroy the Equipment or any
part thereof, and will not be negligent in the care or use thereof.
SECTION 5.9. FURTHER ASSURANCES. The Borrower will,
promptly upon request by the Lender, execute and deliver or use its best
efforts to obtain any document required by the Lender (including, without
limitation, warehouseman or processor disclaimers, mortgagee waivers,
landlord disclaimers, or subordination agreements with respect to the
Obligations and the Collateral), give any notices, execute and file any
financing statements, mortgages, or other documents (all in form and
substance satisfactory to the Lender), mark any chattel paper, deliver any
chattel paper or instruments to the Lender, and take any other actions that
are necessary or, in the opinion of the Lender, desirable to perfect or
continue the perfection and the first priority of the
7
<PAGE>
Lender's security interest in the Collateral, to protect the Collateral
against the rights, claims, or interests of any Persons, or to effect the
purposes of this Agreement. The Borrower hereby authorizes the Lender to
file one or more financing or continuation statements, and amendments
thereto, relating to all or any part of the Collateral without the
signature of the Borrower where permitted by law. A carbon, photographic,
or other reproduction of this Agreement or any financing statement covering
the Collateral or any part thereof shall be sufficient as a financing
statement where permitted by law. To the extent required under this
Agreement, the Borrower will pay all costs incurred in connection with any
of the foregoing.
SECTION 5.10. NO DISPOSITION OF COLLATERAL. The Borrower
will not in any way hypothecate or create or permit to exist any lien,
security interest, charge, or encumbrance on or other interest in any of
the Collateral, except for the lien and security interest granted hereby
and Permitted Liens which are junior to the lien and security interest of
the Lender, and the Borrower will not sell, transfer, assign, pledge,
collaterally assign, exchange, or otherwise dispose of any of the
Collateral. In the event the Collateral, or any part thereof, is sold,
transferred, assigned, exchanged, or otherwise disposed of in violation of
these provisions, the security interest of the Lender shall continue in
such Collateral or part thereof notwithstanding such sale, transfer,
assignment, exchange, or other disposition, and the Borrower will hold the
proceeds thereof in a separate account for the benefit of the Lender.
Following such a sale, the Borrower will transfer such proceeds to the
Lender in kind.
SECTION 5.11. NO LIMITATION ON LENDER'S RIGHTS. The
Borrower will not enter into any contractual obligations which may restrict
or inhibit the Lender's rights or ability to sell or otherwise dispose of
the Collateral or any part thereof.
SECTION 5.12. PROTECTION OF COLLATERAL. Upon notice to the
Borrower (provided that if no Event of Default has occurred and is
continuing the Lender need not give any notice), the Lender shall have the
right at any time to make any payments and do any other acts the Lender may
deem necessary to protect its security interests in the Collateral,
including, without limitation, the rights to satisfy, purchase, contest, or
compromise any encumbrance, charge, or lien which, in the reasonable
judgment of the Lender, appears to be prior to or superior to the security
interests granted hereunder, and appear in, and defend any action or
proceeding purporting to affect its security interests in, or the value of,
any of the Collateral. The Borrower hereby agrees to reimburse the Lender
for all payments made and expenses incurred under this Agreement including
fees, expenses, and disbursements of attorneys and paralegals (including
the allocated costs of in-house counsel) acting for the Lender, including
any of the foregoing payments under, or acts taken to protect its security
interests in, any of the Collateral, which amounts shall be secured under
this Agreement, and agrees it shall be bound by any payment made or act
taken by the Lender hereunder absent the Lender's gross negligence or
willful misconduct. The Lender shall have no obligation to make any of the
foregoing payments or perform any of the foregoing acts.
SECTION 5.13. DELIVERY OF ITEMS. The Borrower will
promptly (but in no event later than one Business Day) after its receipt
thereof, deliver to the Lender any documents or certificates of title
issued with respect to any property included in the Collateral, and any
promissory notes, letters of credit or instruments related to or otherwise
in connection with any property included in the Collateral, which in any
such case come into the possession of the Borrower, or shall cause the
issuer thereof to deliver any of the same directly to the Lender, in each
case with any necessary endorsements in favor of the Lender.
SECTION 5.14. SOLVENCY. The Borrower shall be and remain
Solvent at all times.
SECTION 5.15. FUNDAMENTAL CHANGES. The Borrower shall not
(a) amend or modify its name, unless the Borrower delivers to the Lender
thirty days prior to any such proposed amendment or modification written
notice of such amendment or modification and within ten days before such
amendment or modification delivers executed Uniform Commercial Code
financing statements (in form and substance satisfactory to the Lender) or
(b) merge or consolidate with any other entity or make any material change
in its capital structure, in each case without the Lender's prior written
consent which shall not be unreasonably withheld.
SECTION 5.16. ADDITIONAL REQUIREMENTS. The Borrower shall
take all such further actions and execute all such further documents and
instruments as the Lender may reasonably request.
8
<PAGE>
SECTION 6. FINANCIAL STATEMENTS. Until the payment and
---------------------
satisfaction in full of all Obligations, the Borrower shall deliver to the
Lender the following financial information:
SECTION 6.1. ANNUAL FINANCIAL STATEMENTS. As soon as available,
but not later than 120 days after the end of each fiscal year of the Borrower
and its consolidated subsidiaries, the consolidated balance sheet, income
statement, and statements of cash flows and shareholders equity for the Borrower
and its consolidated subsidiaries (the "Financial Statements") for such year,
reported on by independent certified public accountants without an adverse
qualification; and
SECTION 6.2. QUARTERLY FINANCIAL STATEMENTS. As soon as
available, but not later than 60 days after the end of each of the first three
fiscal quarters in any fiscal year of the Borrower and its consolidated
subsidiaries, the Financial Statements for such fiscal quarter, together with a
certification duly executed by a responsible officer of the Borrower that such
Financial Statements have been prepared in accordance with GAAP and are fairly
stated in all material respects (subject to normal year-end audit adjustments).
SECTION 7. EVENTS OF DEFAULT. The occurrence of any of the
-----------------
following events shall constitute an Event of Default hereunder:
(a) the Borrower shall fail to pay within five days of when due
any amount required to be paid by the Borrower under or in connection with any
Note and this Agreement;
(b) any representation or warranty made or deemed made by the
Borrower under or in connection with any Loan Document or any Financial
Statement shall prove to have been false or incorrect in any material respect
when made;
(c) the Borrower shall fail to perform or observe (i) any of the
terms, covenants or agreements contained in Sections 5.4, 5.7, 5.10, 5.14, or
5.15 hereof or (ii) any other term, covenant, or agreement contained in any Loan
Document (other than the other Events of Default specified in this Section 7)
and such failure remains unremedied for the earlier of fifteen days from (A) the
date on which the Lender has given the Borrower written notice of such failure
and (B) the date on which the Borrower knew or should have known of such
failure;
(d) any provision of any Loan Document to which the Borrower is
a party shall for any reason cease to be valid and binding on the Borrower, or
the Borrower shall so state;
(e) dissolution, liquidation, winding up, or cessation of the
Borrower's business, failure of the Borrower generally to pay its debts as they
mature, admission in writing by the Borrower of its inability generally to pay
its debts as they mature, or calling of a meeting of the Borrower's creditors
for purposes of compromising any of the Borrower's debts;
(f) the commencement by or against the Borrower of any
bankruptcy, insolvency, arrangement, reorganization, receivership, or similar
proceedings under any federal or state law and, in the case of any such
involuntary proceeding, such proceeding remains undismissed or unstayed for
forty-five days following the commencement thereof, or any action by the
Borrower is taken authorizing any such proceedings;
(g) an assignment for the benefit of creditors is made by the
Borrower, whether voluntary or involuntary, the appointment of a trustee,
custodian, receiver, or similar official for the Borrower or for any substantial
property of the Borrower, or any action by the Borrower authorizing any such
proceeding;
(h) the Borrower shall default in (i) the payment of principal
or interest on any indebtedness in excess of $50,000 (other than the
Obligations) beyond the period of grace, if any, provided in the instrument or
agreement under which such indebtedness was created; or (ii) the observance or
performance of any other agreement or condition relating to any such
indebtedness or contained in any instrument or agreement relating thereto, or
any other event shall occur or condition exist, the effect of which default or
other event or condition is to
9
<PAGE>
cause, or to permit the holder or holders of such indebtedness to cause, with
the giving of notice if required, such indebtedness to become due prior to its
stated maturity;
(i) the Borrower suffers or sustains a Material Adverse Change;
(j) any tax lien, other than a Permitted Lien, is filed of
record against the Borrower and is not bonded or discharged within five Business
Days;
(k) any judgment which has had or could reasonably be expected
to have a Material Adverse Effect on the Borrower and such judgment shall not be
stayed, vacated, bonded, or discharged within sixty days;
(l) any material covenant, agreement, or obligation, as
determined in the sole discretion of the Lender, made by the Borrower and
contained in or evidenced by any of the Loan Documents shall cease to be
enforceable, or shall be determined to be unenforceable, in accordance with its
terms; the Borrower shall deny or disaffirm the Obligations under any of the
Loan Documents or any liens granted in connection therewith; or any liens
granted on any of the Collateral in favor of the Lender shall be determined to
be void, voidable, or invalid, or shall not be given the priority contemplated
by this Agreement; or
(m) there is a change other than a change which results from a
sale of equity securities to investors in more than 50% of the ownership of any
equity interests of the Borrower on the date hereof or more than 35% of such
interests become subject to any contractual, judicial or statutory lien, charge,
security interest, or encumbrance.
SECTION 8. REMEDIES. If any Event of Default shall have occurred
--------
and be continuing:
(a) The Lender may, without prejudice to any of its other rights
under any Loan Document or Applicable Law, declare all Obligations to be
immediately due and payable (except with respect to any Event of Default set
forth in Section 7(f) hereof, in which case all Obligations shall automatically
become immediately due and payable without necessity of any declaration) without
presentment, representation, demand of payment, or protest, which are hereby
expressly waived.
(b) The Lender may take possession of the Collateral and,
for that purpose may enter, with the aid and assistance of any person or
persons, any premises where the Collateral or any part hereof is, or may be
placed, and remove the same.
(c) The obligation of the Lender, if any, to make additional
Loans or financial accommodations of any kind to the Borrower shall immediately
terminate.
(d) The Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein (or in any Loan
Document) or otherwise available to it, all the rights and remedies of a secured
party under the applicable Uniform Commercial Code (the "Code") whether or not
the Code applies to the affected Collateral and also may (i) require the
Borrower to, and the Borrower hereby agrees that it will at its expense and upon
request of the Lender forthwith, assemble all or part of the Collateral as
directed by the Lender and make it available to the Lender at a place to be
designated by the Lender that is reasonably convenient to both parties and (ii)
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the Lender's
offices or elsewhere, for cash, on credit, or for future delivery, and upon such
other terms as the Lender may deem commercially reasonable. The Borrower agrees
that, to the extent notice of sale shall be required by law, at least ten days'
notice to the Borrower of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. The Lender shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Lender may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned.
10
<PAGE>
(e) All cash proceeds received by the Lender in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Lender, be held by the Lender as
collateral for, or then or at any time thereafter applied in whole or in part by
the Lender against, all or any part of the Obligations in such order as the
Lender shall elect. Any surplus of such cash or cash proceeds held by the
Lender and remaining after the full and final payment of all the Obligations
shall be paid over to the Borrower or to such other Person to which the Lender
may be required under applicable law, or directed by a court of competent
jurisdiction, to make payment of such surplus.
SECTION 9. MISCELLANEOUS PROVISIONS.
-------------------------
SECTION 9.1. NOTICES. Except as otherwise provided herein, all
notices, approvals, consents, correspondence, or other communications required
or desired to be given hereunder shall be given in writing and shall be
delivered by overnight courier, hand delivery, or certified or registered mail,
postage prepaid, if to the Lender, then to Transamerica Technology Finance
Division, 76 Batterson Park Road, Farmington, Connecticut 06032, Attention:
Assistant Vice President, Lease Administration, with a copy to the Lender at
Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont, Illinois
60018, Attention: Legal Department, and if to the Borrower, then to Focal, Inc.,
4 Maguire Road, Lexington, MA 02173, ATTN: Mr. W. Bradford Smith, Vice President
of Finance, or such other address as shall be designated by the Borrower or the
Lender to the other party in accordance herewith. All such notices and
correspondence shall be effective when received.
SECTION 9.2. HEADINGS. The headings in this Agreement are for
purposes of reference only and shall not affect the meaning or construction of
any provision of this Agreement.
SECTION 9.3. ASSIGNMENTS. The Borrower shall not have the right
to assign any Note or this Agreement or any interest therein unless the Lender
shall have given the Borrower prior written consent and the Borrower and its
assignee shall have delivered assignment documentation in form and substance
satisfactory to the Lender in its sole discretion. The Lender may assign its
rights and delegate its obligations under any Note or this Agreement.
SECTION 9.4. AMENDMENTS, WAIVERS, AND CONSENTS. Any amendment
or waiver of any provision of this Agreement and any consent to any departure by
the Borrower from any provision of this Agreement shall be effective only by a
writing signed by the Lender and shall bind and benefit the Borrower and the
Lender and their respective successors and assigns, subject, in the case of the
Borrower, to the first sentence of Section 9.3.
SECTION 9.5. INTERPRETATION OF AGREEMENT. Time is of the
essence in each provision of this Agreement of which time is an element. All
terms not defined herein or in a Note shall have the meaning set forth in the
applicable Code, except where the context otherwise requires. To the extent a
term or provision of this Agreement conflicts with any Note, or any term or
provision thereof, and is not dealt with herein with more specificity, this
Agreement shall control with respect to the subject matter of such term or
provision. Acceptance of or acquiescence in a course of performance rendered
under this Agreement shall not be relevant in determining the meaning of this
Agreement even though the accepting or acquiescing party had knowledge of the
nature of the performance and opportunity for objection.
SECTION 9.6. CONTINUING SECURITY INTEREST. This Agreement shall
create a continuing security interest in the Collateral and shall (i) remain in
full force and effect until the indefeasible payment in full of the Obligations,
(ii) be binding upon the Borrower and its successors and assigns and (iii)
inure, together with the rights and remedies of the Lender hereunder, to the
benefit of the Lender and its successors, transferees, and assigns.
SECTION 9.7. REINSTATEMENT. To the extent permitted by law,
this Agreement and the rights and powers granted to the Lender hereunder and
under the Loan Documents shall continue to be effective or be reinstated if at
any time any amount received by the Lender in respect of the Obligations is
rescinded or must
11
<PAGE>
otherwise be restored or returned by the Lender upon the insolvency, bankruptcy,
dissolution, liquidation, or reorganization of the Borrower or upon the
appointment of any receiver, intervenor, conservator, trustee, or similar
official for the Borrower or any substantial part of its assets, or otherwise,
all as though such payments had not been made.
SECTION 9.8. SURVIVAL OF PROVISIONS. All representations,
warranties, and covenants of the Borrower contained herein shall survive the
execution and delivery of this Agreement, and shall terminate only upon the full
and final payment and performance by the Borrower of the Obligations secured
hereby.
SECTION 9.9. INDEMNIFICATION. The Borrower agrees to indemnify
and hold harmless the Lender and its directors, officers, agents, employees, and
counsel from and against any and all costs, expenses, claims, or liability
incurred by the Lender or such Person hereunder and under any other Loan
Document or in connection herewith or therewith, unless such claim or liability
shall be due to willful misconduct or gross negligence on the part of the Lender
or such Person.
SECTION 9.10. COUNTERPARTS; TELECOPIED SIGNATURES. This
Agreement may be executed in counterparts, each of which when so executed and
delivered shall be an original, but both of which shall together constitute one
and the same instrument. This Agreement and each of the other Loan Documents
and any notices given in connection herewith or therewith may be executed and
delivered by telecopier or other facsimile transmission all with the same force
and effect as if the same was a fully executed and delivered original manual
counterpart.
SECTION 9.11. SEVERABILITY. In case any provision in or
obligation under this Agreement or any Note or any other Loan Document shall be
invalid, illegal, or unenforceable in any jurisdiction, the validity, legality,
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 9.12. DELAYS; PARTIAL EXERCISE OF REMEDIES. No delay or
omission of the Lender to exercise any right or remedy hereunder, whether before
or after the happening of any Event of Default, shall impair any such right or
shall operate as a waiver thereof or as a waiver of any such Event of Default.
No single or partial exercise by the Lender of any right or remedy shall
preclude any other or further exercise thereof, or preclude any other right or
remedy.
SECTION 9.13. ENTIRE AGREEMENT. The Borrower and the Lender
agree that this Agreement, the Schedule hereto, and the Commitment Letter are
the complete and exclusive statement and agreement between the parties with
respect to the subject matter hereof, superseding all proposals and prior
agreements, oral or written, and all other communications between the parties
with respect to the subject matter hereof. Should there exist any inconsistency
between the terms of the Commitment Letter and this Agreement, the terms of this
Agreement shall prevail.
SECTION 9.14. SETOFF. In addition to and not in limitation of
all rights of offset that the Lender may have under Applicable Law, and whether
or not the Lender has made any demand or the Obligations of the Borrower have
matured, the Lender shall have the right to appropriate and apply to the payment
of the Obligations of the Borrower all deposits and other obligations then or
thereafter owing by the Lender to or for the credit or the account of the
Borrower.
SECTION 9.15. WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER
IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
12
<PAGE>
SECTION 9.16. GOVERNING LAW. THE VALIDITY, INTERPRETATION, AND
ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW PRINCIPLES THEREOF.
SECTION 9.17. VENUE; SERVICE OF PROCESS. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS SITUATED IN COOK COUNTY, OR OF
THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF ILLINOIS, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS. THE BORROWER HEREBY IRREVOCABLY WAIVES, IN CONNECTION
WITH ANY SUCH ACTION OR PROCEEDING, (a) ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, THAT IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND (b) THE RIGHT TO
INTERPOSE ANY NONCOMPULSORY SETOFF, COUNTERCLAIM, OR CROSS-CLAIM. THE BORROWER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT THE ADDRESS
FOR IT SPECIFIED IN SECTION 9.1 HEREOF. NOTHING HEREIN SHALL AFFECT THE RIGHT
OF THE LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY
OTHER JURISDICTION, SUBJECT IN EACH INSTANCE TO THE PROVISIONS HEREOF WITH
RESPECT TO RIGHTS AND REMEDIES.
IN WITNESS WHEREOF, the undersigned Borrower has caused this
Agreement to be duly executed and delivered by its proper and duly authorized
officer as of the date first set forth above.
FOCAL, INC.
By: /s/ W. Bradford Smith
Name: W. Bradford Smith
Title: VP - Finance
Accepted as of the
15 day of May, 1997
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: /s/ Gary P. Moro
Name: Gary P. Moro
Title: Vice President
13
<PAGE>
CLOSING STATEMENT
LEASEPLUS NO. 1043-001
BORROWER FOCAL, INC.
PROMISSORY NOTE NO. 1
Interim Rent (3 Days) @ $257.02 $ 771.06
(05/29/97 through 05/31/97)
Rental Payments
June 1, 1997 $ 7,967.56
May 1, 2000 $ 7,967.56
Sub-Total $16,706.18
State of _____ Sales/Use Tax (____%) $ n/a - loan
Total for Rentals and Taxes $16,706.18
Documentation Fee $__________
Includes: UCC Preparation & Filing $________
Lien Search $________
Federal Express $________
Others $________
Attorney Fee $__________
Credits $(16,706.18)
Deducted from proceeds $________
Deducted from commitment fee $ 16,706.18
GRAND TOTAL DUE....... $0.00
PROCEEDS OF PROMISSORY NOTE DATED 5-29-97 $250,009.71
LESS: AMOUNT DEDUCTED FROM PROCEEDS TO TBCC $ 16,706.18
-----------
NET TO FOCAL, INC. $233,303.53
*Documentation and legal expenses will be deducted from the commitment fee upon
receipt of invoices.
Date Prepared 05-20-97
Contract Administration L.M. Robbins
Marketing K. Kosofskv
<PAGE>
PROMISSORY NOTE
Date: May 29, 1997
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
Transamerica Business Credit Corporation or its assigns (the "Payee") at its
office located at Riverway II, West Office Tower, 9399 West Higgins Road,
Rosemont, Illinois 60018, or at such other place as the Payee or the holder
hereof may designate in writing, the principal amount of Two Hundred Fifty
Thousand Nine and 71/100 Dollars ($250,009.71) received by the undersigned, plus
interest, in lawful money of the United States and in immediately available
funds. This Note shall be payable commencing with a first installment of
Sixteen Thousand Seven Hundred Six and 18/100 Dollars ($16,706.18) payable on
June 1, 1997 and thereafter in 34 consecutive equal monthly installments of
Seven Thousand Nine Hundred Sixty Seven and 56/100 Dollars ($7,967.56)
commencing July 1, 1997, and a final balloon payment of Twenty Five Thousand and
97/100 Dollars ($25,000.97) payable on May 1, 2000 together with the unpaid
balance of the Note. No amount of principal paid or prepaid hereunder may be
reborrowed.
This Note is one of the Notes referred to in the Master Loan and
Security Agreement dated as of April 18, 1997, (as amended, supplemented or
otherwise modified from time to time, the "Agreement"), between the undersigned
and the Payee and is subject and entitled to all provisions and benefits
thereof. Capitalized terms used but not defined herein shall have the meanings
set forth in the Agreement.
If any installment of this Note is not paid within five days after its
due date, the undersigned agrees to pay on demand, in addition to the amount of
such installment, an amount equal to 5% of such installment, but only to the
extent permitted by Applicable Law.
The undersigned shall have the right to prepay this Note at any time
on thirty days' prior written notice to the Payee. On the date of any such
prepayment, the undersigned shall pay, if such prepayment is made on or after
June 1, 1998 an amount equal to the present value of the remaining payments
(principal and interest) due hereunder discounted at 6% simple interest per
annum, together with all interest, fees and other amounts payable on the
amount so prepaid or in connection therewith to the date of such prepayment.
Any prepayments shall be applied to the installments hereof in the inverse
order of maturity.
Upon the maturity of this Note or the acceleration of the maturity of
this Note in accordance with the terms of the Agreement, the entire unpaid
principal amount on this Note, together with all interest, fees and other
amounts payable hereon or in connection herewith, shall be immediately due and
payable without further notice or demand, with interest on all such amounts at a
rate not to exceed the lawful limit, from the date of such maturity or
acceleration, as the case may be, until all such amounts have been paid.
<PAGE>
If any payment on this Note becomes payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day.
The undersigned hereby waives diligence, demand, presentment, protest
and notice of any kind, and assents to extensions of the time of payment,
release, surrender or substitution of security, or forbearance or other
indulgence, without notice. The undersigned agrees to pay all amounts under
this Note without offset, deduction, claim, counterclaim, defense or recoupment,
all of which are hereby waived.
The Payee, the undersigned and any other parties to the Loan Documents
intend to contract in strict compliance with applicable usury law from time to
time in effect. In furtherance thereof such Persons stipulate and agree that
none of the terms and provisions contained in the Loan Documents shall ever be
construed to create a contract to pay, for the use, forbearance or detention of
money, interest in excess of the maximum amount of interest permitted to be
charged by Applicable Law from time to time in effect. Neither the undersigned
nor any present or future guarantors, endorsers, or other Persons hereafter
becoming liable for payment of any Obligation shall ever be liable for unearned
interest thereon or shall ever be required to pay interest thereon in excess of
the maximum amount that may be lawfully charged under Applicable Law from time
to time in effect, and the provisions of this paragraph shall control over all
other provisions of the Loan Documents which may be in conflict or apparent
conflict herewith. The Payee expressly disavows any intention to charge or
collect excessive unearned interest or finance charges in the event the maturity
of any Obligation is accelerated. If (a) the maturity of any Obligation is
accelerated for any reason, (b) any Obligation is prepaid and as a result any
amounts held to constitute interest are determined to be in excess of the legal
maximum, or (c) the Payee or any other holder of any or all of the Obligations
shall otherwise collect amounts which are determined to constitute interest
which would otherwise increase the interest on any or all of the Obligations to
an amount in excess of that permitted to be charged by Applicable Law then in
effect, then all sums determined to constitute interest in excess of such legal
limit shall, without penalty, be promptly applied to reduce the then outstanding
principal of the related Obligations or, at the Payee's or such holder's option,
promptly returned to the undersigned upon such determination. In determining
whether or not the interest paid or payable, under any specific circumstance,
exceeds the maximum amount permitted under Applicable Law, the Payee and the
undersigned (and any other payors thereof) shall to the greatest extent
permitted under Applicable Law, (i) characterize any non-principal payment as an
expense, fee or premium rather than as interest, (ii) exclude voluntary
prepayments and the effects thereof, and (iii) amortize, prorate, allocate, and
spread the total amount of interest through the entire contemplated term of this
Note in accordance with the amount outstanding from time to time thereunder and
the maximum legal rate of interest from time to time in effect under Applicable
Law in order to lawfully charge the maximum amount of interest permitted under
Applicable Law.
This Note may not be changed, modified or terminated orally, but only
by an agreement in writing signed by the undersigned and the Payee or any holder
hereof.
The undersigned shall, upon demand, pay to the Payee all costs and
expenses incurred by the Payee (including the fees and disbursements of counsel
and other professionals) in connection with the preparation, execution and
delivery of this Note and all other Loan Documents, and in connection with the
administration, modification and amendment of the Loan Documents, and pay to the
Payee all costs and expenses (including the fees and disbursements of counsel
and other professionals) paid or incurred by the Payee in (A) enforcing or
defending its rights under or in respect of this Note or any of the other Loan
Documents, (B) collecting any of the liabilities by the undersigned to the Payee
or
<PAGE>
otherwise administering the Loan Documents, (C) foreclosing or otherwise
collecting upon any collateral and (D) obtaining any legal, accounting or other
advice in connection with any of the foregoing.
This Note shall be binding upon the successors and assigns of the
undersigned and inure to the benefit of the Payee and its successors, endorsees
and assigns. If any term or provision of this Note shall be held invalid,
illegal or unenforceable, the validity of all other terms and provisions hereof
shall in no way be affected thereby.
EACH OF THE UNDERSIGNED AND, BY ITS ACCEPTANCE HEREOF, THE PAYEE
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES (TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY
DISPUTE ARISING UNDER OR RELATING TO THIS NOTE AND AGREES THAT ANY SUCH DISPUTE
SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS
OF LAW.
FOCAL, INC.
By: /s/ W. Bradford Smith
Name: W. Bradford Smith
Title: Vice President & Chief Financial
Officer
<PAGE>
Schedule A
To: X Master Loan and Security Agreement
---------
X UCC-1
---------
Dated as of May 29, 1997
Between
TRANSAMERICA BUSINESS CREDIT CORPORATION
and
FOCAL, INC.
Leasehold Improvements: 4 Maguire Road, Lexington MA 02173
P1-Pilot Plant #1 P2-Pilot Plant #2 P3-Pilot Plant #3
<TABLE>
<CAPTION>
QTY. EQUIPMENT INVOICE SUPPLIER/ PO SERIAL PURCHASE IMPROVE FRT/MISC CHECK TOTAL
DESCRIPTION NO. VENDOR NO. NO. DATE COST COST NO. COST
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Leasehold Improve-GMP #1 Siena Construction 21493 N/A 3/10/97 $ 4,903.00 19541 $ 4,903.00
Leasehold Improve-2nd Floor #2 Siena Construction 21493 N/A 3/10/97 $ 3,672.00 19541 $ 3,672.00
Leasehold Improve-P1 & P2 09715 Siena Construction 21493 N/A 4/9/97 $ 26,387.00 19969 $26,387.00
Leasehold Improve P3 09709 Siena Construction 21495 N/A 4/9/97 $ 22,849.00 19969 $22,849.00
Leasehold Improve P3 1495 DTS Shaw 21953 N/A 12/11/96 $ 2,149.72 18321 $ 2,149.00
Leasehold Improve P3 0297 DTS Shaw 21953 N/A 2/5/97 $ 73,742.77 19588 $73,742.77
Leasehold Improve P3 1555 DTS Shaw 21953 N/A 2/8/97 $ 20,357.49 19588 $20,357.49
Leasehold Improve P3 1581 DTS Shaw 21953 N/A 3/20/97 $ 87,364.63 19588 $87,364.63
Leasehold Improve P3 1609 DTS Shaw 21953 N/A 4/6/97 $ 8,584.10 19813 $ 8,584.10
Total $ 250,009.71 $ 250,009.71
</TABLE>
TRANSAMERICA BUSINESS CREDIT FOCAL, INC.
CORPORATION
By: /s/ Robert D. Pomeroy, Jr. By: /s/ W. Bradford Smith
Title: Robert D. Pomeroy, Jr. W. Bradford Smith
Executive Vice President Title: Vice President &
Chief Financial Officer
Page 1
<PAGE>
SECRETARY'S CERTIFICATE
I, Christopher D. Mitchell, hereby state that I am the duly elected,
acting and qualified Assistant Secretary of Focal, Inc., a Delaware
corporation(the "Company"),and that:
(a) Through a unanimous consent in lieu of a Board of Directors
meeting of the Company, proposed in accordance with its bylaws and the laws of
said State on the 26th day of March ,1997 , signed by a quorum for the
transaction of business, the following resolutions were duly and regularly
adopted:
RESOLVED, that the form, terms and provisions of all of the documents
and instruments executed by the Company with and/or in favor of Transamerica
Business Credit Corporation (the "Agreements"), and the transactions
contemplated thereby be, and the same are, in all respects approved, and that
the President, each Vice President and each other officer of the Company (the
"Authorized Persons"), or any of them, be, and they hereby are, authorized,
empowered, and directed to execute and deliver the Agreements and any and all
other agreements, documents, instruments and certificates required or desirable
in connection therewith, if necessary or advisable, with such changes as they
may deem in the best interest of the Company, and their execution and delivery
of the Agreements, and all such other agreements, documents, instruments and
certificates, shall be deemed to be conclusive evidence that the same are in all
respects authorized and approved, and be it further
RESOLVED, that the actions of any Authorized Person heretofore taken
in furtherance of the Agreements be, and hereby are, approved, adopted and
ratified in all respects.
(i) The above resolutions: (a) are not contrary to the Articles or
Certificate of Incorporation or bylaws of the Company and (b) have not been
amended, modified, rescinded or revoked and are in full force and effect on the
date hereof.
(iii) The following persons are duly qualified and acting officers
of the Company, duly elected to the offices set forth opposite their respective
names, and the signature appearing opposite the name of each such officer is his
authentic signature:
Name Office Signature
---- ------ ---------
W. Bradford Smith Vice President & /s/ W. Bradford Smith
Chief Financial officer
IN WITNESS WHEREOF, I have executed this Certificate, this 24th day
of April, 1997.
/s/ Christopher D. Mitchell
Ass't. Secretary
[CORPORATE SEAL]
<PAGE>
CLOSING STATEMENT
(Revised)
LEASEPLUS NO. 1043-001 (S)
LESSEE: FOCAL, INC.
RENTAL SCHEDULE NO. 1
Interim Rent (3 Days) @ $191.35 $ 574.05
(05/29/97 through 05/31/97)
Rental Payments
June 1, 1997 $ 5,740.64
May 1, 1997 $ 5,740.64
Sub-Total $12,055.33
State of _____ Sales/Use Tax (____%) $ n/a - exempt
Total for Rentals and Taxes $12,055.33
Documentation Fee $__________
Includes: UCC Preparation & Filing $________
Lien Search $________
Federal Express $________
Others $________
Attorney Fee $__________
Credits $(12,055.33)
Deducted from proceeds $________
Deducted from commitment fee $ 12,055.33
GRAND TOTAL DUE....... $0.00
Proceeds of Sale and Leaseback Agreement dated 5-21-97 $227,920.64
Less: Amount deducted from proceeds to TBCC $ 12,055.33
-----------
Net to Focal, Inc. $215,865.31
*Documentation and legal expenses will be deducted from the commitment fee upon
receipt of invoices.
Date Prepared 05-21-97
Contract Administration L.M. Robbins
Marketing K. Kosofsky
<PAGE>
SCHEDULE TO MASTER LEASE AGREEMENT
Dated as of May 21, 1997
Schedule No. 1
LESSOR NAME & MAILING ADDRESS LESSEE NAME & MAILING ADDRESS
Transamerica Business Credit Corporation Focal, Inc.
Riverway 11 4 Maguire Road
West Office Tower Lexington, Massachusetts02173
9399 West Higgins Road
Rosemont, Illinois 60018
Equipment Location (if different than Lessee's address above):
This Schedule covers the following described equipment ("Equipment"):
See Exhibit II attached hereto and made a part hereof.
The Equipment is hereby leased pursuant to the provisions of the Master Lease
Agreement between the undersigned Lessee and Lessor dated as of April 18, 1997
(the "Master. Lease"), the terms of which are incorporated herein by reference
thereto, plus the following additional terms, provisions, and modifications.
The Lessor reserves the right to adjust the monthly payments in accordance with
the Commitment Letter dated April 10, 1997, if the Lessor has not received this
Schedule executed by the Lessee within five business days from the date first
set forth above.
1. Term (Number of Months) 48 months
2. Equipment Cost $227,920.64
3. Commencement Date May 29, 1997
4. Rate Factor 2.5187% of Equipment Cost
5. Total Rents $275,550.72
Total sales use tax n/a - exempt
6. Advance rents (first and last) $ 11,481.28
7. Monthly rental payments $ 5,740.64
and the second such rental payment
will be due on July 1, 1997
and subsequent rental payments will
be due on the same day of each month thereafter
8. Security Deposit NONE
9. In addition to the monthly rental payments provided for herein, Lessee
shall pay to Lessor, as interim rent, payable on the commencement date specified
above, an amount equal to 1/30th of the monthly rental payment (including
monthly sales/use tax) multiplied by the number of days from and including the
commencement date through the end of the same calendar month.
$ 574.05
<PAGE>
Renewal terms:
In the event the Lease does not exercise the Purchase Option described below,
the Lease shall automatically renew for a term of 12 months with Monthly Rental
equal to 1.25% of the original Equipment Cost payable in monthly in advance. At
the expiration of the renewal period, the Lessee shall have the option to
purchase all (but not less than all) the Equipment for its then current Fair
Market Value, plus applicable sales and other taxes.
Lessee hereby irrevocably authorizes Lessor to insert in this Schedule the
Commencement Date and the due date of the first rental payment.
Except as expressly provided or modified hereby, all the terms and provisions of
the Master Lease Agreement shall remain in full force and effect.
The Purchase Date shall be May 1, 2001. The Purchase Price shall be the Fair
Market Value of the Equipment. Lessor and Lessee agree that the Fair Market
Value of the Equipment on the Purchase Date shall not be less than 10% of
Equipment Cost nor more than 15% of Equipment Cost, plus applicable sales and
other taxes.
The Stipulated Loss Value of any items of Equipment shall be an amount equal to
the present value of all future Rent discounted at a rate of 6% plus
Reversionary Value.
The Reversionary Value of any item of Equipment shall be 15% of Equipment Cost.
TRANSAMERICA BUSINESS CREDIT FOCAL, INC.
CORPORATION (Lessee)
(Lessor)
By: /s/ Robert D. Pomeroy Jr. By: /s/ W. Bradford Smith
Title: Robert D. Pomeroy, Jr. Title: VP - finance
Executive Vice President
<PAGE>
Exhibit II
To: X Master Lease Agreement
-------
X UCC-1
-------
Dated as of May 21, 1997
Between
TRANSAMERICA BUSINESS CREDIT CORPORATION
and
Focal, Inc.
Equipment Location: 4 Maguire Road, Lexington MA 02173
<TABLE>
<CAPTION>
QTY EQUIPMENT INVOICE SUPPLIER/ PO SERIAL PURCHASE EQUIPMENT FRT/MISC CHECK TOTAL
DESCRIPTION NO. VENDOR NO. NO. DATE COST COST NO. COST
- -------------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C> <C> <C> <C> <C>
18 Refurbished Phones 19540 Alliance Telecom 20523 See 1/6/97 $ 2,760.00 40.00 18755 $ 2.800.00
Attachment
8 Microstation V5.0 039931 Bentley Systems, 20557 See 12/31/96 $ 11,186.00 31.76 18511 $ 11,217.76
w/ Versa Card Inc. Attachment
5 HP Vectra 500 M7124 Cambridge Cad 21469 See 3/31/97 $ 12,392.00 197.61 19385 $ 12,589.61
16MB EDO Attachment
2 Sony CPD 200SX 17" M7124 Cambridge Cad 21469 See 3/31/97 $ 1,450.00 19385 $ 1,450.00
Attachment
3 Sony Multiscan M7124 Cambridge Cad 21469 See 3/31/97 $ 1,185.00 19385 $ 1,185.00
100SX Attachment
1 ea Apple Card, Win M7125 Cambridge Cad 21466 N/A 3/31/97 $ 1,044.40 18.50 19578 $ 1,062.90
95 & 32 MB
1 Heat Transfer 940 Heat Exchange 20434 See 1/2/97 $ 5,805.00 18495 $ 5,805.00
System/Chiller & Transfer Attachment
1 Heat Transfer 968 Heat Exchange 20434 See 1/15/97 $ 17,397.60 18696 $ 17,397.60
System/Chiller & Transfer Attachment
1 Heat Transfer 050078 Heat Exchange 20434 See 3/21/97 $ 15,606.90 19720 $ 15,606.90
System/Chiller & Transfer Attachment
1 Heat Transfer 822 Heat Exchange 20434 See 11/19/96 $ 5,068.50 18244 $ 5,068.50
System/Chiller & Transfer Attachment
2 2000 UltraFiltration 1770834 Millipore 21538 See 3/14/97 $ 8,140.00 13.62 19516 $ 8,153.62
Cell Corporation Attachment
2 RS4 Reservoir - 1772868 Millipore 21538 See 3/18/97 $ 1,480.00 5.00 19620 $ 1,485.00
4 Liter Corporation Attachment
1 Cavity Insert Mold Prepay/9004 Precision Tool 20089 N/A 2/5/97 $ 32,547.00 17517/ $ 32,547.00
& Die Inc. 19434
Subtotal $ 116,062.40 $ 306.49 $116,368.89
</TABLE>
Page 1
<PAGE>
Exhibit II
Equipment Location 4 Maguire Road, Lexington MA 02173
<TABLE>
<CAPTION>
QTY EQUIPMENT INVOICE SUPPLIER/ PO SERIAL PURCHASE EQUIPMENT FRT/MISC CHECK TOTAL
DESCRIPTION NO. VENDOR NO. NO. DATE COST COST NO. COST
- -------------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 Microstation 6638 Rowse & 20556 See 1/23/97 $ 2,900.00 160.75 18839 $ 3,060.75
Loring Co. Attachment
1 5 Gallon Pfaudler 1300 Universal 20975 32197TS 2/19/97 $ 28,400.00 18994/ $ 28,400.00
Glass Reactor Glasteel Equip 19773
1 30 Gallon Pfaudler 1208 Universal 20069 R190-0525 10/1/96 $ 25,631.00 400.00 17247 $ 26,031.00
Reactor Process Equip
1 Millenium Software 2279474 Waters 19414 MX5SM2105M 7/8/96 $ 8,700.00 5.00 16423 $ 8,705.00
w/BUS LAC/ Corporation
1 New Syringe Mold 9354 Precision Tool 21130 N/A 4/2/97 $ 36,785.00 19965 $ 36,785.00
& Die $
1 Applicator Brush 9309 Precision Tool 20083 N/A 3/26/97 $ 2,728.00 19965 $ 2,728.00
Ferrule Mold & Die
1 Applicator Brush Prepay Precision Tool 20083 N/A 3/27/97 $ 2,728.00 19965 $ 2,728.00
Ferrule Mold & Die
1 Applicator Brush 9328 Precision Tool 20083 N/A 3/27/97 $ 3,114.00 19965 $ 3,114.00
Ferrule Mold & Die
Subtotal $ 110,986.00 $ 565.75 $ 111,551.75
TOTAL $ 227,048.40 $ 227,920.64
------------ ------------
</TABLE>
Transamerica Business Credit Focal, Inc.
Corporation
By: /s/ Robert D. Pomeroy, Jr. By: /s/ W. Bradford Smith
W. Bradford Smith
Title: Robert D. Pomeroy, Jr.
Executive Vice President Title: VP - Finance
Page 2
<PAGE>
ACCEPTANCE AND DELIVERY CERTIFICATE
Focal, Inc., as lessee ("Lessee") under the Master Lease Agreement
dated as of April 18, 1997 between Lessee and Transamerica Business Credit
Corporation, as Lessor, does hereby acknowledge the acceptance and delivery of
the equipment listed in Lease Schedule No. 1, such acceptance and delivery
having been made on the 29th day of May, 1997.
Focal, Inc.
By: /s/ W. Bradford Smith
Name: W. Bradford Smith
Title: Vice President & Chief Financial Officer
<PAGE>
SALE AND LEASEBACK AGREEMENT
THIS SALE AND LEASEBACK AGREEMENT (this "Agreement"), is made as of
May 21, 1997, among Focal, Inc., a Delaware corporation ("Seller"), and
Transamerica Business Credit Corporation, a Delaware corporation ("Buyer").
W I T N E S S E T H:
- - - - - - - - - - -
WHEREAS, Seller is the owner of the equipment more particularly
described on Exhibit II hereto (the "Equipment");
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase
from Seller the Equipment; and
WHEREAS, Buyer, as a condition to such purchase, wishes to lease to
Seller and Seller wishes to lease from Buyer the Equipment under the terms and
conditions of the Master Lease Agreement dated as of April 18, 1997 and Schedule
No. 1 thereto (collectively, as amended, supplemented or otherwise modified from
time to time, the "Lease") between Buyer, as lessor, and Seller, as lessee.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. AMOUNT AND TERMS OF PURCHASE.
----------------------------
(a) Subject to the terms and conditions of this Agreement, and
in reliance upon the representations and warranties of the Seller herein set
forth, the Buyer agrees to purchase all of the Seller's right, title and
interest in and to all of the Equipment such that the Buyer will become the
owner of all such Equipment for all purposes whatsoever. The Seller hereby
agrees that the Buyer is under no obligation to purchase any other equipment now
or in the future and shall not assert a claim that the Buyer may have any such
obligation.
(b) The price to be paid by the Buyer with respect to the
purchase of the Equipment (the "Purchase Price") is $227,920.64. The Purchase
Price shall be payable to the Seller on the Lease Commencement Date (as defined
in the Lease).
(c) The Seller shall pay any and all applicable federal, state,
county or local taxes and any and all present or future taxes or other
governmental charges arising in connection with the sale of the Equipment
hereunder, including sales, use or occupation taxes due upon the purchase by the
Buyer.
<PAGE>
(d) The purchase of the Equipment shall be evidenced by a bill
of sale, substantially in the form attached hereto as Exhibit A (the "Bill of
Sale"), duly executed by the Seller.
2. CONDITIONS TO PURCHASE. The obligation of the Buyer to purchase
the Equipment is subject to the following conditions:
(a) The Buyer shall have received this Agreement, duly
executed by the Seller.
(b) The Buyer shall have received the Bill of Sale, duly
executed by the Seller.
(c) The Buyer shall have received the Lease, duly executed by
the Seller.
(d) The Buyer shall have received resolutions of the Board of
Directors of the Seller approving and authorizing the execution, delivery and
performance by the Seller of this Agreement, the Lease and the notices and other
documents to be delivered by the Seller hereunder and thereunder (collectively,
the "Sale and Leaseback Documents").
(e) The Buyer shall have received the certificate of title or
similar evidence of ownership with respect to each item of Equipment and Uniform
Commercial Code financing statements covering the Equipment in form and
substance satisfactory to the Buyer, duly executed by the Seller.
(f) No material adverse change has occurred with respect to the
business, prospects, properties, results of operations, assets, liabilities or
condition (financial or otherwise) of the Seller and its affiliates, taken as a
whole, since December 31, 1995.
(g) The Buyer shall have received all warranties and other
documentation received or executed by Seller in connection with the original
acquisition of the Equipment by the Seller (and by its execution hereof the
Seller hereby assigns to the Buyer all such warranties and other Documentation).
(h) The Buyer shall have received such other approvals, opinions
or documents as the Buyer may reasonably request.
3. REPRESENTATION AND WARRANTIES. To induce the Buyer to enter into
------------------------------
this Agreement, the Seller represents and warrants to the Buyer that:
(a) The Seller is duly authorized to execute, deliver and
perform its obligations under each of the Sale and Leaseback Documents and all
corporate action required on
-2-
<PAGE>
its part for the due execution, delivery and performance of the transactions
contemplated herein and therein has been duly and effectively taken.
(b) The execution, delivery and performance by the Seller of
each of the Sale and Leaseback Documents and the consummation of the
transactions contemplated herein and therein does not and will not violate any
provision of, or result in a default under, the Seller's Articles or
Certificates of Incorporation or By-laws or any indenture or agreement to which
the Seller is a party or to which its assets are bound or any order, permit,
law, statute, code, ordinance, rule, regulation, certificate or any other
requirement of any governmental authority or regulatory body to which the Seller
is subject, or result in the creation or imposition of any mortgage, deed of
trust, pledge, security interest, lien or encumbrance of any kind upon or with
respect to the Equipment or any proceeds thereof, other than those in favor of
the Buyer as contemplated by the Sale and Leaseback Documents.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by the Seller of any of
the Sale and Leaseback Documents to which it is a party.
(d) Each Sale and Leaseback Document to which the Seller is a
party constitutes or will constitute, when delivered hereunder, the legal, valid
and binding obligation of the Seller enforceable against the Seller in
accordance with its respective terms, except as such enforceability may be (i)
limited by the effect of applicable bankruptcy, insolvency, reorganization or
similar laws affecting the enforcement of creditors' rights generally or (ii)
subject to the effect of general principles of equity (regardless of whether
such enforceability is considered in a proceeding at equity or at law).
(e) There are no actions, suits, or proceedings pending,
threatened against or affecting the Seller which seek to enjoin, prohibit or
restrain the consummation of any of the transactions contemplated hereby or by
the other Sale and Leaseback Documents.
(f) Each item of Equipment is owned by the Seller free and clear
of any liens and encumbrances of any kind or description. Upon purchase of the
Equipment hereunder, the Buyer will acquire good and marketable title in and to
the Equipment.
All representations and warranties herein shall survive the execution of this
Agreement and the purchase of the Equipment.
4. INDEMNITIES. The Seller agrees to indemnify, defend, and save
-----------
harmless the Buyer and its officers, directors, employees, agents, and
attorneys, and each of them (the "Indemnified Parties"), from and against all
claims, actions, suits, and other legal proceedings, damages, costs,
interest, charges, counsel fees and other expenses and penalties
(collectively, the "Indemnified Amounts") which any of the Indemnified
Parties may sustain or incur by reason of
-3-
<PAGE>
or arising out of (i) the Seller's ownership of any Equipment prior to the date
on which such Equipment is sold to the Buyer, or the Seller's acts or omissions
prior to such date under, in connection with or relating to such Equipment or
any of the Sale and Leaseback Documents, (ii) the operation, maintenance or use
of such Equipment prior to such date, (iii) the inaccuracy of any of the
Seller's representations or warranties contained in any of the Sale and
Leaseback Documents, (iv) the breach of any of the Seller's covenants contained
in any of the Sale and Leaseback Documents, (v) any loss or damage to any
Equipment in excess of the deductible which is not paid by insurance or (vi) any
sales, use, excise and other taxes, charges, and fees (including, without
limitation, income, franchise, business and occupation, gross receipts, sales,
use, licensing, registration, titling, personal property, stamp and interest
equalization taxes, levies, imposts, duties, charges or withholdings of any
nature), and any fines, penalties or interest thereon, imposed or levied by any
governmental body, agency or tax authority upon or in connection with the
Equipment, its acquisition, ownership, delivery, leasing, possession, use or
relocation or otherwise in connection with the transactions contemplated by each
Sale and Leaseback Document.
5. REMEDIES. Upon the Seller's violation of or default under any
--------
provision of this Agreement, the Buyer may (subject to the provisions of the
other Sale and Leaseback Documents) proceed to protect and enforce its rights
either by suit in equity or by action at law or both, whether for the
specific performance of any covenant or agreement contained herein or in aid
of the exercise of any power granted in any Sale and Leaseback Document; it
being intended that the remedies contained in any Sale and Leaseback Document
shall be cumulative and shall be in addition to every other remedy given
under such Sale and Leaseback Document or now or hereafter existing at law or
in equity or by statute or otherwise.
6. AMENDMENTS, ETC. No amendment or waiver of any provision of this
---------------
Agreement, nor consent to any departure therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Buyer, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
7. NOTICES, ETC. All notices and other communications provided for
------------
hereunder shall be in writing and sent:
if to the Seller, at its address at:
Focal, Inc.
4 Maguire Road
Lexington, Massachusetts 02173
Attention: W. Bradford Smith, Vice President of Finance
Telephone No.: (617) 280-7800, ext. 246
Telecopy No.: (617) 280-7801
-4-
<PAGE>
if to the Buyer, at its address at:
Transamerica Business Credit Corporation
Technology Finance Division
76 Batterson Park Road
Farmington, Connecticut 06032-2571
Attention: Assistant Vice President,
Lease Administration
Telephone No.: (860) 677-6466
Telecopy No.: (860) 677-6766
with a copy to:
Transamerica Business Credit Corporation
9399 West Higgins Road
Rosemont, Illinois 60018
Attention: Legal Department
Telephone No.: (847) 685-1106
Telecopy No.: (847) 685-1143
or to such other address as shall be designated by such party in a written
notice to the other party. All such notices shall be deemed given (i) if sent
by certified or registered mail, three days after being postmarked, (ii) if sent
by overnight delivery service, when received at the above stated addresses or
when delivery is refused and (iii) if sent by facsimile transmission, when
receipt of such transmission is acknowledged.
8. NO WAIVER; REMEDIES. No failure on the part of the Buyer to
--------------------
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
9. BENEFIT. Without the prior written consent of the Buyer, the
-------
Seller may not transfer, assign or delegate any of its rights, duties or
obligations hereunder.
10. BINDING EFFECT. This Agreement shall be binding upon and inure to
--------------
the benefit of the Seller and the Buyer and their respective successors and
assigns.
11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
--------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING
EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
-5-
<PAGE>
12. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
-------------------------
number of counterparts, each of which shall constitute an original and all of
which taken together shall constitute one and the same agreement.
13. SEVERABILITY. If one or more of the provisions contained in this
------------
Agreement shall be invalid, illegal, or unenforceable in any respect, the
validity, legality, and enforceability of the remaining provisions contained
herein, and any other application thereof, shall not in any way be affected or
impaired thereby.
14. SUBMISSION TO JURISDICTION. ALL DISPUTES ARISING UNDER OR IN
--------------------------
CONNECTION WITH THIS AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER SOUNDING
IN CONTRACT, TORT, EQUITY OR OTHERWISE SHALL BE RESOLVED ONLY BY STATE AND
FEDERAL COURTS LOCATED IN ILLINOIS, AND THE COURTS TO WHICH AN APPEAL
THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT THE BUYER SHALL HAVE THE
RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE
SELLER OR ITS PROPERTY IN ANY LOCATION REASONABLY SELECTED BY THE BUYER IN
GOOD FAITH TO ENABLE THE BUYER TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE BUYER. EACH PARTY AGREES THAT
IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN
ANY PROCEEDING BROUGHT BY THE BUYER; IT BEING UNDERSTOOD THAT THIS SENTENCE
DOES NOT PRECLUDE THE SELLER FROM ASSERTING COMPULSORY COUNTERCLAIMS. THE
SELLER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN
WHICH THE BUYER HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION,
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS.
15. JURY TRIAL. THE PARTIES HERETO EACH HEREBY WAIVE TO THE FULLEST
----------
EXTENT PERMITTED BY LAW ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers hereunto duly authorized, as of the
first date written above.
FOCAL, INC.
By:/s/ W. Bradford Smith
Name: W. Bradford Smith
Title: Vice President & Chief Financial Officer
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By:/s/ Robert D. Pomeroy, Jr.
Name: Robert D. Pomeroy, Jr.
Title: Executive Vice President
Exhibit II- Equipment
Exhibit A- Bill of Sale
-7-
<PAGE>
EXHIBIT A
BILL OF SALE
KNOW ALL PERSONS BY THESE PRESENTS Focal, Inc. (the "Seller"), for Two
Hundred Twenty Seven Thousand Nine Hundred Twenty and 64/100 Dollars
($227,920.64) and other valuable consideration to it in hand paid, receipt of
which is hereby acknowledged, does unconditionally, absolutely and irrevocably
grant, sell, assign, transfer and convey unto TRANSAMERICA BUSINESS CREDIT
CORPORATION and its assignees or successors (collectively, the "Buyer"), all of
the Seller's right, title and interest in and to the equipment described on
Exhibit II hereto (collectively, the "Equipment").
TO HAVE AND TO HOLD said Equipment unto the said Buyer, to and for its
use forever.
AND, the Seller hereby warrants, covenants and agrees that it (a) has
good and marketable title to the Equipment, free and clear of any liens and
other encumbrances; and (b) will warrant and defend the sale of the Equipment
against any and all persons claiming against such title.
IN WITNESS WHEREOF the Seller has caused this instrument to be duly
executed and delivered as of this 29 day of May, 1997.
Focal, Inc.
By: /s/ W. Bradford Smith
Name: W. Bradford Smith
Title: VP - Finance
-8-
<PAGE>
MASTER LEASE AGREEMENT
Lessor: TRANSAMERICA BUSINESS CREDIT CORPORATION
Riverway II
West Office Tower
West Higgins
Rosemont, Illinois 60018
Lessee: Focal, Inc.
4 Maguire Road
Lexington, Massachusetts 02173
The lessor pursuant to this Master Lease Agreement ("Agreement") dated as of
April 18, 1997, is Transamerica Business Credit Corporation ("Lessor"). All
equipment, together with all present and future additions, parts, accessories,
attachments, substitutions, repairs, improvements, and replacements thereof or
thereto, which are the subject of a Lease (as defined in the next sentence)
shall be referred to as "Equipment." Simultaneous with the execution and
delivery of this Agreement, the parties are entering into one or more Lease
Schedules (each, a "Schedule") which refer to and incorporate by reference this
Agreement, each of which constitutes a lease (each, a "Lease") for the Equipment
specified therein. Additional details pertaining to each Lease are specified in
the applicable Schedule. Each Schedule that the parties hereafter enter into
shall constitute a Lease. Lessor has no obligation to enter into any additional
leases with, or extend any future financing to, Lessee.
1. LEASE. Subject to and upon all of the terms and conditions of
-----
this Agreement and each Schedule, Lessor hereby agrees to lease to Lessee and
Lessee hereby agrees to lease from Lessor the Equipment for the Term (as
defined in Paragraph 2 below) thereof. The timing and financial scope of
Lessor's obligation to enter into Leases hereunder are limited as set forth
in the Commitment Letter executed by Lessor and Lessee, dated as of April 10,
1997 and attached hereto as Exhibit A (the "Commitment Letter").
2. TERM. Each Lease shall be effective and the term of each Lease
----
("Term") shall commence on the commencement date specified in the applicable
Schedule and, unless sooner terminated (as hereinafter provided), shall expire
at the end of the term specified in such Schedule; provided, however, that
-------- -------
obligations due to be performed by Lessee during the Term shall continue
until they have been performed in full. Schedules will only be executed after
the delivery of the Equipment to Lessee or upon completion of deliveries of
items of such Equipment with aggregate cost of not less than $100,000.
3. RENT. Lessee shall pay as rent to Lessor, for use of the
-----
Equipment during the Term or Renewal Term (as defined in Paragraph 8), rental
payments equal to the sum of all rental payments including, without
limitation, security deposits, advance rents, and interim rents payable in
the amounts and on the dates specified in the applicable Schedule ("Rent").
If any Rent or other amount payable by Lessee is not paid within ten days
after the day on which it becomes payable, Lessee will pay on demand, as a
late charge, an amount equal to 5% of such unpaid Rent or other amount but
only to the extent permitted by applicable law. All payments provided for
herein shall be payable to Lessor at its address specified above, or at any
other place designated by Lessor.
4. LEASE NOT CANCELABLE: LESSEE'S OBLIGATIONS ABSOLUTE. No Lease
---------------------------------------------------
may be canceled or terminated except as expressly provided herein. Lessee's
obligation to pay all Rent due or to become due hereunder shall be absolute
and unconditional and shall not be subject to any delay, reduction, set-off,
defense, counterclaim, or recoupment for any reason whatsoever, including any
failure of the Equipment or any representations by the manufacturer or the
vendor thereof. If the Equipment is unsatisfactory for any reason, Lessee
shall make any claim solely against the manufacturer or the vendor thereof
and shall, nevertheless, pay Lessor all Rent payable hereunder.
<PAGE>
5. SELECTION AND USE OF EQUIPMENT. Lessee agrees that it shall be
------------------------------
responsible for the selection and use of, and results obtained from, the
Equipment and any other associated equipment or services.
6. WARRANTIES. LESSOR MAKES N0 REPRESENTATION OR WARRANTY, EXPRESS
----------
OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE
DESIGN OR CONDITION OF THE EQUIPMENT OR ITS MERCHANTABILITY, SUITABILITY,
QUALITY, OR FITNESS FOR A PARTICULAR PURPOSE, AND HEREBY DISCLAIMS ANY SUCH
WARRANTY. LESSEE SPECIFICALLY WAIVES ALL RIGHTS TO MAKE A CLAIM AGAINST
LESSOR FOR BREACH OF ANY WARRANTY WHATSOEVER. LESSEE LEASES THE EQUIPMENT
"AS IS." IN NO EVENT SHALL LESSOR HAVE ANY LIABILITY, NOR SHALL LESSEE HAVE
ANY REMEDY AGAINST LESSOR, FOR ANY LIABILITY, CLAIM, LOSS, DAMAGE, OR EXPENSE
CAUSED DIRECTLY OR INDIRECTLY BY THE EQUIPMENT OR ANY DEFICIENCY OR DEFECT
THEREOF OR THE OPERATION, MAINTENANCE, OR REPAIR THEREOF OR ANY CONSEQUENTIAL
DAMAGES AS THAT TERM IS USED IN SECTION 2-719(3) OF THE MODEL UNIFORM
COMMERCIAL CODE, AS AMENDED FROM TIME TO TIME ("UCC"). Lessor grants to
Lessee, for the sole purpose of prosecuting a claim, the benefits of any and
all warranties made available by the manufacturer or the vendor of the
Equipment to the extent assignable.
7. DELIVERY. Lessor hereby appoints Lessee as Lessor's agent for
--------
the sole and limited purpose of accepting delivery of the Equipment from each
vendor thereof. Lessee shall pay any and all delivery and installation
charges. Lessor shall not be liable to Lessee for any delay in, or failure
of, delivery of the Equipment.
8. RENEWAL. So long as no Event of Default or event which, with the
-------
giving of notice, the passage of time, or both, would constitute an Event of
Default, shall have occurred and be continuing, or the Lessee shall not have
exercised its purchase option under Paragraph 9 hereof, each Lease will
automatically renew for a term specified in the applicable Schedule (the
"Renewal Term") on the terms and conditions of this Agreement or as set forth
in such Schedule; provided, however, that Obligations due to be performed by
-------- -------
the Lessee during the Renewal Term shall continue until they have been performed
in full.
9. PURCHASE OPTION. So long as no Event of Default or event which,
---------------
with the giving of notice, the passage of time, or both, would constitute an
Event of Default, shall have occurred and be continuing, Lessee may, upon
written notice to Lessor received at least ninety days before the expiration
of a Term, purchase all, but not less than all, the Equipment covered by the
applicable Lease on the date specified therefor in the applicable Schedule
("Purchase Date"). The purchase price for such Equipment shall be its fair
market value as set forth in the applicable Schedule determined on an
"In-place, In-use" basis, as mutually agreed by Lessor and Lessee, or, if
they cannot agree, as determined by an independent appraiser selected by
Lessor and approved by Lessee, which approval will not be unreasonably
delayed or withheld. Lessee shall pay the cost of any such appraisal. So
long as no Event of Default or event which, with the giving of notice, the
passage of time, or both would constitute an Event of Default shall have
occurred and be continuing, Lessee may, upon written notice to Lessor
received at least ninety days prior to the expiration of the Renewal Term,
purchase all, but not less than all, the Equipment covered by the applicable
Schedule by the last date of the Renewal Term (the "Alternative Purchase
Date") at a purchase price equal to its then fair market value on an
"In-place, In-use" basis. On the Purchase Date or the Alternative Purchase
Date, as the case may be, for any Equipment, Lessee shall pay to Lessor the
purchase price, together with all sales and other taxes applicable to the
transfer of the Equipment and any other amount payable and arising hereunder,
in immediately available funds, whereupon Lessor shall transfer to Lessee,
without recourse or warranty of any kind, express or implied, all of Lessor's
right, title, and interest in and such Equipment on an "As Is, Where Is"
basis.
<PAGE>
10. OWNERSHIP; INSPECTION; MARKING; FINANCING STATEMENTS. Lessee
-----------------------------------------------------
shall affix to the Equipment any labels supplied by Lessor indicating
ownership of such Equipment. The Equipment is and shall be the sole property
of Lessor. Lessee shall have no right, title, or interest therein, except as
lessee under a Lease. The Equipment is and shall at all times be and remain
personal property and shall not become a fixture. Lessee shall obtain and
record such instruments and take such steps as may be necessary to prevent
any person from acquiring any rights in the Equipment by reason of the
Equipment being claimed or deemed to be real property. Upon request by
Lessor, Lessee shall obtain and deliver to Lessor valid and effective
waivers, in recordable form, by the owners, landlords, and mortgagees of the
real property upon which the Equipment is located or certificates of Lessee
that it is the owner of such real property or that such real property is
neither leased nor mortgaged. Lessee shall make the Equipment and its
maintenance records available for inspection by Lessor at reasonable times
and upon reasonable notice. Lessee shall execute and deliver to Lessor for
filing any UCC financing statements or similar documents Lessor may
reasonably request.
11. EQUIPMENT USE. Lessee agrees that the Equipment will be operated
-------------
by competent, qualified personnel in connection with Lessee's business for
the purpose for which the Equipment was designed and in accordance with
applicable operating instructions, laws, and government regulations, and that
Lessee shall use all reasonable precautions to prevent loss or damage to the
Equipment from fire and other hazards. Lessee shall procure and maintain in
effect all orders, licenses, certificates, permits, approvals, and consents
required by federal, state, or local laws or by any governmental body,
agency, or authority in connection with the delivery, installation, use, and
operation of the Equipment.
12. MAINTENANCE. Lessee, at its sole cost and expense, shall keep
-----------
the Equipment in a suitable environment as specified by the manufacturer's
guidelines or the equivalent, shall meet all recertification requirements,
and shall maintain the Equipment in its original condition and working order,
ordinary wear and tear excepted. At the reasonable request of Lessor, Lessee
shall furnish all proof of maintenance.
13. ALTERATION; MODIFICATIONS; PARTS. Lessee may alter or modify the
---------------------------------
Equipment only with the prior written consent of Lessor. Any alteration shall
be removed and the Equipment restored to its normal, unaltered condition at
Lessee's expense (without damaging the Equipment's originally intended function
or its value) prior to its return to Lessor. Any part installed in connection
with warranty or maintenance service or which cannot be removed in accordance
with the preceding sentence shall be the property of Lessor.
14. RETURN OF EQUIPMENT. Except for Equipment that has suffered a
-------------------
Casualty Loss (as defined in Paragraph 15 below) and is not required to be
repaired pursuant to Paragraph 15 below or Equipment purchased by Lessee
pursuant to Paragraph 9 above, upon the expiration of the Renewal Term of a
Lease, or upon demand by Lessor pursuant to Paragraph 22 below, Lessee shall
contact Lessor for shipping instructions and, at Lessee's own risk,
immediately return the Equipment, freight prepaid, to a location in the
continental United States specified by Lessor. At the time of such return to
Lessor, the Equipment shall (i) be in the operating order, repair, and
condition as required by or specified in the original specifications and
warranties of each manufacturer and vendor thereof, ordinary wear and tear
excepted, (ii) meet all recertification requirements, and (iii) be capable of
being promptly assembled and operated by a third party purchaser or third
party lessee without further repair, replacement, alterations, or
improvements, and in accordance and compliance with any and all statutes,
laws, ordinances, rules, and regulations of any governmental authority or any
political subdivision thereof applicable to use and operation of the
Equipment. Except as otherwise provided under Paragraph 9 hereof, at least
ninety days before the expiration of the Renewal Term, Lessee shall give
Lessor notice of its intent to return the Equipment at the end of such
Renewal Term. During the ninety-day period prior to the end of a Term or the
Renewal Term, Lessor and its prospective purchasers or lessees shall have,
upon not less than two business days' prior notice to Lessee and during
normal business hours, or at any time and without prior notice upon the
occurrence and continuance of an Event of Default, the right of access to the
premises on which the Equipment is located to inspect the Equipment, and
Lessee shall cooperate in all other respects with Lessor's remarketing of the
Equipment. The provisions of this Paragraph 14 are of the essence of the
Lease, and upon application to any court of equity having jurisdiction in the
premises, Lessor shall be entitled to a decree against Lessee requiring
specific performance of the covenants of Lessee set forth in this Paragraph
14. If Lessee fails to return the Equipment when required, the terms and
conditions of the
<PAGE>
Lease shall continue to be applicable and Lessee shall continue to pay Rent
until the Equipment is received by Lessor.
15. CASUALTY INSURANCE; LOSS OR DAMAGE. Lessee will maintain, at its
----------------------------------
own expense, liability and property damage insurance relating to the
Equipment, insuring against such risks as are customarily insured against on
the type of equipment leased hereunder by businesses in which Lessee is
engaged in such amounts, in such form, and with insurers satisfactory to
Lessor; provided, however, that the amount of insurance against
-------- -------
damage or loss shall not be less than the greater of (a) the replacement value
of the Equipment and (b) the stipulated loss value of the Equipment specified in
the applicable Schedule ("Stipulated Loss Value"). Each liability insurance
policy shall provide coverage (including, without limitation, personal injury
coverage) of not less than $1,000,000 for each occurrence, and shall name Lessor
as an additional insured; and each property damage
---------- --------
policy shall name Lessor as sole loss payee and all policies shall contain a
---------------
clause requiring the insurer to give Lessor at least thirty days' prior written
notice of any alteration in the terms or cancellation of the policy. Lessee
shall furnish to Lessor a copy of each insurance policy (with endorsements) or
other evidence satisfactory to Lessor that the required insurance coverage is
in effect; provided, however, Lessor shall have no
--------- -------
duty to ascertain the existence of or to examine the insurance policies to
advise Lessee if the insurance coverage does not comply with the requirements of
this Paragraph. If Lessee fails to insure the Equipment as required, Lessor
shall have the right but not the obligation to obtain such insurance, and the
cost of the insurance shall be for the account of Lessee due as part of the next
due Rent. Lessee consents to Lessor's release, upon its failure to obtain
appropriate insurance coverage, of any and all information necessary to obtain
insurance with respect to the Equipment or Lessor's interest therein.
Until the Equipment is returned to and received by Lessor as provided
in Paragraph 14 above, Lessee shall bear the entire risk of theft or destruction
of, or damage to, the Equipment including, without limitation, any condemnation,
seizure, or requisition of title or use ("Casualty Loss"). No Casualty Loss
shall relieve Lessee from its obligations to pay Rent except as provided in
clause (b) below. When any Casualty Loss occurs, Lessee shall immediately
notify Lessor and, at the option of Lessor, shall promptly (a) place such
Equipment in good repair and working order; or (b) pay Lessor an amount equal to
the Stipulated Loss Value of such Equipment and all other amounts (excluding
Rent) payable by Lessee hereunder, together with a late charge on such amounts
at a rate per annum equal to the rate imputed in the Rent payments hereunder (as
reasonably determined by Lessor) from the date of the Casualty Loss through the
date of payment of such amounts, whereupon Lessor shall transfer to Lessee,
without recourse or warranty (express or implied), all of Lessor's interest, if
any, in and to such Equipment on an "AS IS, WHERE IS" basis. The proceeds of
any insurance payable with respect to the Equipment shall be applied, at the
option of Lessor, either towards (i) repair of the Equipment or (ii) payment of
any of Lessee's obligations hereunder. Lessee hereby appoints Lessor as
Lessee's attorney-in-fact to make claim for, receive payment of, and execute and
endorse all documents, checks or drafts issued with respect to any Casualty Loss
under any insurance policy relating to the Equipment.
16. TAXES Lessee shall pay when due, and indemnify and hold Lessor
-----
harmless from, all sales, use, excise, and other taxes, charges, and fees
(including, without limitation, income, franchise, business and occupation,
gross receipts, licensing, registration, titling, personal property, stamp
and interest equalization taxes, levies, imposts, duties, charges, or
withholdings of any nature), and any fines, penalties, or interest thereon,
imposed or levied by any governmental body, agency, or tax authority
<PAGE>
upon or in connection with the Equipment, its purchase, ownership, delivery,
leasing, possession, use, or relocation of the Equipment or otherwise in
connection with the transactions contemplated by each Lease or the Rent
thereunder, excluding taxes on or measured by the net income of Lessor. Upon
request, Lessee will provide proof of payment. Unless Lessor elects otherwise,
Lessor will pay all property taxes on the Equipment for which Lessee shall
reimburse Lessor promptly upon request. Lessee shall timely prepare and file
all reports and returns which are required to be made with respect to any
obligation of Lessee under this Paragraph 16. Lessee shall, to the extent
permitted by law, cause all billings of such fees, taxes, levies, imposts,
duties, withholdings, and governmental charges to be made to Lessor in care of
Lessee. Upon request, Lessee will provide Lessor with copies of all such
billings.
17. LESSOR'S PAYMENT. If Lessee fails to perform its obligations
----------------
under Paragraph 15 or 16 above, or Paragraph 23 below, Lessor shall have the
right to substitute performance, in which case Lessee shall immediately
reimburse Lessor therefor.
18. GENERAL INDEMNITY. Each Lease is a net lease. Therefore, Lessee
-----------------
shall indemnify Lessor and its successors and assigns against, and hold
Lessor and its successors and assigns harmless from, any and all claims,
actions, damages, obligations, liabilities, and all costs and expenses,
including, without limitation, legal fees incurred by Lessor or its
successors and assigns arising out of each Lease including, without
limitation, the purchase, ownership, delivery, lease, possession,
maintenance, condition, use, or return of the Equipment, or arising by
operation of law, except that Lessee shall not be liable for any claims,
actions, damages, obligations, and costs and expenses determined by a
non-appealable, final order of a court of competent jurisdiction to have
occurred as a result of the gross negligence or willful misconduct of Lessor
or its successors and assigns. Lessee agrees that upon written notice by
Lessor of the assertion of any claim, action, damage, obligation, liability,
or lien, Lessee shall assume full responsibility for the defense thereof,
provided that Lessor's failure to give such notice shall not limit or otherwise
affect its rights hereunder. Amy payment pursuant to this Paragraph (except for
any payment of Rent) shall be of such amount as shall be necessary so that,
after payment of any taxes required to be paid thereon by Lessor, including
taxes on or measured by the net income of Lessor, the balance will equal the
amount due hereunder. The provisions of this Paragraph with regard to matters
arising during a Lease shall survive the expiration or termination of such
Lease.
<PAGE>
19. ASSIGNMENT BY LESSEE. Lessee shall not, without the prior
--------------------
written consent of Lessor, (a) assign, transfer, pledge, or otherwise dispose
of any Lease or Equipment, or any interest therein; (b) sublease or lend any
Equipment or permit it to be used by anyone other than Lessee and its
employees; or (c) move any Equipment from the location specified for it in
the applicable Schedule, except that Lessee may move Equipment to another
location within the United States provided that Lessee has delivered to
Lessor (A) prior written notice thereof and (B) duly executed financing
statements and other agreements and instruments (all in form and substance
satisfactory to Lessor) necessary or, in the opinion of the Lessor, desirable
to protect Lessor's interest in such Equipment. Notwithstanding anything to
the contrary in the immediately preceding sentence, Lessee may keep any
Equipment consisting of motor vehicles or rolling stock at any location in
the United States.
20. ASSIGNMENT BY LESSOR. Lessor may assign its interest or grant a
--------------------
security interest in any Lease and the Equipment individually or together, in
whole or in part. If Lessee is given written notice of any such assignment, it
shall immediately make all payments of Rent and other amounts hereunder directly
to such assignee. Each such assignee shall have all of the rights of Lessor
under each Lease assigned to it. Lessee shall not assert against any such
assignee any set-off, defense, or counterclaim that Lessee may have against
Lessor or any other person.
21. DEFAULT; NO WAIVER Lessee or any guarantor of any or all of the
------------------
obligations of Lessee hereunder (together with Lessee, the "Lease Parties")
shall be in default under each Lease upon the occurrence of any of the following
events (each, an "Event of Default"): (a) Lessee fails to pay within ten days of
when due any amount required to be paid by Lessee under or in connection with
any Lease; (b) any of the Lease Parties fails to perform any other provision
under or in connection with a Lease or violates any of the covenants or
agreements of such Lease Party under or in connection with a Lease; (c) any
representation made or financial information delivered or furnished by any of
the Lease Parties under or in connection with a Lease shall prove to have been
inaccurate in any material respect when made; (d) any of the Lease Parties makes
an assignment for the benefit of creditors, whether voluntary or involuntary, or
consents to the appointment of a trustee or receiver, or if either shall be
appointed for any of the Lease Parties or for a substantial part of its property
without its consent and, in the case of any such involuntary proceeding, such
proceeding remains undismissed or unstayed for forty five days following the
commencement thereof; (e) any petition or proceeding is filed by or against any
of the Lease Parties under any Federal or State bankruptcy or insolvency code or
similar law and, in the case of any such involuntary petition or proceeding,
such petition or proceeding remains undismissed or unstayed for forty-five days
following the filing or commencement thereof, or any of the Lease Parties takes
any action authorizing any such petition or proceeding; (f) any of the Lease
Parties fails to pay when due any indebtedness for borrowed money or under
conditional sales or installment sales contracts or similar agreements, leases,
or obligations evidenced by bonds, debentures, notes, or other similar
agreements or instruments to any creditor (including Lessor under any other
agreement) after any and all applicable cure periods therefor shall have
elapsed; (g) any judgment shall be rendered against any of the Lease Parties
which shall remain unpaid or unstayed for a period of sixty days; (h) any of the
Lease Parties shall dissolve, liquidate, wind up or cease its business, sell or
otherwise dispose of all or substantially all of its assets, or make any
material change in its lines of business; (i) any of the Lease Parties shall
amend or modify its name, unless such Lease Party delivers to Lessor, thirty
days prior to any such proposed amendment or modification, written notice of
such amendment or modification and within ten days before such amendment or
modification delivers executed financing statements (in form and substance
satisfactory to the Lessor); (j) any of the Lease Parties shall merge or
consolidate with any other entity in each case without Lessor's prior written
consent, which shall not be unreasonably withheld;(k) any of the Lease Parties
shall suffer any loss or suspension of any material license, permit, or other
right or asset necessary to the profitable conduct of its business, fail
generally to pay its debts as they mature, or call a meeting for purposes of
compromising its debts; (l) any of the Lease Parties shall deny or disaffirm its
obligations hereunder or under any of the documents delivered in connection
herewith; or (m) there is a change, other than a change which results from a
sale of equity securities to investors, in more than 50% of the ownership of any
equity interests of any of the Lease Parties on the date hereof of more than 35%
of such interests become subject to any contractual, judicial or statutory lieu,
charge, security interest, or encumbrance.
<PAGE>
22. REMEDIES. Upon the occurrence and continuation of an Event of
--------
Default, Lessor shall have the right, in its sole discretion, to exercise any
one or more of the following remedies: (a) terminate each Lease; (b) declare
any and all Rent and other amounts then due and any and all Rent and other
amounts to become due under each Lease (collectively, the "Lease
Obligations") immediately due and payable; (c) take possession of any or all
items of Equipment, wherever located, without demand, notice, court order, or
other process of law, and without liability for entry to Lessee's premises,
for damage to Lessee's property, or otherwise; (d) demand that Lessee
immediately return any or all Equipment to Lessor in accordance with
Paragraph 14 above, and, for each day that Lessee shall fail to return any
item of Equipment, Lessor may demand an amount equal to the Rent payable for
such Equipment in accordance with Paragraph 14 above; (e) lease, sell, or
otherwise dispose of the Equipment in a commercially reasonable manner, with
or without notice and on public or private bid; (f) recover the following
amounts from the Lessee (as damages, including reimbursement of costs and
expenses, liquidated for all purposes and not as a penalty): (i) all costs
and expenses of Lessor reimbursable to it hereunder, including, without
limitation, expenses of disposition of the Equipment, legal fees, and all
other amounts specified in Paragraph 23 below; (ii) an amount equal to the
sum of (A) any accrued and unpaid Rent through the later of (1) the date of
the applicable default, (2) the date that Lessor has obtained possession of
the Equipment, or (3) such other date as Lessee has made an effective tender
of possession of the Equipment to Lessor (the "Default Date") and (B) if
Lessor resells or re-lets the Equipment, Rent at the periodic rate provided
for in each Lease for the additional period that it takes Lessor to resell or
re-let all of the Equipment; (iii) the present value of all future Rent
reserved in the Leases and contracted to be paid over the unexpired Term of
the Leases discounted at five percent simple interest per annum; (iv) the
reversionary value of the Equipment as of the expiration of the Term of the
applicable Lease as set forth on the applicable Schedule; and (v) any
indebtedness for Lessee's indemnity under Paragraph 18 above, plus a late
charge at the rate specified in Paragraph 3 above, less the amount received
by Lessor, if any, upon sale or re-let of the Equipment; and (g) exercise any
other right or remedy to recover damages or enforce the terms of the Leases.
Upon the occurrence and continuance of an Event of Default or an event which
with the giving of notice or the passage of time, or both, would result in an
Event of Default, Lessor shall have the right, whether or not Lessor has made
any demand or the obligations of Lessee hereunder have matured, to
appropriate and apply to the payment of the obligations of Lessee hereunder
all security deposits and other deposits (general or special, time or demand,
provisional or final) now or hereafter held by and other indebtedness or
property now or hereafter owing by Lessor to Lessee. Lessor may pursue any
other rights or remedies available at law or in equity, including, without
limitation, rights or remedies seeking damages, specific performance, and
injunctive relief. Any failure of Lessor to require strict performance by
Lessee, or any waiver by Lessor of any provision hereunder or under any
Schedule, shall not be construed as a consent or waiver of any other breach
of the same or of any other provision. Any amendment or waiver of any
provision hereof or under any Schedule or consent to any departure by Lessee
herefrom or therefrom shall be in writing and signed by Lessor.
No right or remedy is exclusive of any other provided herein or
permitted by law or equity. All such rights and remedies shall be cumulative
and may be-enforced concurrently or individually from time to time.
23. LESSOR'S EXPENSE. Lessee shall pay Lessor on demand all costs
----------------
and expenses (including legal fees and expenses) incurred in connection with
the preparation, execution and delivery of this Agreement and other
agreements and transactions contemplated hereby, which expenses shall not
exceed $3,000 without the written consent of Lessee and all costs and
expenses in protecting and enforcing Lessor's rights and interests in each
Lease and the Equipment, including, without limitation, legal, collection,
and remarketing fees and expenses incurred by Lessor in enforcing the terms,
conditions, or provisions of each Lease or upon the occurrence and
continuation of an Event of Default.
24. LESSEE'S WAIVERS. To the extent permitted by applicable law,
----------------
Lessee hereby waives any and all rights and remedies conferred upon a lessee
by Sections 2A-508 through 2A-522 of the UCC. To the extent permitted by
applicable law, Lessee also hereby waives any rights now or hereafter
conferred by statute or otherwise which may require Lessor to sell, lease, or
otherwise use any Equipment in mitigation of Lessor's damages as set forth in
Paragraph 22 above or which may otherwise limit or modify any of Lessor's
rights or remedies under Paragraph 22. Any action by Lessee against Lessor
for any default by Lessor under any Lease shall be commenced within one year
after any such cause of action accrues.
<PAGE>
25. NOTICES; ADMINISTRATION Except as otherwise provided herein, all
-----------------------
notices, approvals, consents, correspondence, or other communications required
or desired to be given hereunder shall be given in writing and shall be
delivered by overnight courier, hand delivery, or certified or registered mail,
postage prepaid, if to Lessor, then to Transamerica Technology Finance Division,
76 Batterson Park Road, Farmington, Connecticut 06032, Attention: Assistant Vice
President, Lease Administration, with a copy to Lessor at Riverway II, West
Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018, Attention: Legal
Department, if to Lessee, then to Focal, Inc., 4 Maguire Road, Lexington,
Massachusetts 02173, Attention: W. Bradford Smith, Vice President of Finance or
such other address as shall be designated by Lessee or Lessor to the other
party. All such notices and correspondence shall be effective when received.
26. REPRESENTATIONS. Lessee represents and warrants to Lessor that
---------------
(a) Lessee is duly organized, validly existing, and in good standing under
the laws of the State of its incorporation; (b) the execution, delivery, and
performance by Lessee of this Agreement are within Lessee's powers, have been
duly authorized by all necessary action, and do not and will not contravene
(i) Lessee's organizational documents or (ii) any law, regulation, rule, or
contractual restriction binding on or affecting Lessee; (c) no authorization
or approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required for the due execution,
delivery, and performance by Lessee of this Agreement; (d) each Lease
constitutes the legal, valid, and binding obligations of Lessee enforceable
against Lessee in accordance with its terms; (e) the cost of each item of
Equipment does not exceed the fair and usual price for such type of equipment
purchased in like quantity and reflects all discounts, rebates, and
allowances for the Equipment (including, without limitation, discounts for
advertising, prompt payment, testing, or other services) given to the Lessee
by the manufacturer, supplier, or any other person; and (f) all information
supplied by Lessee to Lessor in connection herewith is correct and does not
omit any material statement necessary to insure that the information supplied
is not misleading.
27. FURTHER ASSURANCES. Lessee, upon the request of Lessor, will
------------------
execute, acknowledge, record, or file, as the case may be, such further
documents and do such further acts as may be reasonably necessary, desirable,
or proper to carry out more effectively the purposes of this Agreement.
Lessee hereby appoints Lessor as its attorney-in-fact to execute on behalf of
Lessee and authorizes Lessor to file without Lessee's signature any UCC
financing statements and amendments Lessor deems advisable.
28. FINANCIAL STATEMENTS. Lessee shall deliver to Lessor: (a) as
--------------------
soon as available, but not later than 120 days after the end of each fiscal
year of Lessee and its consolidated subsidiaries, the consolidated balance
sheet, income statement, and statements of cash flows and shareholders equity
for Lessee and its consolidated subsidiaries (the "Financial Statements") for
such year, reported on by independent certified public accountants without an
adverse qualification; and (b) as soon as available, but not later than 60
days after the end of each of the first three fiscal quarters in any fiscal
year of Lessee and its consolidated subsidiaries, the Financial Statements
for such fiscal quarter, together with a certification duly executed by a
responsible officer of Lessee that such Financial Statements have been
prepared in accordance with generally accepted accounting principles and are
fairly stated in all material respects (subject to normal year-end audit
adjustments).
29. CONSENT TO JURISDICTION. Lessee irrevocably submits to the
-----------------------
jurisdiction of any Illinois state or federal court sitting in Illinois for
any action or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby, and Lessee irrevocably agrees that all
claims in respect of any such action or proceeding may be heard and
determined in such Illinois state or federal court.
31 WAIVER OF JURY TRIAL LESSEE AND LESSOR IRREVOCABLY WAIVE ALL
--------------------
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
31. FINANCE LEASE. Lessee and Lessor agree that each Lease is a
-------------
"Finance Lease" as defined by Section 2A-103(g) of the UCC. Lessee
acknowledges that Lessee has reviewed and approved each written Supply
Contract (as defined by UCC 2A-103(y)) covering Equipment purchased from each
"Supplier" (as defined by UCC 2A-103(x)) thereof.
<PAGE>
32. NO AGENCY. Lessee acknowledges and agrees that neither the
---------
manufacturer or supplier, nor any salesman, representative, or other agent of
the manufacturer or supplier, is an agent of Lessor. No salesman,
representative, or agent of the manufacturer or supplier is authorized to
waive or alter any terms or condition of this Agreement or any Schedule and
no representation as to the Equipment or any other matter by the manufacturer
or supplier shall in any way affect Lessee's duty to pay Rent and perform its
other obligations as set forth in this Agreement or any Schedule.
33. SPECIAL TAX INDEMNIFICATION. Lessee acknowledges that Lessor, in
---------------------------
determining the Rent due hereunder, has assumed that certain tax benefits as are
provided to an owner of property under the Internal Revenue Code of 1986, as
amended (the "Code"), and under applicable state tax law, including, without
limitation, depreciation deductions under Section 168(b) of the Code, and
deductions under Section 163 of the Code in an amount at least equal to the
amount of interest paid or accrued by Lessor with respect to any indebtedness
incurred by Lessor in financing its purchase of the Equipment, are available to
Lessor as a result of the lease of the Equipment. In the event Lessor is unable
to obtain such tax benefits as a result of an act or omission of Lessee, is
required to include in income any amount other than the Rent, or is required to
recognize income in respect of the Rent earlier than anticipated pursuant to
this Agreement, in each case as a result of an act or omission of Lessee, Lessee
shall pay Lessor additional rent ("Additional Rent") in a lump sum in an amount
needed to provide Lessor with the same after-tax yield and after-tax cash flow
as would have been realized by Lessor had Lessor (i) been able to obtain such
tax benefits, (ii) not been required to include any amount in income other than
the Rent, and (iii) not been required to recognize income in respect of the Rent
earlier than anticipated pursuant to this Agreement. The Additional Rent shall
be computed by Lessor, which computation shall be binding on Lessee. The
Additional Rent shall be due immediately upon written notice by Lessor to Lessee
of Lessor's inability to obtain tax benefits, the inclusion of any amount in
income other than the Rent or the recognition of income in respect of the Rent
earlier than anticipated pursuant to the agreement. The provisions of this
Paragraph 33 shall survive the termination of this Agreement.
34. GOVERNING LAW; SEVERABILITY. EACH LEASE SHALL BE GOVERNED BY
---------------------------
THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW
PRINCIPLES THEREOF. IF ANY PROVISION SHALL BE HELD TO BE INVALID OR
UNENFORCEABLE, THE VALIDITY AND ENFORCEABILITY OF THE REMAINING PROVISIONS SHALL
NOT IN ANY WAY BE AFFECTED OR IMPAIRED.
LESSEE ACKNOWLEDGES THAT LESSEE HAS READ THIS AGREEMENT AND THE SCHEDULE HERETO,
UNDERSTANDS THEM, AND AGREES TO BE BOUND BY THEIR TERMS AND CONDITIONS.
FURTHER, LESSEE AND LESSOR AGREE THAT THIS AGREEMENT, THE SCHEDULES DELIVERED IN
CONNECTION HEREWITH FROM TIME TO TIME, AND THE COMMITMENT LETTER ARE THE
COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES
SUPERSEDING ALL PROPOSALS OR PRIOR AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER
COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF.
SHOULD THERE EXIST ANY INCONSISTENCY BETWEEN THE TERMS OF THE COMMITMENT LETTER
AND THIS AGREEMENT, THE TERMS OF THIS AGREEMENT SHALL PREVAIL.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be duly executed by their duly authorized officers as of the date
first written above.
FOCAL, INC.
By: /s/ W. Bradford Smith
Name: W. Bradford Smith
Title: VP-Finance
Federal Identification No. 94-3142791
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Gary P. Moro
Name: Gary P. Moro
Title: Vice President
Form 1
<PAGE>
SECRETARY'S CERTIFICATE
I, Christopher D. Mitchell, hereby state that I am the duly elected,
acting and qualified Assistant Secretary of Focal, Inc., a Delaware corporation
(the "Company"), and that:
(a) Through a unanimous consent in lieu of a Board of Directors
meeting of the Company, proposed in accordance with its bylaws and the laws of
said State on the 26th day of March ,1997, signed by a quorum for the
transaction of business, the following resolutions were duly and regularly
adopted:
RESOLVED, that the form, terms and provisions of all of the documents
and instruments executed by the Company with and/or in favor of Transamerica
Business Credit Corporation (the "Agreements"), and the transactions
contemplated thereby be, and the same are, in all respects approved, and that
the President, each Vice President and each other officer of the Company (the
"Authorized Persons"), or any of them, be, and they hereby are, authorized,
empowered, and directed to execute and deliver the Agreements and any and all
other agreements, documents; instruments and certificates required or desirable
in connection therewith, if necessary or advisable, with such changes as they
may deem in the best interest of the Company, and their execution and delivery
of the Agreements, and all such other agreements, documents, instruments and
certificates, shall be deemed to be conclusive evidence that the same are in all
respects authorized and approved; and be it further
RESOLVED, that the actions of any Authorized Person heretofore taken
in furtherance of the Agreements be, and hereby are, approved, adopted and
ratified in all respects.
(i) The above resolutions: (a) are not contrary to the Articles or
Certificate of Incorporation or bylaws of the Company and (b) have not been
amended, modified, rescinded or revoked and are in full force and effect on the
date hereof.
(iii) The following persons are duly qualified and acting officers
of the Company, duly elected to the offices set forth opposite their respective
names, and the signature appearing opposite the name of each such officer is his
authentic signature:
Name Office Signature
---- ------ ---------
W. Bradford Smith Vice President & /s/ W. Bradford Smith
Chief Financial Officer
_________________ _________________ _________________
_________________ _________________ _________________
IN WITNESS WHEREOF, I have executed this Certificate, this 24th day of
April, 1997
/s/ Christopher D. Mitchell
Ass't. Secretary
[CORPORATE SEAL]
Form3
<PAGE>
EXHIBIT 10.10
PATENT AND TECHNOLOGY LICENSE AGREEMENT
THIS PATENT AND TECHNOLOGY LICENSE AGREEMENT ("LICENSE AGREEMENT") is
made by and between the BOARD OF REGENTS ("BOARD") OF THE UNIVERSITY OF TEXAS
SYSTEM ("SYSTEM"), an agency of the State of Texas, whose address is 201 West
7th Street, Austin, Texas 78701, on behalf of THE UNIVERSITY OF TEXAS AT
AUSTIN ("UNIVERSITY"), which is a component institution of SYSTEM, and PEGAS
PHARMACEUTICALS, INC., a corporation duly organized and existing under the
laws of Delaware, whose address is 2200 Sand Hill Road, Menlo Park,
California 94025 ("LICENSEE").
W I T N E S S E T H:
Whereas BOARD owns certain PATENT RIGHTS and TECHNOLOGY RIGHTS related to
LICENSED SUBJECT MATTER which were developed at UNIVERSITY prior to the
effective date of this LICENSE AGREEMENT and, in addition, may be developed
at UNIVERSITY pursuant to the RESEARCH AGREEMENT;
Whereas BOARD desires to have the LICENSED SUBJECT MATTER developed and
used for the benefit of LICENSEE, the inventor(s), BOARD, and the public as
outlined in the Intellectual Property Policy promulgated by the BOARD; and
Whereas LICENSEE wishes to obtain a license from BOARD to practice
LICENSED SUBJECT MATTER.
NOW, THEREFORE, in consideration of the mutual covenants and premises
herein contained, the parties hereto agree as follows:
I. EFFECTIVE DATE
This LICENSE AGREEMENT shall be effective as of June 11, 1992 ("EFFECTIVE
DATE"), subject to approval by BOARD.
II. DEFINITIONS
As used in this LICENSE AGREEMENT, the following terms shall have the
meanings indicated:
2.1 "LICENSED FIELD" shall mean treatment of any medical condition of
humans including without limitation [*]
* Confidential treatment has been requested for marked portion
<PAGE>
[*]. The "LICENSED FIELD", however, shall not include treatment of medical
conditions of humans by means of (a) coated medical devices [*], except any
type of angioplasty catheter, endoscope, laparoscope, intravascular stent, or
controlled release device for drug delivery, (b) cell encapsulation, (c) the
systemic release of therapeutic substances, or (d) the use of polymeric
systems to prolong the systemic half-life of therapeutic substances. BOARD
shall be free to license PATENT RIGHTS and TECHNOLOGY RIGHTS to other parties
in all fields of use outside the LICENSED FIELD.
2.2 "LICENSED PRODUCT" shall mean any product, component or material the
manufacture, use or sale of which would infringe a VALID CLAIM.
2.3 "LICENSED SUBJECT MATTER" shall mean inventions, discoveries and
information covered by PATENT RIGHTS or TECHNOLOGY RIGHTS within the LICENSED
FIELD.
2.4 "LICENSED TERRITORY" shall mean the entire world.
2.5 "NET SALES" shall mean the gross revenues actually received by
LICENSEE or SUBSIDIARIES from the SALE of LICENSED PRODUCTS, less (a) normal
and customary rebates, and cash and trade discounts, (b) sales, use and/or
other excise taxes or duties actually paid, (c) the cost of any packages and
packing, (d) insurance costs and outbound transportation charges prepaid or
allowed, (e) import and/or export duties actually paid, and (f) amounts
allowed or credited due to returns (not to exceed the original billing or
invoice amount).
2.6 "PATENT RIGHTS" shall mean any and all rights in and to inventions,
discoveries or information relating to the manufacture, use or sale of
biomedical hydrogels or surface coatings covered by patents and/or patent
applications whether domestic or foreign, and all divisions, continuations,
continuations-in-part, reissues, reexaminations or extensions thereof, and
any letters patents that issue thereon, conceived or reduced to practice
either prior to the EFFECTIVE DATE and which name Dr. Jeffery A. Hubbell as
either sole or joint inventor, or after the EFFECTIVE DATE and arising out of
or in connection with the RESEARCH PROGRAM, and which BOARD has or may have
the right to license or sublicense to LICENSEE under this LICENSE AGREEMENT.
The PATENT RIGHTS in existence in the LICENSED TERRITORY as of the EFFECTIVE
DATE are set forth on [*] and incorporated herein.
2.7 "RESEARCH AGREEMENT" shall mean a certain Sponsored Research
Agreement by and between the UNIVERSITY and LICENSEE effective as of June 1,
1992.
* Confidential treatment has been requested for marked portion
-2-
<PAGE>
2.8 "RESEARCH PROGRAM" shall mean the Research Program conducted by
UNIVERSITY under the direction of Professor Jeffery A. Hubbell pursuant to
the RESEARCH AGREEMENT in accordance with the description set forth in
Attachment A attached thereto.
2.9 "SALE" or "SELL" or "SOLD" shall mean the transfer or disposition of
a LICENSED PRODUCT for value to a party other than LICENSEE or a SUBSIDIARY,
which transfer or disposition would, but for the rights and license granted
hereunder, infringe a VALID CLAIM in the country in which such LICENSED
PRODUCT is transferred or disposed.
2.10 "SUBSIDIARY" shall mean any corporation or other entity that is
directly or indirectly controlling, controlled by or under common control
with LICENSEE. For the purpose of this definition, "control" shall mean the
direct or indirect ownership of more than fifty percent (50%) of the shares
of the subject entity entitled to vote in the election of directors (or, in
the case of an entity that is not a corporation, for the election of the
corresponding managing authority).
2.11 "TECHNOLOGY RIGHTS" shall mean any and all rights in any technical
information, know-how, process, procedure, composition, device, method,
formula, protocol, technique, software, design, drawing or data relating to
biomedical hydrogels or surface coatings which is not covered by the PATENT
RIGHTS but which is necessary for practicing an invention, discovery or
information covered by the PATENT RIGHTS, conceived or reduced to practice
either prior to the EFFECTIVE DATE, or after the EFFECTIVE DATE and arising
out of or in connection with the RESEARCH PROGRAM, and which BOARD has or may
have the right to license or sublicense to LICENSEE under this LICENSE
AGREEMENT.
2.12 "VALID CLAIM" shall mean either (a) a claim of an issued and
unexpired patent included within the PATENT RIGHTS, which has not been held
unenforceable, unpatentable or invalid by a court or other governmental
agency of competent jurisdiction, and which has not been admitted to be
invalid or unenforceable through reissue, disclaimer or otherwise, or (b) a
claim in a hypothetical issued patent corresponding to a pending claim in a
patent application within the PATENT RIGHTS, provided that if such pending
claim has not issued as a claim of an issued patent within the PATENT RIGHTS
within six (6) years after the filing date from which such patent application
takes priority, such pending claim shall not be a VALID CLAIM for purposes of
this LICENSE AGREEMENT. In the event that a claim of an issued patent within
the PATENT RIGHTS is held by a court or other governmental agency of
competent jurisdiction to be unenforceable, unpatentable or invalid, and such
holding is reversed on appeal by a higher court or agency of competition
jurisdiction, such claim shall be reinstated as a VALID CLAIM hereunder.
III. REPRESENTATIONS AND WARRANTIES
3.1 Except for the rights, if any, of the Government of the United
States of America, as set forth in Paragraph 3.2, BOARD represents and
warrants that (a) BOARD is the owner of the entire right, title, and interest
in and to LICENSED SUBJECT MATTER, (b) BOARD has the sole
-3-
<PAGE>
right and authority to enter into this LICENSE AGREEMENT and grant the rights
and licenses hereunder, (c) BOARD has not previously granted and will not
grant any rights in the LICENSED SUBJECT MATTER or LICENSED PRODUCTS that are
inconsistent with the rights and licenses granted to LICENSEE herein, (d) to
the best of BOARD's knowledge, as of the EFFECTIVE DATE, but without research
into the matter, the LICENSED PRODUCTS do not infringe any patent rights,
trade secrets or other proprietary rights of any third party, and (e) [*]
3.2 LICENSEE understands that the LICENSED SUBJECT MATTER may have been
developed under a funding agreement with the Government of the United States
of America and, if so, that the Government may have certain rights relative
thereto. This LICENSE AGREEMENT is explicitly made subject to the
Government's rights under any such Government funding agreement and any
applicable law or regulation. To the extent that there is a conflict between
any such Government funding agreement, applicable law or regulation, and this
LICENSE AGREEMENT, the terms of such Government funding agreement, applicable
law or regulation shall prevail.
3.3 NEITHER PARTY MAKES ANY REPRESENTATIONS OTHER THAN THOSE EXPRESSLY
STATED IN THIS LICENSE AGREEMENT, AND SPECIFICALLY, BOARD MAKES NO EXPRESS OR
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
IV. LICENSE
4.1 Subject to the terms and conditions of this LICENSE AGREEMENT, BOARD
hereby grants to LICENSEE a royalty-bearing, exclusive right and license
under LICENSED SUBJECT MATTER to manufacture, have manufactured, use and sell
LICENSED PRODUCTS, to practice any method, process or procedure within the
PATENT RIGHTS or the TECHNOLOGY RIGHTS, and to otherwise exploit the LICENSED
SUBJECT MATTER, within the LICENSED TERRITORY for use within the LICENSED
FIELD. This grant shall be subject to the payment by LICENSEE to BOARD of
all consideration as provided in this LICENSE AGREEMENT, and shall be further
subject to rights retained by BOARD to:
(a) Subject to Article XII below, and Articles VI and VII of the
RESEARCH AGREEMENT, publish the general scientific findings from research
related to LICENSED SUBJECT MATTER; and
(b) Use any information contained in LICENSED SUBJECT MATTER for
research, teaching and other educationally-related purposes.
* Confidential treatment has been requested for marked portion
-4-
<PAGE>
4.2 LICENSEE may extend the right and license granted to LICENSEE under
Paragraph 4.1 to any SUBSIDIARY provided that such SUBSIDIARY consents to be
bound by this LICENSE AGREEMENT to the same extent as LICENSEE.
4.3 LICENSEE and any SUBSIDIARY may grant and authorize sublicenses
within the scope of the right and license granted to LICENSEE pursuant to
this LICENSE AGREEMENT; provided, however, that any such right and license
granted to a sublicensee shall not include the right to grant sublicenses.
LICENSEE and any SUBSIDIARY, if applicable, shall monitor the operations of
their respective sublicensees in connection with the obligations of LICENSEE
and any SUBSIDIARY pursuant to this LICENSE AGREEMENT, and shall take all
reasonable steps to ensure that such sublicensees comply fully with such
obligations. LICENSEE shall promptly inform BOARD of the name and address of
each such sublicensee. Upon termination of this LICENSE AGREEMENT, any and
all existing sublicenses granted by LICENSEE or any SUBSIDIARY, if
applicable, shall survive; provided that such sublicensees promptly agree in
writing to be bound by the terms of this LICENSE AGREEMENT.
4.4 The right and license under the LICENSED SUBJECT MATTER granted to
LICENSEE pursuant to Paragraph 4.1 shall inure to the benefit of and may be
extended to any customer, direct or indirect, of LICENSED PRODUCTS
manufactured by or for LICENSEE, SUBSIDIARIES and/or sublicensees of either
LICENSEE or a SUBSIDIARY hereunder insofar as the inventions, discoveries and
information covered by the LICENSED SUBJECT MATTER may be practiced by such
customer in connection with application or use of such LICENSED PRODUCTS.
4.5 BOARD agrees to promptly provide to LICENSEE copies of all
documented information in BOARD's possession pertaining to LICENSED PRODUCTS
and the manufacture or use of LICENSED PRODUCTS that in each case BOARD has
the right to provide to LICENSEE, including without limitation all
preclinical and clinical trial data, if any, and related reports,
manufacturing information and the like. Subject to Article XII, LICENSEE
shall have the right to use and disclose such information to the extent
reasonably necessary to exploit the rights and license granted to LICENSEE
under this LICENSE AGREEMENT.
4.6 If at any time during the term of this LICENSE AGREEMENT BOARD
establishes a bona fide detailed plan to develop a product covered by the
LICENSED SUBJECT MATTER (a "PRODUCT"), or receives such a plan from a
reputable third party with resources reasonably necessary to develop and
commercialize such PRODUCT, BOARD may give written notice to LICENSEE of such
event. If LICENSEE is not then developing, producing or using a LICENSED
PRODUCT that is substantially similar to or intended for a similar purpose as
the PRODUCT that BOARD or such third party proposes to develop, and the
development or sublicensing of such a PRODUCT is not within LICENSEE's
business plans or activities for development and commercialization on a
schedule that either reasonably approximates that of such third party or is
more favorable than that of such third party, LICENSEE shall elect one of the
following options following BOARD's notice:
-5-
<PAGE>
(a) Undertake reasonable efforts to sponsor research toward the
development of such PRODUCT (directly or indirectly through third parties),
and thereafter develop, produce, sell, use or sublicense such PRODUCT; or
(b) Release its rights under this LICENSE AGREEMENT to such PRODUCT.
Following BOARD's notice to LICENSEE under this Paragraph 4.6, BOARD shall
provide to LICENSEE a written research plan for the development of the
PRODUCT in sufficient detail to enable LICENSEE to determine its capability
to develop such PRODUCT, together with such other information as LICENSEE may
reasonably request for purposes of such determination. LICENSEE shall have
one hundred twenty days (120) after receipt of such plan and information to
notify BOARD of LICENSEE's election under this Paragraph 4.6.
V. PAYMENTS AND REPORTS
5.1 In consideration of the rights and license granted by BOARD to
LICENSEE under this LICENSE AGREEMENT, LICENSEE agrees to pay BOARD a
non-refundable, non-creditable license fee equal to [*]. LICENSEE shall pay
such fee in accordance with the following schedule:
(a) Within ten (10) days after the EFFECTIVE DATE, [*];
(b) Upon the first anniversary of the EFFECTIVE DATE, [*];
(c) Upon the second anniversary of the EFFECTIVE DATE, [*];
(d) Upon the third anniversary of the EFFECTIVE DATE, [*]; and
(e) Upon the fourth anniversary of the EFFECTIVE DATE, [*].
5.2 In further consideration of the rights and license granted by BOARD
to LICENSEE under this LICENSE AGREEMENT, LICENSEE agrees to pay BOARD in
connection with the development of the first LICENSED PRODUCT [*] in
accordance with the following schedule:
(a) Upon submission of an Investigation New Drug application ("IND"),
or the equivalent thereof, to the United States of America Food and Drug
Administration ("FDA")
* Confidential treatment has been requested for marked portion
-6-
<PAGE>
for the first LICENSED PRODUCT by LICENSEE or a SUBSIDIARY or a sublicensee
of either LICENSEE or a SUBSIDIARY, [*];
(b) Upon completion of Phase I human clinical trials of the first
LICENSED PRODUCT by LICENSEE or a SUBSIDIARY or a sublicensee of either
LICENSEE or a SUBSIDIARY, [*];
(c) Upon completion of Phase III human clinical trials of the first
LICENSED PRODUCT by LICENSEE or a SUBSIDIARY or a sublicensee of either
LICENSEE or a SUBSIDIARY, [*];
(d) Upon submission of a New Drug Application ("NDA"), or the
equivalent thereof, to the FDA for the first LICENSED PRODUCT by LICENSEE
or a SUBSIDIARY or a sublicensee of either LICENSEE or a SUBSIDIARY, [*];
and
(e) Upon the first commercial SALE of the first LICENSED PRODUCT by
LICENSEE or a SUBSIDIARY or a sublicensee of either LICENSEE or a
SUBSIDIARY, [*].
All payments made to BOARD by LICENSEE pursuant to this Paragraph 5.2 shall
be non-refundable and non-creditable payments and shall apply to the
development of the first LICENSED PRODUCT only.
5.3 In further consideration of the rights and license granted by BOARD to
LICENSEE under this LICENSE AGREEMENT, LICENSEE agrees to pay BOARD:
(a) [*] of any SUBLICENSE FEES received by LICENSEE or SUBSIDIARIES
in connection with the grant of a sublicense to a third party relating to
the manufacture, use or sale of a LICENSED PRODUCT in any medical treatment
within the LICENSED FIELD, except treatment of post-surgical adhesions; and
(b) [*] of any SUBLICENSE FEES received by LICENSEE or SUBSIDIARIES
in connection with the grant of a sublicense to a third party relating to
the manufacture, use or sale of a LICENSED PRODUCT in the treatment of
post-surgical adhesions.
"SUBLICENSEE FEES" shall mean all cash license fees paid or payable to
LICENSEE upon execution of a sublicense between LICENSEE or a SUBSIDIARY and
a third party relating to LICENSED PRODUCTS, but such fees shall not include
advances against future royalties that are to be credited against future
running royalties to be paid by sublicensee on sale of LICENSED PRODUCTS,
LICENSED PRODUCT development funds, equity investments, or scientific
* Confidential treatment has been requested for marked portion
-7-
<PAGE>
benchmark payments or payments for past research expenditures relating to
development of LICENSED PRODUCTS.
5.4 In further consideration of the rights and license granted by BOARD to
LICENSEE under this LICENSE AGREEMENT, except as otherwise provided in
Paragraph 5.5, LICENSEE agrees to pay to BOARD a running royalty equal to:
(a) [*] of NET SALES attributed to SALES of LICENSED PRODUCTS by
LICENSEE and/or SUBSIDIARIES; and
(b) [*] of NET SALES attributed to SALES of LICENSED PRODUCTS by
sublicensees of either LICENSEE or a SUBSIDIARY.
5.5 In the event that a LICENSED PRODUCT is approved for marketing by
the FDA, or other similar government agencies in the LICENSED TERRITORY, with
a label claim for use in the treatment of post-surgical adhesions, LICENSEE
agrees to pay to BOARD a running royalty equal to:
(a) [*] of NET SALES attributed to SALES of LICENSED PRODUCTS by
LICENSEE and/or SUBSIDIARIES for use of such LICENSED PRODUCTS in treatment
of post-surgical adhesions; and
(b) [*] of NET SALES attributed to SALES of LICENSED PRODUCTS by
sublicensees of either LICENSEE or a SUBSIDIARY for use of such LICENSED
PRODUCTS in treatment of post-surgical adhesions.
5.6 The running royalties under Paragraph 5.4 and Paragraph 5.5 shall be
payable only for SALES of LICENSED PRODUCTS by LICENSEE, SUBSIDIARIES or
sublicensees of either LICENSEE or a SUBSIDIARY beginning upon the date of
the first SALE of such LICENSED PRODUCT in any country in the LICENSED
TERRITORY by LICENSEE, SUBSIDIARIES or sublicensees of either LICENSEE or a
SUBSIDIARY after obtaining approval for marketing of such LICENSED PRODUCTS
by the FDA, or other similar government agencies, in such country, and
continuing until the date that SALES of such LICENSED PRODUCTS would not
infringe a VALID CLAIM in the country in which such SALES occur.
5.7 Notwithstanding the foregoing, if LICENSEE is required to pay
royalties to third parties in connection with the SALE of LICENSED PRODUCTS
either under license agreements for other technologies which LICENSEE, in
LICENSEE's reasonable judgment, determines are desirable to be incorporated
in such LICENSED PRODUCTS, or under license agreements with third parties
that are joint owners of patent applications or patents within the PATENT
RIGHTS, and the total royalties to be paid by LICENSEE to BOARD and third
parties would exceed [*] on SALES of LICENSED PRODUCTS by LICENSEE and/or
SUBSIDIARIES, or [*] on SALES of LICENSED PRODUCTS by sublicensees of either
LICENSEE or a
* Confidential treatment has been requested for marked portion
-8-
<PAGE>
SUBSIDIARY, the amounts to be paid under Paragraph 5.4 and/or Paragraph 5.5
shall be reduced in accordance with the following formulas:
(a) Royalties payable on SALES by LICENSEE and/or SUBSIDIARIES of
LICENSED PRODUCTS shall equal [*] of NET SALES payable as royalties
to BOARD and third parties on SALES by LICENSEE and/or SUBSIDIARIES of
LICENSED PRODUCTS (prior to the adjustment hereunder and any similar
adjustment in the amount to be paid to such third parties). However,
after adjustment in accordance with this Paragraph 5.7(a) (which adjustment
shall be made after deduction in royalties pursuant to Paragraph 7.3, if
any), royalties payable to BOARD on SALES of LICENSED PRODUCTS by LICENSEE
and/or SUBSIDIARIES shall not be less than [*] of NET SALES attributed to
such SALES, unless LICENSEE, pursuant to Paragraph 5.8, converts the
license granted to LICENSEE under Paragraph 4.1 to a non-exclusive license.
(b) Royalties payable on SALES by sublicensees of either LICENSEE
or a SUBSIDIARY of LICENSED PRODUCTS shall equal [*] of NET SALES payable
as royalties to BOARD and third parties on SALES by sublicensees of either
LICENSEE or a SUBSIDIARY of LICENSED PRODUCTS (prior to the adjustment
hereunder and any similar adjustment in the amount to be paid to such
third parties). However, after adjustment in accordance with this
Paragraph 5.7(b) (which adjustment shall be made after deduction in
royalties pursuant to Paragraph 7.3, if any), royalties payable to BOARD
on SALES of LICENSED PRODUCTS by sublicensees of either LICENSEE or a
SUBSIDIARY shall not be less than [*] of NET SALES attributed to such
SALES.
Notwithstanding the foregoing, the adjustment in this Paragraph 5.7 shall not
apply if such adjustment would increase the amounts payable under Paragraph
5.4 or Paragraph 5.5 above.
5.8 Effective upon written notice to BOARD, LICENSEE may convert the
license granted to LICENSEE under Paragraph 4.1 to a non-exclusive license.
In such event, the amounts to be paid to BOARD under Paragraph 5.4 and
Paragraph 5.5 following such notice, after any adjustment under Paragraph
5.7, if applicable, shall be reduced by [*]; provided, however, that in no
event shall the amounts payable to BOARD under Paragraph 5.4 and Paragraph
5.5 be less than [*] of NET SALES.
5.9 In the event that more than one patent within the PATENT RIGHTS is
applicable to any LICENSED PRODUCT subject to royalties under this Article V,
then only one royalty shall be paid to BOARD in respect of such quantity of
the LICENSED PRODUCTS and in any event duplication of the running royalty
shall be avoided. It is understood that royalties shall only be payable
under this Article V with respect to LICENSED PRODUCTS whose sale would
infringe a
* Confidential treatment has been requested for marked portion
-9-
<PAGE>
VALID CLAIM in the country in which such LICENSED PRODUCT is SOLD. No
royalty shall be payable under Paragraph 5.4 or Paragraph 5.5 above with
respect to the SALE of LICENSED PRODUCTS between or among LICENSEE and
SUBSIDIARIES, provided that such LICENSED PRODUCTS are to be resold to
unrelated third parties, or with respect to any fees or other payments paid
between or among LICENSEE and SUBSIDIARIES; nor shall a royalty be payable
under Paragraph 5.4 or Paragraph 5.5 with respect to SALES of LICENSED
PRODUCTS for use in clinical trials or as samples, or for LICENSED PRODUCTS
that are otherwise SOLD at a price less than [*]. "MANUFACTURING COST" shall
mean the fully burdened cost of manufacturing a LICENSED PRODUCT including
without limitation the direct cost of labor, materials and allocable
pharmaceutical manufacturing overheads in accordance with generally accepted
accounting principles consistently applied.
5.10 LICENSEE shall keep complete and accurate records of SALES by
LICENSEE, SUBSIDIARIES and sublicensees of either LICENSEE or a SUBSIDIARY
and NET SALES, and any SUBLICENSEE FEES received by LICENSEE or SUBSIDIARIES,
in sufficient detail to enable the amounts payable hereunder to be
determined. Upon BOARD's written request, but not more frequently than once
per calendar year, LICENSEE shall permit representatives or agents of BOARD,
at BOARD's expense, to examine such records during LICENSEE's regular
business hours for the purpose of and to the extent necessary to verify any
report required under this LICENSE AGREEMENT with respect to SALES and
SUBLICENSEE FEES made not more than three (3) years prior to the date of
BOARD's request. In the event that the amounts due to BOARD are determined
to have been underpaid, LICENSEE shall pay to BOARD any amount due and
unpaid, together with interest on such amount at the prime rate in effect at
Bank of America NT&SA, San Francisco, California, or at the maximum rate
permitted by law, whichever is lower.
5.11 In each calendar year during the term of this LICENSE AGREEMENT
first beginning after commercialization of a LICENSED PRODUCT or receipt by
LICENSEE or SUBSIDIARIES of any SUBLICENSEE FEES, within ninety (90) days
after March 31, June 30, September 30 and December 31, LICENSEE shall deliver
to BOARD at the address listed in Paragraph 5.13, a true and accurate report,
giving such particulars of the business conducted by LICENSEE, SUBSIDIARIES
and sublicensees of either LICENSEE or a SUBSIDIARY, if any, during the
preceding three (3) calendar months under this LICENSE AGREEMENT as are
pertinent to an account for payments hereunder. Such report shall include at
least (a) the total number of SALES; (b) the total of NET SALES; (c) the
total amount of SUBLICENSEE FEES received by LICENSEE and SUBSIDIARIES; (d)
the calculation of amounts due BOARD pursuant to this Article V; and (e) the
total amount so calculated and due BOARD. Simultaneously with the delivery
of each such report, LICENSEE shall pay to BOARD the total royalties amount,
if any, due to BOARD for the period of such report. If no royalties are due,
LICENSEE shall so report.
5.12 Upon the request of BOARD but not more frequently than once per
calendar year, LICENSEE shall deliver to BOARD a written report as to
LICENSEE's efforts and accomplishments during the preceding year in
commercializing LICENSED SUBJECT MATTER in the LICENSED TERRITORY and its
commercialization plans for the upcoming year.
* Confidential treatment has been requested for marked portion
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5.13 All amounts payable hereunder by LICENSEE shall be payable in United
States of America Dollars. If any currency conversion shall be required in
connection with the payment of royalties hereunder, such conversion shall be
made by using the exchange rates used by LICENSEE in calculating LICENSEE's
own revenues for financial reporting purposes. Any income or other tax that
LICENSEE, SUBSIDIARIES, or sublicensees of either LICENSEE or a SUBSIDIARY
are required by statute to withhold with respect to the amounts payable under
this LICENSE AGREEMENT shall be deducted from such amounts, and LICENSEE
shall furnish BOARD with proper evidence of the taxes paid. Checks shall be
made payable to The University of Texas at Austin and mailed to: Executive
Vice President and Provost, The University of Texas at Austin, Main Building
201, Austin, Texas, 78712-1111, Attention: Patricia C. Ohlendorf.
VI. TERM AND TERMINATION
6.1 The term of this LICENSE AGREEMENT shall commence on the EFFECTIVE
DATE and continue in full force and effect until expiration, revocation or
invalidation of the last patent within the PATENT RIGHTS licensed to
LICENSEE, unless terminated earlier pursuant to this Article VI.
Notwithstanding the above, upon the expiration, but not an earlier
termination of this LICENSE AGREEMENT, LICENSEE shall have a non-exclusive,
fully paid-up right and license under the LICENSED SUBJECT MATTER to use and
exploit the TECHNOLOGY RIGHTS.
6.2 This LICENSE AGREEMENT will terminate:
(a) Upon BOARD's written notice to LICENSEE after ninety (90) days
written notice to LICENSEE if LICENSEE breaches or defaults on any
material obligation under this LICENSE AGREEMENT; provided that such
ninety (90) day notice specifies the nature of the breach; and provided
further that LICENSEE may avoid such termination if before the end of
such ninety (90) day period LICENSEE notifies BOARD in writing that such
breach or default has been cured and states the manner of such cure.
However, if LICENSEE disputes such breach in writing within such ninety
(90) day period, BOARD shall not have the right to terminate this
LICENSE AGREEMENT unless and until a court of competent jurisdiction has
determined that this LICENSEE AGREEMENT was materially breached and such
determination is final, and LICENSEE fails to cure such breach within
ninety (90) days after such determination. For purposes of this
Paragraph 6.2(a), a determination by a court of competent jurisdiction
shall be deemed final if such determination either is not appealed, or
is appealed to and upheld or otherwise confirmed by a court of appeals
to which an appeal for review of such determination may be made
directly; or
(b) In its entirety or as to any particular patent application or
patent within the PATENT RIGHTS, upon LICENSEE's sixty (60) days prior
written notice to BOARD. From and after the effective date of a
termination under this Paragraph 6.2(b) with respect to a particular
patent application or patent, such patent application and patent shall
cease to be within the PATENT RIGHTS for all purposes of this LICENSE
AGREEMENT. Upon a
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termination of this LICENSE AGREEMENT in its entirety under this
Paragraph 6.2(b), all rights and obligations of LICENSEE and BOARD shall
terminate, except as provided in Paragraphs 6.3, 6.4 and 6.5 below.
6.3 Upon termination of this LICENSE AGREEMENT for any reason, nothing
herein shall be construed to release either party of any obligation matured
prior to the effective date of such termination.
6.4 In the event that this LICENSE AGREEMENT is terminated for any
reason, LICENSEE, SUBSIDIARIES and customers of either LICENSEE or a
SUBSIDIARY may, after the effective date of such termination, sell or
otherwise dispose of all LICENSED PRODUCTS and parts therefor that LICENSEE,
SUBSIDIARIES and customers of either LICENSEE or a SUBSIDIARY may have on
hand on the effective date of such termination, subject to LICENSEE's payment
to BOARD of royalties pursuant to Article V of this LICENSE AGREEMENT. Upon
termination of this LICENSE AGREEMENT for any reason, any sublicense granted
by LICENSEE or SUBSIDIARY, if any, under this LICENSE AGREEMENT shall
survive, provided that the sublicensee promptly agrees in writing to be bound
by the terms of this LICENSE AGREEMENT.
6.5 Articles II, VI, IX, X, XI, XII and XV shall survive the expiration
and any termination of this Agreement. Except as otherwise provided in this
Article VI, all rights and obligations of the parties under this Agreement
shall terminate upon the expiration or termination of this Agreement.
VII. INFRINGEMENT
7.1 In the event that any of the PATENT RIGHTS are infringed by a third
party, LICENSEE and/or a sublicensee of either LICENSEE or a SUBSIDIARY shall
have, subject to Paragraph 7.2, the first right and obligation to institute
and prosecute any action or proceeding to enforce the PATENT RIGHTS with
respect to such infringement including without limitation settlement
discussions relating to, and any declaratory judgment action arising from,
such infringement by competent counsel of LICENSEE's choice or, if
applicable, such sublicensee's choice. If LICENSEE or, if applicable, a
sublicensee of either LICENSEE or a SUBSIDIARY institutes and prosecutes any
such action or proceeding, LICENSEE or such sublicensee, if applicable, shall
have an exclusive right to control such action or proceeding. In the event
that LICENSEE or a sublicensee of either LICENSEE or a SUBSIDIARY commences
an action to enforce the PATENT RIGHTS, LICENSEE shall have the right during
the pendency of the action to withhold [*] of the royalties payable to BOARD
hereunder based on the SALE of the LICENSED PRODUCTS covered by the patent or
patent within the PATENT RIGHTS in dispute to offset LICENSEE's and such
sublicensee's out-of-pocket legal expenses incurred in connection with such
action or proceeding. Any portion of such withheld royalties that is not so
applied, shall be promptly paid to BOARD after such action or proceeding is
resolved or abandoned. Any amounts recovered from third parties by LICENSEE
or a sublicensee of
* Confidential treatment has been requested for marked portion
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either LICENSEE or a SUBSIDIARY with respect to the PATENT RIGHTS in such
action or proceeding shall be applied first to reimburse any outstanding
legal expenses of the action or proceeding incurred by LICENSEE or such
sublicensee, and then to reimburse BOARD for any royalties or fees withheld
under this Paragraph 7.1 with respect to such action or proceeding. Any
amounts remaining shall be included in NET SALES for purposes of calculating
royalties owed pursuant to Paragraph 5.4 and/or Paragraph 5.5, as applicable.
7.2 In the event that any of the PATENT RIGHTS are infringed by a third
party, and LICENSEE and/or a sublicensee of either LICENSEE or a SUBSIDIARY,
if appropriate, has not instituted action or proceedings against such third
party to enforce the PATENT RIGHTS, or has not concluded settlement
discussions with such third party, or LICENSEE or a SUBSIDIARY has not
granted to such third party sublicense rights under the PATENT RIGHTS, within
one (1) year of LICENSEE's or such sublicensee's receipt of information of
such third party's infringement of the PATENT RIGHTS, BOARD and LICENSEE and
such sublicensee, if appropriate, will consult with one another in an effort
to determine whether the infringement is a substantial infringement of the
PATENT RIGHTS and whether a reasonably prudent licensee would have instituted
such action or proceedings, concluded such settlement negotiations, and/or
granted such sublicense rights within such one (1) year period in light of
all relevant business and economic factors (including without limitation the
projected cost of such action or proceedings, the likelihood of success on
the merits, the probable amount of any damage award, the prospects for
satisfaction of any judgment against the alleged infringer, the possibility
of counterclaims against BOARD, LICENSEE and/or such sublicensee, the
diversion of LICENSEE's and/or such sublicensee human and economic resources,
the impact of any possible adverse outcome on LICENSEE and/or such
sublicensee, and the effect any publicity might have on the respective
reputations and goodwill of BOARD and LICENSEE and/or such sublicensee). If
after such consultation BOARD and LICENSEE and such sublicensee, if
appropriate, have not reached agreement and LICENSEE and/or such sublicensee,
if appropriate, does not institute action or proceedings against, or enter
into settlement negotiations with, or grant sublicense rights to a
substantial infringer, BOARD shall have the right to enforce the PATENT
RIGHTS relating to infringement by such a substantial infringer on behalf of
BOARD and LICENSEE and/or such sublicensee. Any amounts recovered from third
parties by BOARD with respect to the PATENT RIGHTS in such action or
proceeding shall be retained by BOARD.
7.3 LICENSEE shall notify BOARD promptly in writing of any claim
asserted against LICENSEE, SUBSIDIARIES and/or a sublicensee of either
LICENSEE or a SUBSIDIARY by any third party alleging infringement of any
patent owned by such third party in connection with manufacture, use or sale
of LICENSED PRODUCTS or practice, of any method, process or procedure within
the PATENT RIGHTS. Notwithstanding anything herein to the contrary, if in
LICENSEE's reasonable judgment, the manufacture, use or sale of LICENSED
PRODUCTS or the practice of any method, process or procedure within the
PATENT RIGHTS by LICENSEE, SUBSIDIARIES or sublicensees of either LICENSEE or
a SUBSIDIARY would infringe a BLOCKING PATENT owned or controlled by a third
party, LICENSEE shall have the right to deduct from the royalties payable to
BOARD under Article V the amount which LICENSEE, SUBSIDIARIES or a
sublicensee of either LICENSEE or a SUBSIDIARY, as the case may be, shall
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pay or shall continue to pay to such third party for rights and license under
such BLOCKING PATENT to manufacture, use or sell such LICENSED PRODUCTS or
practice of any method, process or procedure within the PATENT RIGHTS.
"BLOCKING PATENT" shall mean any issued and unexpired patent not within the
PATENT RIGHTS the claims of which cover a LICENSED PRODUCT or any method,
process or procedure within the PATENT RIGHTS and, but for rights and license
granted by the party that owns or controls such patent, would be infringed by
the manufacture, use or sale of such LICENSED PRODUCT or the practice of any
method, process or procedure within the PATENT RIGHTS. However, by reason of
this Paragraph 7.3, the royalty payable to BOARD under Paragraph 5.4(a)
and/or Paragraph 5.5(a) shall not be reduced to less than [*] of NET SALES
attributed to SALES of LICENSED PRODUCTS by LICENSEE and/or SUBSIDIARIES, and
the royalty payable to BOARD under Paragraph 5.4(b) and/or Paragraph 5.5(b)
shall not be reduced to less than [*] of NET SALES attributed to SALES of
LICENSED PRODUCTS by sublicensees of either LICENSEE or a SUBSIDIARY. The
reduction in royalty pursuant to this Paragraph 7.3 shall be made prior to
calculating any adjustment under Paragraph 5.7. In the event that LICENSEE,
SUBSIDIARIES or a sublicensee of either LICENSEE or a SUBSIDIARY receives a
claim from a third party alleging an infringement for which LICENSEE would be
entitled to deduct royalties under this Paragraph 7.3, LICENSEE shall have
the right to withhold [*] of the royalties payable to BOARD hereunder and
apply such amounts against LICENSEE's and such sublicensee's out-of-pocket
expenses incurred in defending such claim. Any withheld amounts that are not
so used shall promptly be reimbursed to BOARD after the resolution of such
claim.
7.4 In any suit, action or other proceeding in connection with
enforcement and/or defense of the PATENT RIGHTS, the parties shall cooperate
fully, including without limitation, subject to the statutory authority of
the Attorney General of the State of Texas as applicable to BOARD, by joining
as a party plaintiff and executing such documents as the party prosecuting
such suit, action or other proceeding may reasonably request. Upon the
request and at the expense of the party prosecuting such suit, action or
other proceeding, the other party shall make available at reasonable times
and under appropriate conditions all relevant personnel, records, papers,
information, samples, specimens and other similar materials in such other
party's possession.
VIII. ASSIGNMENT
This LICENSE AGREEMENT may not be assigned by LICENSEE without the prior
written consent of BOARD, except to a party that succeeds to all or
substantially all of LICENSEE's business or assets relating to this LICENSE
AGREEMENT whether by sale, merger, operation of law or otherwise; provided
that such assignee or transferee promptly agrees in writing to be bound by
the terms and conditions of this LICENSE AGREEMENT. BOARD may assign its
right to receive payments hereunder.
IX. PATENT MARKING
* Confidential treatment has been requested for marked portion
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LICENSEE agrees to mark permanently and legibly all products and
documentation manufactured, used or sold by LICENSEE under this LICENSE
AGREEMENT with such patent notice as may be permitted or required under Title
35, United States Code.
X. INDEMNIFICATION AND INSURANCE
10.1 LICENSEE shall hold harmless and indemnify BOARD, SYSTEM,
UNIVERSITY, the Regents of the SYSTEM, officers, employees and agents from
and against amounts paid to third parties as a result of claims, demands, or
causes of action whatsoever, including without limitation those arising on
account of any injury or death of persons or damage to property caused by, or
arising out of, or resulting from, the exercise or practice of the rights and
license granted under this LICENSE AGREEMENT by LICENSEE or its officers,
employees, agents or representatives; provided that (a) LICENSEE receives
prompt notice of any such claim, demand or cause of action, (b) LICENSEE
shall not be obligated to indemnify any party in connection with any
settlement for any claim, demand or cause of action unless LICENSEE consents
in writing to such settlement, and (c) subject to the statutory duty of the
Texas Attorney General, LICENSEE shall have the first right to defend any
such claim, demand or cause of action and, if LICENSEE elects to exercise
such first right, the exclusive right to control the defense thereof.
10.2 During the term of human clinical trials intended for purposes of
obtaining approval for marketing of LICENSED PRODUCTS by the FDA, or other
similar government agencies in the LICENSED TERRITORY, LICENSEE shall
maintain, at LICENSEE's expense, at least [*] of product liability insurance
per occurrence from an insurance company or companies reasonably satisfactory
to BOARD. The insurance policy relating to such coverage shall name BOARD as
an additional party insured by way of endorsement or otherwise. After
initiation of such human clinical trials, and on an annual basis thereafter,
LICENSEE shall deliver or cause to be delivered to BOARD an insurance
certificate evidencing the insurance coverage required pursuant to this
Paragraph 10.2. Prior to commercialization of any LICENSED PRODUCTS,
LICENSEE and BOARD shall negotiate in good faith an appropriate minimum level
of insurance coverage based upon usual and customary standards in the medical
products industry relevant to such LICENSED PRODUCTS.
XI. USE OF BOARD AND COMPONENTS'S NAME
LICENSEE shall not use the name of The University of Texas at Austin,
SYSTEM, BOARD, or Regents on LICENSED PRODUCTS or in advertising products
that incorporate or are covered by the PATENT RIGHTS or the TECHNOLOGY RIGHTS
without BOARD's express written consent.
XII. CONFIDENTIAL INFORMATION
* Confidential treatment has been requested for marked portion
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The parties may, from time to time, in connection with this LICENSE
AGREEMENT and the work contemplated under the RESEARCH AGREEMENT, disclose to
each other CONFIDENTIAL INFORMATION. "CONFIDENTIAL INFORMATION" shall mean
any information disclosed in writing by a party to either this LICENSE
AGREEMENT or the RESEARCH AGREEMENT to any of the other parties to either
this LICENSE AGREEMENT or the RESEARCH AGREEMENT, and marked by the
disclosing party with the legend "CONFIDENTIAL" or other similar legend
sufficient to identify such information as confidential proprietary
information of the disclosing party. Each party will use best efforts to
prevent the disclosure of the other party's CONFIDENTIAL INFORMATION to third
parties; provided that LICENSEE may disclose BOARD's CONFIDENTIAL INFORMATION
to the extent reasonably necessary to exploit the rights and license granted
to LICENSEE hereunder or pursuant to the RESEARCH AGREEMENT; and provided
further that the recipient party's obligations under this Article XII shall
not apply to CONFIDENTIAL INFORMATION that:
(a) is disclosed orally; provided, however, that the recipient
party's obligations under this Article XII shall apply to information
disclosed orally if such information is reduced to writing and marked
with the legend "CONFIDENTIAL" by the disclosing party within thirty
(30) days after disclosure thereof;
(b) is in the recipient party's possession at the time of disclosure
thereof as demonstrated by documentary evidence;
(c) is or later becomes part of the public domain through no fault of
the recipient party;
(d) is received from a third party having no obligations of
confidentiality to the disclosing party;
(e) is developed independently by the recipient party without access
to the disclosing party's CONFIDENTIAL INFORMATION; or
(f) is required by law or regulation to be disclosed; provided,
however, that the party subject to such disclosure requirement has
provided written notice to the other party promptly to enable such other
party to seek a protective order or otherwise prevent disclosure of such
CONFIDENTIAL INFORMATION.
In the event that LICENSEE reasonably determines that disclosure of
CONFIDENTIAL INFORMATION is necessary to exploit the rights and license
granted to LICENSEE hereunder or pursuant to the RESEARCH AGREEMENT, LICENSEE
agrees that LICENSEE shall not disclose to a third party CONFIDENTIAL
INFORMATION of any of the other parties to either this LICENSE AGREEMENT or
the RESEARCH AGREEMENT, unless either such third party has executed a
confidentiality agreement with LICENSEE containing terms and conditions
substantially similar to this Article XII, or, with respect to governmental
agencies or other regulatory bodies, other
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usual and customary procedures in the medical products industry are utilized
to protect such CONFIDENTIAL INFORMATION. The obligations of the parties
pursuant to this Article XII with respect to CONFIDENTIAL INFORMATION of the
other party shall continue in full force and effect for a period of five (5)
years after expiration or termination of the later of either this LICENSE
AGREEMENT or the RESEARCH AGREEMENT.
XIII. PATENTS AND INVENTIONS
13.1 BOARD shall have the right to file and prosecute any patent
application and maintain any patent that may issue therefrom within the
PATENT RIGHTS, and LICENSEE shall pay BOARD's expenses relating to filing and
prosecuting of such patent applications and maintaining such patents, unless
LICENSEE elects not to pay such expenses pursuant to LICENSEE's rights under
Paragraph 13.5. In addition, in the event that LICENSEE desires that BOARD
file a patent application on any invention arising out of or in connection
with the RESEARCH PROGRAM and BOARD elects to do so, BOARD shall have the
right to file and prosecute such patent application and maintain any patent
that may issue therefrom, and LICENSEE shall pay BOARD's expenses relating to
filing and prosecuting of such patent applications and maintaining such
patents, unless LICENSEE elects not to pay such expenses pursuant to
LICENSEE's rights under Paragraph 13.5. LICENSEE shall pay BOARD's expenses
relating to filing and prosecuting of such patent applications and
maintaining such patents within thirty (30) days after receipt of BOARD's
written invoice. Subject to the rights and license granted to LICENSEE
pursuant to Article IV of this LICENSE AGREEMENT, BOARD shall own all right,
title and interest in and to any patent applications, and any patents that
may issue therefrom, within the PATENT RIGHTS or that disclose inventions
arising out of or in connection with the RESEARCH PROGRAM made solely by
employees of BOARD and jointly by employees of BOARD and LICENSEE. Such
patent applications and patents issuing therefrom shall be deemed to be
patent applications and patents within the PATENT RIGHTS.
13.2 BOARD agrees to consult with LICENSEE in a timely manner concerning
the selection of patent counsel for the purpose of filing and prosecuting
patent applications within the PATENT RIGHTS. BOARD further agrees to
consult with LICENSEE in a timely manner concerning (i) scope and content of
patent applications within the PATENT RIGHTS prior to filing such patent
applications and (ii) content of and proposed responses to official actions
of the United States Patent and Trademark office and foreign patent offices
during prosecution of such patent applications. For purposes of this
Paragraph 13.2, "timely" shall mean sufficiently in advance of any decision
by BOARD or any deadline imposed upon written response by BOARD so as to
allow LICENSEE to meaningfully review such decision or written response and
also provide comments to BOARD in advance of such decision or deadline to
allow LICENSEE's comments to be considered and incorporated into BOARD's
decision or written response.
13.3 BOARD agrees to keep LICENSEE informed in a timely manner of the
contents, status and progress of all patent applications within the PATENT
RIGHTS filed and prosecuted by
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BOARD. BOARD further agrees that BOARD will not allow any such patent
application or any patent that may issue therefrom to become abandoned until
LICENSEE has determined, and informed BOARD in writing, that LICENSEE does
not desire to continue prosecution or appeal(s) or maintenance of such patent
application or patent. For purposes of this Paragraph 13.3, "timely" shall
mean sufficiently in advance of any decision by BOARD or any deadline imposed
upon written response by BOARD so as to allow LICENSEE to meaningfully review
such decision or written response and also provide comments to BOARD in
advance of such decision or deadline to allow LICENSEE's' comments to be
considered and incorporated into BOARD's decision or written response.
13.4 In the event that BOARD elects not to file any patent application
within the PATENT RIGHTS, or thereafter elects not to continue prosecution of
any such patent application, or elects not to maintain any patent that may
issue therefrom, LICENSEE shall have the right, at LICENSEE's option and
expense, to file for and prosecute such patent application and maintain such
patent using patent counsel selected by LICENSEE and approved by BOARD, such
approval not to be unreasonably withheld. BOARD shall reasonably cooperate
with and assist LICENSEE in connection with any filing, prosecution and
maintenance activities undertaken by LICENSEE in accordance with this
Paragraph 13.4. LICENSEE agrees to consult with BOARD with respect to such
filing, prosecution and maintenance activities and to take into account all
comments provided by BOARD, including without limitation, comments concerning
(i) scope and content of patent applications within the PATENT RIGHTS prior
to filing such patent applications and (ii) content of and proposed responses
to official actions of the United States Patent and Trademark office and
foreign patent offices during prosecution of such patent applications.
13.5 With respect to the filing of any patent application within the
PATENT RIGHTS by either BOARD or LICENSEE, or the prosecution of any such
patent application within the PATENT RIGHTS, or the maintenance of any patent
within the PATENT RIGHTS that may issue therefrom, if LICENSEE elects not to
pay the expenses actually incurred by BOARD in filing and prosecuting such
patent application and maintaining such patent, or if LICENSEE elects not to
file for or continue prosecution of a patent application (whether such patent
application was filed by BOARD or LICENSEE) or maintain any patent that may
issue therefrom within the PATENT RIGHTS pursuant to LICENSEE's rights under
Paragraph 13.4, in any country, LICENSEE shall promptly notify BOARD in
writing sufficiently in advance of any deadline to enable BOARD, at BOARD's
expense, to file for or continue prosecution of such patent application,
and/or maintain such patent. Thereafter, LICENSEE shall have no further
rights or obligations with respect to such patent application and/or such
patent in such country.
XIV. DUE DILIGENCE
14.1 LICENSEE shall use commercially reasonable efforts to bring one or
more LICENSED PRODUCTS to market and to meet the market demand therefor.
BOARD shall have a right after two (2) years from the EFFECTIVE DATE to
terminate the exclusivity of the license
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granted by BOARD to LICENSEE pursuant to Paragraph 4.1 in any national
political jurisdiction within the LICENSED TERRITORY at any time upon written
notice to LICENSEE if LICENSEE fails to provide written evidence that
LICENSEE has commercialized or is using commercially reasonable efforts to
commercialize a LICENSED PRODUCT within one hundred eighty (180) days after
receiving written notice from BOARD of BOARD's intention to terminate such
exclusivity; provided that termination of such exclusivity shall not occur
unless and until a court of competent jurisdiction has determined that
LICENSEE has not satisfied LICENSEE's obligations hereunder and such
determination is final. For purposes of this Paragraph 14.1, a determination
by a court of competent jurisdiction shall be deemed final if such
determination either is not appealed, or is appealed to and upheld or
otherwise confirmed by a court of appeals to which an appeal for review of
such determination may be made directly. Evidence provided by LICENSEE in
writing that LICENSEE has an ongoing and active research, development,
manufacturing, marketing or sublicensing program (as appropriate), directed
toward production and sale of LICENSED PRODUCTS within either the United
States or Europe shall be deemed satisfactory evidence that LICENSEE has
commercialized or is using commercially reasonable efforts to commercialize a
LICENSED PRODUCT and to meet the market demand therefor. In the event that
termination of the exclusivity of the license granted herein occurs in any
national political jurisdiction pursuant to this Paragraph 14.1, BOARD agrees
to negotiate in good faith with LICENSEE lower royalty rates with respect to
SALES of LICENSED PRODUCTS in such jurisdiction and other terms and
conditions relating to a non-exclusive right and license under LICENSED
SUBJECT MATTER to manufacture, have manufactured, use and sell LICENSED
PRODUCTS, to practice any method, process or procedure within the PATENT
RIGHTS or the TECHNOLOGY RIGHTS, and to otherwise exploit the LICENSED
SUBJECT MATTER, within such national political jurisdiction for use within
the LICENSED FIELD. This Paragraph 14.1 sets forth BOARD's sole remedy for a
failure by LICENSEE to meet LICENSEE's obligations under this Paragraph 14.1.
14.2 If LICENSEE's rights under this LICENSE AGREEMENT become
non-exclusive pursuant to Paragraph 14.1 above, and BOARD grants a license
under the PATENT RIGHTS to a third party for lower fees and/or at a lower
royalty rate than those set forth in Article V above or negotiated in good
faith pursuant to the parties obligations under Paragraph 14.1, BOARD shall
so notify LICENSEE and the amounts payable by LICENSEE hereunder shall be
reduced to such lower amounts.
XV. GENERAL
15.1 This LICENSE AGREEMENT, together with the RESEARCH AGREEMENT,
constitutes the entire understanding and only agreement between the parties
with respect to the subject matter hereof and supersedes any and all prior
negotiations, representations, agreements, and understandings, written or
oral, that the parties may have reached with respect to the subject matter
hereof. No agreements altering or supplementing the terms hereof may be made
except by means of a written document signed by the duly authorized
representatives of each of the parties hereto.
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15.2 LICENSEE's sole obligation to bring LICENSED PRODUCTS to market and
meet the market demand therefor is as set forth in Article XIV. Nothing in
this LICENSE AGREEMENT shall be deemed to require LICENSEE to otherwise
exploit the LICENSED SUBJECT MATTER for commercial purposes, or prevent
LICENSEE from commercializing products similar to or competitive with a
LICENSED PRODUCT.
15.3 In the event either party hereto is prevented from or delayed in the
performance of any of its obligations hereunder by reason of acts of God,
war, strikes, riots, storms, fires, or any other cause whatsoever beyond the
reasonable control of the party, the party so prevented or delayed shall be
excused from the performance of any such obligation to the extent and during
the period of such prevention or delay.
15.4 Any notice or other communication required by this LICENSE AGREEMENT
shall be made in writing and given by prepaid, first class, certified mail,
return receipt requested, and shall be deemed to have been served on the date
received by the addressee at the following address or such other address as
may from time to time be designated to the other party in writing:
If to BOARD: BOARD OF REGENTS
The University of Texas System
201 West 7th Street
Austin, Texas 78701
ATTENTION: System Intellectual Property
Office
with a copy to:
Executive Vice President and Provost
The University of Texas at Austin
Main Building 201
Austin, Texas 78712-1111
ATTENTION: Patricia C. Ohlendorf
If to LICENSEE: PEGAS PHARMACEUTICALS, INC.
2200 Sand Hill Road
Menlo Park, California 94025
ATTENTION: Vice President,
Corporate Development
15.5 LICENSEE shall comply with all applicable federal, state and local
laws and regulations in connection with its activities pursuant to this
LICENSE AGREEMENT.
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15.6 This LICENSE AGREEMENT shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Texas; provided,
however, that all questions with respect to validity of any patents or patent
applications within the PATENT RIGHTS shall be determined in accordance with
the laws of the respective country in the territory in which such patents or
patent applications shall have been granted or filed, as applicable.
15.7 A waiver, express or implied, by either BOARD or LICENSEE of any
right under this LICENSE AGREEMENT or of any failure to perform or breach
hereof by the other party hereto shall not constitute or be deemed to be a
waiver of any other right hereunder or of any other failure to perform or
breach hereof by such other party, whether of a similar or dissimilar nature
thereto.
15.8 Headings included herein are for convenience only, do not form a
part of this LICENSE AGREEMENT and shall not be used in any way to construe
or interpret this LICENSE AGREEMENT.
15.9 If any provision of this LICENSE AGREEMENT shall be found by a court
of competent jurisdiction to be void, invalid or unenforceable, the same
shall be reformed to comply with applicable law or stricken if not so
reformable, so as not to affect the validity or enforceability of the
remainder of this LICENSE AGREEMENT.
15.10 This LICENSE AGREEMENT may be executed in counterparts, each of
which shall be deemed an original, but which together shall constitute one
and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this LICENSE AGREEMENT.
BOARD OF REGENTS OF THE PEGAS PHARMACEUTICALS, INC.
UNIVERSITY OF TEXAS SYSTEM ("LICENSEE")
("BOARD")
By: /s/ Thomas G. Ricks By: /s/ Mark Levin
---------------------------- -----------------------------
Thomas G. Ricks Name: Mark Levin
Acting Vice Chancellor ------------------------
for Asset Management Title: CEO
-----------------------
APPROVED AS TO CONTENT:
By: /s/ William H. Cunningham
----------------------------
William H. Cunningham
President
The University of Texas at Austin
APPROVED AS TO FORM:
By:/s/ Dudley R. Dobie, Jr.
-----------------------------
Dudley R. Dobie, Jr.,
Office of General Counsel
CERTIFICATE OF APPROVAL
I hereby certify that the foregoing Agreement was approved by the Board
of Regents of The University of Texas System on the 11th day of June, 1992
and that the person whose signature appears above is authorized to execute
such Agreement on behalf of the Board.
/s/ Arthur H. Dilly
- -------------------------------------
Executive Secretary, Board of Regents
The University of Texas System
ARTHUR H. DILLY
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<PAGE>
Ex-10.11
EXCLUSIVE LICENSE AGREEMENT
EXCLUSIVE LICENSE AGREEMENT
By and Among
MARVIN J. SLEPIAN, M.D.,
ENDOLUMINAL THERAPEUTICS, INC.
and
PEGAS PHARMACEUTICALS, INC.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 - DEFINITIONS .................................................. 1
1.1 Affiliate ................................................. 1
1.2 Confidential Information .................................. 1
1.3 Consulting Agreement ...................................... 2
1.4 Contract Research Period .................................. 2
1.5 Field ..................................................... 2
1.6 Net Revenues .............................................. 2
1.7 Other Royalty Product ..................................... 2
1.8 Patented Product(s) ....................................... 3
1.9 Patent Rights ............................................. 3
1.10 Related Technology ........................................ 4
1.11 Research Agreement ........................................ 4
1.12 Stock Purchase Agreement .................................. 4
1.13 Valid Claim ............................................... 4
ARTICLE 2 - LICENSE AND ROYALTY .......................................... 4
2.1 Exclusive License ......................................... 4
2.2 Base Royalties ............................................ 5
2.3 Third Party Royalties ..................................... 5
2.4 Single Royalty; Non-Royalty Sales ......................... 6
2.5 Payment of Royalties ...................................... 7
2.6 Books and Records ......................................... 8
ARTICLE 3 - CONTRACT RESEARCH SERVICES ................................... 8
3.1 Research Funding .......................................... 8
3.2 Payments; Budgets ......................................... 8
3.3 Personnel ................................................. 9
3.4 Equipment ................................................. 9
3.5 Substitute Research Agreement ............................. 9
3.6 Termination of Research Agreement ......................... 10
ARTICLE 4 - DISCLOSURE AND PROTECTION OF PROPRIETARY
RIGHTS ............................................................ 10
4.1 Disclosure ................................................ 10
4.2 Filing, Prosecution and Maintenance by Pegas .............. 11
4.3 Filing, Prosecution and Maintenance by ETI ................ 12
4.4 Confidential Information .................................. 12
4.5 Other Technology .......................................... 13
4.6 Publications .............................................. 15
ARTICLE 5 - WARRANTIES; INFRINGEMENT ..................................... 16
5.1 Warranties ................................................ 16
5.2 Limitation ................................................ 17
5.3 Effect of Representations and Warranties .................. 17
5.4 Infringement by Third Parties ............................. 17
<PAGE>
5.5 Infringement by Patented Product(s); Other
Royalty Products .......................................... 18
ARTICLE 6 - AGREEMENTS OF PEGAS .......................................... 18
6.1 Indemnification ........................................... 18
6.2 Patent Marking ............................................ 19
6.3 Insurance ................................................. 19
ARTICLE 7 - TERM AND TERMINATION ......................................... 20
7.1 Term ...................................................... 20
7.2 Default ................................................... 20
7.3 Termination by Pegas ...................................... 21
7.4 Bankruptcy ................................................ 21
7.5 Survival .................................................. 22
ARTICLE 8 - OTHER AGREEMENTS ............................................. 23
ARTICLE 9 - DUE DILIGENCE ................................................ 23
9.1 Obligation to Exploit ..................................... 23
9.2 Milestones ................................................ 23
9.3 Remedy .................................................... 24
9.4 Adjustment ................................................ 24
ARTICLE 10 - GENERAL ..................................................... 24
10.1 Notices ................................................... 24
10.2 Arbitration ............................................... 25
10.3 Relationship of the Parties ............................... 25
10.4 Force Majeure ............................................. 25
10.5 Governing Law ............................................. 26
10.6 Assignment ................................................ 26
10.7 Waiver .................................................... 26
10.8 Modifications ............................................. 26
10.9 Severability .............................................. 26
10.10 Complete Agreement ........................................ 26
10.11 No Implied Obligations .................................... 26
10.12 No Consequential Damages .................................. 26
10.13 Counterparts and Headings ................................. 27
10.14 Confidential Terms ........................................ 27
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<PAGE>
EXCLUSIVE LICENSE AGREEMENT
THIS AGREEMENT, including the attached Exhibits, (the
"Agreement") is made and entered into effective as of the day of 7th day of
August, 1992 (the "Effective Date"), by and among MARVIN J. SLEPIAN, M.D. ("Dr.
Slepian"), ENDOLUMINAL THERAPEUTICS, INC., a Delaware corporation, ("ETI") and
PEGAS PHARMACEUTICALS, INC., a Delaware corporation ("Pegas").
RECITALS
A. Dr. Slepian has developed technology related to that certain Field
defined below, certain of which technology is the subject of United States,
European and other patent applications.
B. Dr. Slepian is the sole shareholder and director, and an officer, of
ETI and has assigned to ETI all rights in and to such technology, including the
patent rights thereto.
C. Pegas desires to acquire, and ETI is willing to grant to Pegas, an
exclusive license to use such technology and an exclusive license under the
related patent rights, all under the terms set forth below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS
For the purposes of this Agreement, the following defined terms will have
the respective meanings set forth in this Article 1:
1.1 Affiliate. The term "Affiliate" means any person or entity which,
directly or indirectly, owns or controls Pegas, or which is controlled by or
under common control with Pegas. For purposes of this definition, "control"
means the ownership, directly or indirectly, of twenty percent (20%) or more of
the outstanding equity securities of a corporation entitled to vote in the
election of directors or a twenty percent (20%) or greater interest in the net
assets or profits of an entity which is not a corporation.
1.2 Confidential Information. The term "Confidential Information" has the
meaning ascribed in Section 4.4 of this Agreement.
<PAGE>
1.3 Consulting Agreement. The term "Consulting Agreement" means the
certain Agreement for Consulting Services dated August 7th, 1992 between Pegas
and Dr. Slepian in the form of Exhibit E attached hereto.
1.4 Contract Research Period. The term "Contract Research Period" means
the period commencing on the Effective Date and continuing until the end of the
period for which Pegas provides funding to ETI or Dr. Slepian's employer under
Article 3 below, or the termination of the Consulting Agreement, whichever is
later.
1.5 Field. The term "Field" shall mean any products, methods or other
subject matter related to endoluminal, endomural, ectoluminal or other
polymer-based paving systems or devices, [*] in each case for all human
applications. Without limiting the foregoing, it is understood that all
inventions covered by Existing Patent Rights (as defined in 1.9 below) shall
be within the Field.
1.6 Net Revenues. The term "Net Revenues" means the gross receipts paid
to Pegas, its Affiliates or sublicensees for sales of Patented Product(s) or
Other Royalty Products (as the case may be) worldwide less (i) all trade,
quantity and cash discounts actually allowed and refunded, (ii) all credits and
allowances actually refunded on account of rejection, returns, billing errors or
retroactive price reductions, (iii) duties and tariffs paid by Pegas, (iv)
freight and transportation costs paid by Pegas, and (v) excise, sale and use
taxes and equivalent taxes paid by Pegas.
1.7 Other Royalty Product. The term "Other Royalty Product" shall mean
any product, component, device, method or process (each, an "Item"), other than
a Patented Product, whose sale or principal intended use:
(a) would infringe, contributorily infringe or induce the
infringement of a claim of a patent application within the Patent Rights
filed in the country in which such Item is sold; or
(b) would infringe, contributorily infringe or induce the
infringement of a claim of a patent application within the Patent Rights
filed in the United States, whether or not such application has also been
filed in the country of sale; or
(c) would not infringe, contributorily infringe or induce the
infringement of a claim of a patent application described in (a) or (b),
but that would be a Patented Product if concurrently sold in the United
States.
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However, an Item shall not be an "Other Royalty Product" by reason of a patent
application described in (a) or (b) above if such Item is sold more than eight
(8) years after the date from which such patent application takes priority for
filing purposes.
1.8 Patented Product(s). The term "Patented Product(s)" means any Item
whose sale or principal intended use would infringe, contributorily infringe or
induce the infringement of one or more Valid Claims in the country in which such
Item is sold.
1.9 Patent Rights. The term "Patent Rights" shall mean any and all patents
and patent applications (including utility model patents and
applications therefor) and all rights thereunder:
(a) that claim inventions within the Field conceived or developed by
Dr. Slepian, alone or jointly with others, prior to the Effective Date; or
(b) that claim inventions conceived or developed during the Contract
Research Period by Dr. Slepian, alone or jointly with others, which relate
to the Field or were conceived or developed in the course of performing
research in connection with Article 3 below; or
(c) that claim inventions conceived or developed during the Contract
Research Period by ETI employees or third parties acting on behalf of ETI,
which relate to the Field or were conceived or developed in the course of
performing research in connection with Article 3 below.
However, the Patent Rights shall not include any patents or applications, to
the extent that they are owned by the University of Arizona, the Veterans
Administration Medical Center, Tucson, Arizona, or any subsequent primary
employer (but not including consulting and other similar engagements) of Dr.
Slepian by reason of Dr. Slepian's employment by such entity, or to the
extent such patents or applications are owned by Pegas under the Consulting
Agreement or otherwise. It is understood that the applications described in
(a) above include all applications listed in [*]; any continuations,
continuations-in-part, divisions and substitutions of such listed
applications; and all patents which may issue upon any of the foregoing,
together with all renewals, reissues and extensions thereof (together, the
"Existing Patent Rights").
It is further understood that the Patent Rights shall not include any patents
or applications to the extent they include claims specifically directed to
subject matter described in [*]; provided that the foregoing shall not be
deemed to imply that any subject matter claimed in the Existing Patent Rights
is not within the Patent Rights for all purposes of this Agreement.
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<PAGE>
1.10 Related Technology. The term "Related Technology" shall mean any
research and development information, inventions, copyrightable materials,
know-how, and all preclinical, clinical and other technical data in the
possession of Dr. Slepian or ETI prior to the Effective Date, or during the
Contract Research Period, in each case which relate directly to the Field or the
Patent Rights and which ETI or Dr. Slepian has the right to provide to Pegas.
1.11 Research Agreement. The term "Research Agreement" shall have the
meaning defined in section 3.1 of this Agreement.
1.12 Stock Purchase Agreement. The term "Stock Purchase Agreement" means
the certain Stock Purchase Agreement dated August 7th, 1992 between Pegas and
Dr. Slepian in the form of Exhibit F attached hereto.
1.13 Valid Claim. The term "Valid Claim" shall mean a claim of an issued
and unexpired patent included within the Patent Rights, which has not been held
unenforceable, unpatentable or invalid by a court or other governmental agency
of competent jurisdiction. In the event that such a holding of unenforceability,
unpatentability or invalidity is reversed on appeal by a higher court or agency
of competent jurisdiction, the subject claim shall be reinstated as a Valid
Claim hereunder.
ARTICLE 2
LICENSE AND ROYALTY
2.1 Exclusive License.
(a) ETI and Dr. Slepian hereby grant to Pegas the exclusive (except
to the extent provided in Section 4.5(b)(ii) herein), worldwide license,
under the Patent Rights and the Related Technology, to develop,
manufacture, use, sell, exploit and otherwise commercialize any products,
to practice any method, process or procedure, and to otherwise exploit the
Patent Rights and the Related Technology within the Field.
(b) The license granted under (a) above shall be exclusive even as
to ETI and Dr. Slepian, and shall include the right to grant and
authorize sublicenses within the Field under the Patent Rights and
Related Technology; provided, however, that such sublicenses shall in
each case include all applicable restrictions and limitations of this
Agreement. Pegas agrees to notify ETI if any sublicenses are granted by
Pegas under the Patent Rights.
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<PAGE>
(c) Notwithstanding (a) above, Dr. Slepian and ETI reserve for
themselves the perpetual right and license to use the Related Technology
and any inventions disclosed and claimed in the Patent Rights for their
own academic research purposes and to perform their obligations under
Article 3 below.
2.2 Base Royalties. In consideration of the rights and licenses granted to
Pegas hereunder, and of the obligations of Dr. Slepian and ETI hereunder, Pegas
agrees to pay ETI as a "Royalty" or "Royalties" the following amounts:
(a) [*] of Net Revenues received by Pegas or its
Affiliates upon their respective sales of Patented Products;
(b) [*] of Net Revenues received by Pegas'
non-Affiliate sublicensees upon their sales of Patented Products; and
(c) [*] of the Net Revenues received by Pegas, its
Affiliates or sublicensees upon their respective sales of Other Royalty
Products.
As to each Patented Product or Other Royalty Product, royalties under this
Section 2.2 shall be payable until the later of either (i) the expiration of the
last-to-expire patent within the Patent Rights, or (ii) fifteen (15) years after
the first accrual of any royalty under this Section 2.2. If a product that has
been sold as a Patented Product in a country ceases to be a Patented Product in
such country prior to the end of the period in clause (ii) above, because all
claims within the Patent Rights that cover such product in such country have
expired, the product shall thereafter be deemed an "Other Royalty Product" in
such country until the end of such period.
2.3 Third Party Royalties. Notwithstanding 2.2 above, if Pegas becomes
obligated to pay to non-Affiliate third parties royalties with respect to a
Patented Product under either (i) license agreements for other technologies
which Pegas, in Pegas' reasonable judgment, determines are desirable to
incorporate in such Patented Product, or (ii) license agreements relating to
patent applications or patents within the Patent Rights that are jointly owned
by Dr. Slepian or ETI, and such third parties which Pegas, in Pegas' reasonable
judgment, determines are desirable with respect to such Patented Product, and
the total royalties to be paid by Pegas to ETI and such third parties would
exceed the amounts to be paid to ETI pursuant to Section 2.2, then the amounts
to be paid to ETI pursuant to Section 2.2 shall be reduced in accordance with
the following formulas:
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(a) Sales by Pegas and Affiliates. Royalties payable on Net Revenues
received by Pegas and/or its Affiliates from such Patented Product shall
equal [*] as royalties to ETI and such third parties (prior to the
adjustment hereunder and any similar adjustment in the amount to be paid
to such third parties); and
(b) Sales by Sublicensees. Royalties payable on Net Revenues
received by Pegas' non-Affiliate sublicensees from such Patented Product
shall equal [*] as royalties to ETI and such third parties (prior to
the adjustment hereunder and any similar adjustment in the amount to be
paid to such third parties).
Notwithstanding the foregoing, the reductions in (a) and (b) above shall not
reduce [*] the amounts otherwise payable under this Agreement to ETI with
respect to a Patented Product, unless [*] royalty is payable to Non-Affiliate
third parties with respect to such Patented Product; if [*] royalty is
payable to Non-Affiliate third parties with respect to a Patented Product,
the reductions in (a) and (b) may not reduce to [*] of the applicable Net
Revenues the royalties payable to ETI with respect to such Patented Product.
It is understood that the adjustment in this Section 2.3 shall not apply to
increase the amounts payable under Section 2.2 above; nor shall this Section
2.3 apply to royalties payable on Other Royalty Products.
2.4 Single Royalty; Non-Royalty Sales.
(a) It is understood that [*] royalty is payable with respect
to a Patented Product, regardless of how many claims or patents within the
Patent Rights cover such Patented Product, and that [*] royalty shall
be payable under this Article 2 with respect to any particular product
unit. Such royalty shall be the highest applicable royalty under either
(a), (b) or (c) of Section 2.2, subject to reduction in accordance with
Section 2.3. In addition, [*] royalty shall be payable under this
Agreement with respect to sales of Patented Products or Other Royalty
Products among Pegas, its Affiliates and/or sublicensees for resale, upon
the understanding that royalties will be due pursuant to the terms of this
Agreement upon such resale. Nor shall a royalty be payable under this
Article 2 with respect to sales of Patented Products or Other Royalty
Products for use in research and/or development, in clinical trials or as
samples; provided that such research and/or development materials,
clinical trial materials or samples are sold at a
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<PAGE>
price of [*]. For purposes of this Section 2.4(a), "Cost" shall mean
the fully burdened cost of manufacturing a Patented Product or Other
Royalty Product, as applicable, including without limitation the direct
cost of labor, materials and allocable pharmaceutical manufacturing
overheads in accordance with generally accepted accounting principles
consistently applied.
(b) It is understood that certain claims of the Patent Rights are
directed to methods for treating patients. If Pegas, Pegas' Affiliates or
sublicensees receive a separate fee from a physician, hospital or similar
direct health care provider for the right to practice a method comprising
a Patented Product or Other Royalty Product, such fee shall be included as
gross receipts from a sale of a Patented Product or Other Royalty Product
(as the case may be) in determining Net Revenues. Otherwise, amounts
received by Pegas, Pegas' Affiliates or sublicensees for a sublicense to
practice such methods shall not be deemed "Net Revenues" and in no event
shall amounts received by a physician, hospital or other direct health
care provider for treatments using such methods be deemed "Net Revenues."
2.5 Payment of Royalties.
(a) Reports; Payments. All accrued Royalties pursuant to Section 2.2
above will be due and payable quarterly. Pegas will render payment to ETI
within ninety (90) days after the end of each calendar quarter for all
Royalties that are due and payable and which accrued during such calendar
quarter. Pegas will provide with each Royalty payment a written statement
in reasonable detail setting forth Patented Products and Other Royalty
Products sold and the computation of the total Net Revenues from
Royalty-bearing worldwide sales during the period covered by such
statement. If any payment is late, Pegas will pay interest at the rate of
one percent (1%) per month or the maximum rate permitted by law, whichever
is lower, on any overdue amount from the date such overdue amount was due
until such overdue amount is paid in full.
(b) Currency. If any currency conversion is required in connection
with the calculation of Royalties hereunder, such conversion shall be made
by using the exchange rates used by Pegas in calculating its own revenues
for financial reporting purposes.
(c) Withholding Taxes. Any withholding or other tax that Pegas or
any of its Affiliates or sublicensees are required by statute to withhold
and pay on behalf of ETI with respect to the Royalties payable to ETI
under this Agreement shall be deducted from said Royalties and promptly
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<PAGE>
paid to the taxing authority; provided, however, that in regard to any tax
so deducted, Pegas shall furnish ETI with proper evidence of the taxes
paid on its behalf.
2.6 Books and Records. Pegas will maintain a separate record in detail
reasonably sufficient to enable the Net Revenues and Royalties to be
determined. Pegas will permit such records to be examined at ETI's expense,
upon at least ten (10) days written notice and no more than twice per
calendar year, by an auditor or accountant selected by ETI and to whom Pegas
has no reasonable objection. Such examination may be conducted during
business hours and shall be limited to the extent reasonably necessary to
verify the Net Revenues and Royalties. ETI and Dr. Slepian agree that all
information obtained in the course of such examination shall be deemed
Confidential Information of Pegas. In the event the examination of the
records reveals a shortfall of [*] or more of the total payments due ETI in
the period examined, Pegas will bear the entire cost of the examination of
the records, and will pay the overdue amount plus interest at the rate of one
percent (1%) per month, or the maximum permitted by law, whichever is lower,
from the date such overdue amount was due under Section 2.5(a).
ARTICLE 3
CONTRACT RESEARCH SERVICES
3.1 Research Funding. Pegas agrees to use its best commercial efforts
to enter into a Research Agreement with the University of Arizona and/or the
Veterans Administration Medical Center, Tucson, Arizona, (the "Research
Agreement") to fund research by Dr. Slepian in the amount of [*], plus
standard overhead charges of not more than [*] of such amounts, such funds to
be provided Over a period of [*]. In addition to such funds to be so
provided, Pegas shall provide to ETI an additional amount of [*] in accordance
with Section 3.2. It is understood that, if research is progressing in
accordance with the goals and objectives agreed upon between Pegas and Dr.
Slepian under the Research Agreement, the parties intend to extend the
Research Agreement for [*] at the rate of [*] per year, plus overhead charges
not exceeding [*] (including without limitation any amounts paid directly to
ETI).
3.2 Payments; Budgets. The amounts to be provided directly to ETI under
Section 3.1 above shall be paid in [*] quarterly payments of [*] each, to be
paid within ten (10) days after the beginning of each of the first [*]
calendar quarters commencing after the Effective Date. The parties agree that
such amounts shall be used for Dr.
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<PAGE>
Slepian to attend at least [*] scientific meetings per year related to the
Field and for such other matters as the parties shall mutually agree.
3.3 Personnel. Pegas agrees to provide funds for support of a
post-doctoral research fellow and, in addition, a histology-laboratory
technician, each appointed for the purpose of conducting research under the
Research Agreement in Dr. Slepian's laboratory. The amount of such funds for
the post-doctoral research fellow shall not exceed an annual salary equal to
[*] payable in equal monthly installments and less applicable withholding and
other payroll deductions, if any, plus a consulting fee equal to [*] payable
in equal monthly installments. The amount of such funds for the
histology-laboratory technician shall not exceed [*] of the usual and
customary annual salary for similar appointments for similar services in the
Tucson, Arizona area.
3.4 Equipment. For each of the first [*] periods after the Effective
Date, Pegas agrees to acquire and provide to The University of Arizona, or
the Veterans Administration Medical Center, Tucson, Arizona, for use in Dr.
Slepian's laboratory under the Research Agreement (or to a substitute
employer under any substitute agreement entered into under Section 3.5
below), scientific equipment that would be useful in connection with the
activities contemplated under this Article 3. Such equipment shall have a
bona fide delivered and installed purchase price of not more than [*] for
each such period (i.e., a total of [*]). Dr. Slepian shall provide to Pegas a
list of the equipment to be provided, and subject to availability and the
dollar limits in this Section 3.4, Pegas shall promptly provide such
equipment. Upon request by Dr. Slepian after the term of the Research
Agreement or [*] months after the Effective Date, whichever is later, or at
such earlier time as Pegas ceases to conduct all material business or sells
all or substantially all of its assets, Pegas agrees promptly to convey (or
cause the conveyance of) title to such equipment to ETI, without any charge
to ETI. Dr. Slepian will continue to have access to such equipment until
title is so conveyed to ETI. It is understood that Pegas may lease such
equipment from third parties, so long as Pegas obtains the right to convey
title tic such equipment to ETI as required by this Section 3.4.
3.5 Substitute Research Agreement. In the event that Dr. Slepian ceases to
be a faculty member of the University of Arizona and/or a member of the staff of
the Veterans Administration Medical Center, Tucson, Arizona, as applicable to
the Research Agreement, during the term of the Research Agreement, Pegas agrees
to use its best commercial efforts to promptly terminate the Research Agreement
and use its best commercial efforts to enter into a comparable agreement with
any non-
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Affiliate nonprofit academic institution reasonably approved by Pegas and of
which Dr. Slepian becomes a full-time employee within nine (9) months after
ceasing to be a faculty member of the University of Arizona. It is understood
that Pegas' obligation to enter into such an agreement shall be subject to
agreement by the particular institution, and that Pegas shall not be required to
undertake any obligations that are more burdensome than those contained in the
Research Agreement. The total funding provided by Pegas under the Research
Agreement and any, substitute agreement entered into under this Section 3.5 for
purposes of funding research by Dr. Slepian shall not exceed the total amount
originally required under the Research Agreement. It is understood that, in the
event Pegas is obligated to enter into a substitute research agreement under
this Section 3.5, the Contract Research Period shall continue after termination
of the Research Agreement until the end of the term of any substitute research
agreement (and any extensions thereof), or the end of the period for which
Pegas provides funding to ETI under this Article 3, or the termination of the
Consulting Agreement, whichever is later.
3.6 Termination of Research Agreement. Pegas agrees not to terminate, or
cause the termination of, the Research Agreement to be entered into pursuant to
Section 3.1, or any substitute research agreement entered into pursuant to
Section 3.5, if applicable, prior to the second anniversary of the Effective
Date, except as provided in either (i) Section 3.5 above or (ii) as a result of
a material failure by The University of Arizona, or the Veterans Administration
Medical Center, Tucson, Arizona, or any non-Affiliate nonprofit academic
institution of which Dr. Slepian becomes a full-time employee, if applicable
pursuant to Section 3.5, or Dr. Slepian to comply with the provisions of the
Research Agreement or any substitute research agreement, if applicable, which
failure has not been cured within thirty (30) days after a written notice
thereof by Pegas. if Pegas terminates the Research Agreement by reason of Dr.
Slepian's failure to comply, as provided in (ii) above, Pegas, obligations under
this Article 3 shall terminate as of the effective date of such termination. It
is understood, however, that Pegas' obligation under Section 3.4 above to make
available to Dr. Slepian the equipment described therein shall not terminate by
reason of a termination of the Research Agreement under Section 3.5 above.
ARTICLE 4
DISCLOSURE AND PROTECTION OF PROPRIETARY RIGHTS
4.1 Disclosure. ETI and Dr. Slepian will promptly disclose to Pegas all
aspects of the Related Technology and any inventions covered by the Patent
Rights as of the Effective Date and as may
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be conceived or developed from time to time throughout the term of this
Agreement, together with copies of all laboratory notebooks and other written
materials describing such Related Technology and/or inventions. In addition, ETI
agrees to provide to Pegas complete copies of all patent applications within the
Patent Rights, and all written materials pertaining thereto, including without
limitation files of any patent counsel involved in such applications. Upon
request by Pegas, Dr. Slepian and ETI agree to provide reasonable assistance to
Pegas and its representatives in understanding any or all such items. Pegas
agrees to pay reasonable out-of-pocket costs paid to non-employee third parties
by ETI and Dr. Slepian to provide materials or assistance requested by Pegas
under this Section 4.1, provided that ETI or Dr. Slepian obtained Pegas' prior
written approval of such expenditures.
4.2 Filing, Prosecution and Maintenance by Pegas.
(a) Pegas will have the right, in its discretion, to take
responsibility for, and control of, the filing for, prosecution and
maintenance of the Patent Rights in ETI's or Slepian's name, with the
input and participation of ETI and Dr. Slepian. Dr. Slepian and ETI
shall cooperate with and assist Pegas in connection with the filing for,
prosecution and maintenance of the Patent Rights, and in evidencing and
perfecting the rights granted to Pegas under this Agreement, and Pegas
shall keep ETI fully informed as to the status of the Patent Rights.
(b) Pegas agrees to reimburse ETI for legal fees and expenses
incurred in connection with the prosecution of the Patent Rights and
negotiating this Agreement prior to the Effective Date, up to [*], as
follows: [*] of such amount shall be paid in [*] quarterly installments
of [*] each during the first [*] after the Effective Date. The remainder
shall be paid in [*] installments of [*] each, due on May 1 of each of
the years [*].
(c) Pegas shall have the right to deduct from Royalties payable to
ETI under Article 2 with respect to a Patented Product or Other Royalty
Product [*] of the out-of-pocket costs paid by Pegas to non-employee
third parties to file for, prosecute, and maintain the Patent Rights (not
including the past expenses of ETI and Dr. Slepian reimbursed by Pegas
under paragraph (b) above) relating to such Patented Product or Other
Royalty Product in any country; provided, however, that the amount
deducted from such Royalties in any given quarterly payment shall not
exceed [*] of the Royalty that would
* Confidential treatment has been requested for marked portion
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otherwise be due for such Patented Product or Other Royalty Product.
4.3 Filing, Prosecution and Maintenance by ETI. In the event Pegas elects
not to pursue a patent application within ninety (90) days after receipt of all
information and materials therefor from Dr. Slepian and ETI pursuant to Section
4.1, or elects not to maintain an issued patent, within the Patent Rights in any
particular country, ETI may pursue the same in such country at its own expense.
In such event Pegas will, at ETI's request, cooperate with ETI in obtaining
and/or maintaining such patents, including but not limited to providing ETI with
applicable documents and information in Pegas' possession, as reasonably
requested by ETI. Pegas agrees to inform ETI of its decision to abandon such a
patent or application in any country at least ninety (90) days prior to the date
such abandonment would be effective, to enable ETI to continue the prosecution
or maintenance of such application or patent. Notwithstanding the above, such
patent applications and patents shall remain within the Patent Rights. In the
event that Pegas exploits such patent applications and patents, Pegas shall
reimburse Dr. Slepian and ETI for legal fees and expenses incurred in connection
with the filing, prosecution and maintenance of such patent applications and
patents.
4.4 Confidential Information.
(a) General. The term "Confidential Information" as used in this
Agreement will include all proprietary information concerning the Patent
Rights or Related Technology. With respect to the obligations of ETI and
Dr. Slepian under this Section 4.4, "Confidential Information" shall also
include any information provided by Pegas to Dr. Slepian or ETI in a
tangible form marked "confidential" or with a similar designation or that
Pegas disclosed to ETI or Dr. Slepian orally and confirmed such
information in writing as confidential within a reasonable time after its
initial disclosure. Each party agrees to maintain the confidentiality of
the Confidential Information, not to disclose such Confidential
Information to third parties, and to take all reasonable efforts to make
the Confidential Information known only to those employees who need to
have access to the Confidential Information. Notwithstanding the
foregoing, Pegas may disclose information concerning the Patent Rights or
Related Technology to actual or prospective sublicensees, and to such
other persons and in such other manner as Pegas deems reasonably necessary
in connection with its business.
(b) Exceptions. However, neither ETI nor Dr. Slepian, on the one
hand, nor Pegas, on the other hand, will have any obligation of confidence
under this Agreement with respect to any information which:
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(i) was at the time of disclosure thereof, already known to
such party other than from the disclosing party; or
(ii) without breach of this Agreement, has been published or
is otherwise available to the public at any time whether before or
after the time of disclosure to such party; or
(iii) is at any time lawfully received by such party from a
third party who has no obligation of confidence to a party hereto in
respect thereof.
Any information which is within (i), (ii) or (iii) above shall not be
included within the definition of Confidential Information for purposes of
this Section 4.4. Notwithstanding the foregoing, it is understood that Dr.
Slepian and ETI shall not be relieved of their obligations under this
Section 4.4 not to disclose to third parties information concerning the
Patent Rights or Related Technology by reason of (i) or (iii) above.
4.5 Other Technology.
(a) For a period of five (5) years after the Effective Date, ETI and
Dr. Slepian (each, a "Licensor") hereby grant to Pegas a right of first
refusal with respect to the grant of any license or other rights by either
Licensor to any technology that either Licensor develops or owns during
such period and that is not licensed to Pegas under this Agreement. If
during such period, either Licensor proposes to grant such a license or
right, it shall notify Pegas in writing, with the terms and conditions on
which such Licensor proposes to grant such license or rights, together
with the name of the party to whom such license or rights would be
granted. Pegas shall have a period of ninety (90) days to elect to
acquire the license or rights on the terms and conditions specified in the
notice, and both Licensors agree to be available to Pegas during such
period and to provide all reasonable assistance to enable Pegas to
evaluate the subject technology. If Pegas does not notify the proposing
Licensor in writing that Pegas wishes to acquire such license or rights
during the ninety (90) day period, the Licensor may grant the license or
other rights to the party named in such initial notice; provided that such
license or other rights are granted on terms that are not materially, less
favorable to the Licensor (or materially more favorable to the third
party) than those offered to Pegas.
(b) If Dr. Slepian conceives and reduces to practice after the
Contract Research Period an invention within the
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Field, Dr. Slepian shall notify Pegas in writing. Following such notice:
(i) Pegas shall have an option to include within the Patent Rights
all worldwide patents and applications claiming such invention. To
exercise such option, Pegas must elect to undertake the prosecution of
applications for such patent rights in the United States and such other
countries as Pegas deems appropriate, which election shall be made by
Pegas so notifying Dr. Slepian in writing within ninety (90) days after
receiving Dr. Slepian's notice describing the invention. During such
ninety (90) day period, Dr. Slepian and ETI shall cooperate with, and
reasonably assist Pegas, in evaluating the invention and patentability
thereof. Upon such election by Pegas, all worldwide patent rights claiming
the subject invention shall be within the Patent Rights for all purposes
of this Agreement, and Pegas shall use diligent efforts to file for,
prosecute and maintain such Patent Rights in all countries for which such
efforts are reasonably justified. In addition, following Pegas' election
to include an invention within the Patent Rights under this Section
4.5(b), Pegas shall use commercially reasonable efforts to develop and
bring to market one or more products based upon such Patent Rights.
(ii) If Pegas does not elect to include such invention within the
Patent Rights in accordance with subparagraph (b) (i) above, Dr. Slepian
or ETI shall be free to license and exploit such invention at his or its
discretion, without Pegas having any right of first refusal with respect
to such invention under paragraph (a) above, but subject to Pegas'
exclusive license under the Patent Rights and the Related Technology
hereunder. In addition, if Dr. Slepian or ETI ("Applicant") has filed a
United States patent application claiming the invention and reasonably
expects to obtain a patent on such application, and a license under the
Patent Rights is necessary to exploit such patent application or such
patent (a "Dominated Patent"), Applicant shall have the right to grant to
a licensee under the Dominated Patent a nonexclusive license to practice
the Patent Rights, subject to the terms and conditions of Exhibit D
hereto. Notwithstanding the foregoing, Applicant shall not have the right
to grant such a license to practice the Patent Rights in connection with
the manufacture, sale or use of a Competitive Product (as defined below),
or to the extent that Pegas has previously granted a sublicense to a third
party for use in the field of the Dominated
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Patent. At least twenty (20) days prior to granting such a license,
Applicant shall provide to Pegas a copy of the license agreement to be
entered into, which shall be regarded and treated as Confidential
Information as provided in Section 4.4(a) herein. As used herein, a
"Competitive Product" shall mean any product or other subject matter that
is related to the treatment or prevention of a cardiovascular or other
vascular disease or condition, or that is competitive with or
complementary to a product or technology that Pegas or its sublicensee is
then developing or reasonably expects to commence development of within
three (3) months after Applicant's request for such a license.
(c) Notwithstanding (a) and (b) above, this Section 4.5 shall not apply
with respect to any invention or technology that is assigned to the University
of Arizona, or the Veterans Administration Medical Center, Tucson, Arizona, or
other non-Affiliate entity to whom Dr. Slepian has an obligation to assign
ownership of the subject technology or invention pursuant to any agreement
entered into by Dr. Slepian either (i) prior to the Effective Date, or (ii)
required to be entered into as a condition of employment. Any notice to Pegas by
Dr. Slepian or ETI under Sections 4.5(a) or (b) above shall describe the subject
technology in reasonable detail, but on a nonconfidential basis; upon request by
Pegas, Dr. Slepian and ETI shall provide a complete written disclosure of the
technology and any related patent rights, which disclosure shall be subject to
the confidentiality provisions of 4.4 above.
4.6 Publications.
(a) Notwithstanding any provision of this Agreement to the contrary, Dr.
Slepian shall have the right to publish academic papers and make scientific
presentations regarding his research, even though such papers or presentations
may disclose Related Technology. However, the parties agree that prior to public
disclosure of any such paper or presentation by Dr. Slepian, Dr. Slepian shall
provide to Pegas a copy of such paper or presentation at the time such paper or
presentation is submitted for publication or presentation, but in any case at
least ninety (90) days prior to the date of the proposed public disclosure, in
order for Pegas to have sufficient time to file any patents that Pegas deems
appropriate.
(b) In the event that Pegas or its personnel propose to make a public
disclosure or publication that pertains to work performed in whole or in part by
Dr. Slepian and to which Pegas has exclusive rights under this Agreement, Pegas
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agrees to give appropriate credit to Dr. Slepian for his contributions.
ARTICLE 5
WARRANTIES; INFRINGEMENT
5.1 Warranties. ETI and Dr. Slepian each represents and warrants to Pegas
the following:
(a) Dr. Slepian and ETI together have the full right and authority
to enter into this Agreement and grant the rights and licenses granted
herein;
(b) As of the Effective Date, ETI owns all right, title and interest
in and to the Patent Rights;
(c) Neither Dr. Slepian nor ETI have previously granted, and neither
will grant during the term of this Agreement, any rights in the Patent
Rights, Related Technology or other inventions that are inconsistent with
the rights and licenses granted to Pegas herein;
(d) As of the Effective Date, to the knowledge of Dr. Slepian and
ETI, but without conducting an independent investigation beyond the
pending applications for Patent Rights: (i) no claim within the existing
Patent Rights is dominated by a claim of any patent or patent application
of a third party in any country; and (ii) the Related Technology does not
and will not infringe any patent rights, trade secret rights or other
proprietary rights of any third party;
(e) As of the Effective Date, to the knowledge of Dr. Slepian and
ETI, except for certain claims made by Cleveland Clinic described in that
certain letter dated July 31, 1992 from Dr. Slepian to Pegas and
incorporated herein by reference; (i) there have been no actions, suits or
claims made or threatened (including, without limitation, claims by former
employers or collaborators) against Dr. Slepian, ETI or, to their
knowledge, any third party, with respect to the Patent Rights, the Related
Technology or the right of Dr. Slepian or ETI to enter into and perform
their obligations under this Agreement and (ii) there has been no legal
action, suit or investigation made, brought or threatened by or against
ETI or Dr. Slepian with respect to any matter that is material to the
performance by Dr. Slepian and ETI of their obligations under this
Agreement in any respect;
(f) To the knowledge of Dr. Slepian and ETI, as of the Effective
Date, all scientific data provided by ETI or Dr.
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Slepian to Pegas in tangible form is accurate, and ETI or Dr. Slepian has
disclosed to Pegas all information known to them that would be material
in evaluating the safety or efficacy of products based upon the
inventions claimed in the Patent Rights existing as of the Effective
Date; and
(g) [*] includes all patents and patent applications in which
Dr. Slepian or ETI have any legal or beneficial right, title or interest
as of the Effective Date; and [*] lists all inventions conceived by
Dr. Slepian prior to the Effective Date that are within the Field.
5.2 Limitation. EXCEPT FOR THE WARRANTIES IN SECTION 5.1, NEITHER ETI NOR
DR. SLEPIAN MAKES ANY OTHER WARRANTY WITH RESPECT TO THE PATENT RIGHTS OR THE
RELATED TECHNOLOGY, THE OPERATION, PERFORMANCE OR RESULTS OF USING THE PATENT
RIGHTS OR THE RELATED TECHNOLOGY, THE USES TO WHICH THE PATENT RIGHTS OR THE
RELATED TECHNOLOGY MAY BE PUT OR THAT THE PATENTED PRODUCTS OR OTHER ROYALTY
PRODUCTS WILL NOT INFRINGE PATENT RIGHTS OR OTHER RIGHTS OF THIRD PERSONS. THE
WARRANTIES MADE BY DR. SLEPIAN AND ETI IN SECTION 5.1 ARE MADE IN LIEU OF ALL
OTHER EXPRESS OR IMPLIED WARRANTIES INCLUDING BUT NOT LIMITED TO IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE. UNDER NO
CIRCUMSTANCES, DURING OR AFTER THE TERM OF THIS AGREEMENT, WILL ETI OR DR.
SLEPIAN BE RESPONSIBLE FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES INCURRED BY OR
IMPOSED ON PEGAS BY REASON OF THE USE OF THE PATENT RIGHTS OR THE RELATED
TECHNOLOGY OR ARISING OUT OF THE USE, OPERATION OR PERFORMANCE OF ANY OF THE
PATENTED PRODUCTS OR OTHER ROYALTY PRODUCTS MANUFACTURED, USED OR SOLD BY PEGAS,
EXCEPT AS PROVIDED BELOW IN SECTION 5.3.
5.3 Effect of Representations and Warranties. It is understood that if the
representations and warranties made by Dr. Slepian and ETI under Section 5.1 are
not true and accurate, and Pegas incurs damages, liabilities, costs or other
expenses as a result of such falsity, ETI and Dr. Slepian shall indemnify and
hold Pegas harmless from and against any such damages, liabilities, costs or
expenses incurred as a result of such falsity, provided that ETI and/or Dr.
Slepian receives prompt notice of any claim resulting from or related to such
falsity. However, the parties agree that ETI's and Dr. Slepian's liability under
this Section 5.3 shall not exceed the amounts paid and payable to them,
collectively, by Pegas under this Agreement, and that such payments (together
with the right to terminate this Agreement under Section 7.2 below) shall be the
sole remedy available to Pegas in event of a breach of the representations and
warranties made under Section 5.1 above.
5.4 Infringement by Third Parties. If either party determines that a third
party is making, using or selling a product that may infringe the Patent Rights,
that party will notify the
* Confidential treatment has been requested for marked portion
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other party in writing. Pegas shall have the exclusive right (itself or
through others), at its sole option, to bring suit against such alleged
infringer. All recoveries in such suit (whether initiated by Pegas or its
sublicensee, or brought as a counterclaim in a suit commenced by a third
party) will inure to the benefit of Pegas or its designee, less a [*] royalty
payment to ETI; such royalty will equal [*] of the amount recovered net of
all legal expenses. ETI and Dr. Slepian will cooperate with, and assist Pegas
and its designees in, the pursuit of any suit, including without limitation
by joining as a nominal party and executing such documents as may be
reasonably required. Pegas will reimburse ETI and Dr. Slepian for reasonable
out-of-pocket expenses paid to non-employee third parties directly as a
result of assistance so requested by Pegas and shall reasonably compensate
Dr. Slepian's time requested by Pegas for such assistance.
5.5 Infringement by Patented Product(s); Other Royalty Products. If
Pegas or a sublicensee, distributor or dealer is sued by a third party
charging infringement of patent rights that dominate a claim of the Patent
Rights or that cover other Related Technology with respect to the
manufacture, use, distribution or sale of a Patented Product or an Other
Royalty Product, Pegas will promptly notify ETI. As between the parties to
this Agreement, Pegas will be entitled to control the defense in any such
action(s) and withhold [*] of the Royalties related to such Patented Product
or Other Royalty Product (as the case may be) otherwise payable to ETI and
use the withheld Royalties to reimburse the legal defense costs, attorneys'
fees and liability incurred in such infringement suit(s). Notwithstanding,
Pegas agrees to withhold only that portion of such Royalties as may
reasonably be necessary to reimburse amounts in accordance with this Section
5.5. If Pegas is required to pay a royalty to a third party to make, use,
distribute and/or sell a Patented Product or an Other Royalty Product (as the
case may be) as a result of a final judgment or settlement, the royalties
payable to ETI in relation to such Patented Product or Other Royalty Product
will be reduced as provided in Section 2.3. In the event Pegas is successful
in defending against any such claims or actions, once Pegas is compensated
for [*] of its legal defense costs in defending such claims or actions, Pegas
will return any remaining withheld Royalties to ETI.
ARTICLE 6
AGREEMENTS OF PEGAS
6.1 Indemnification. Except for claims covered by Section 5.3 above, Pegas
will, at Pegas's cost and expense, defend, indemnify and hold harmless Dr.
Slepian and his personal representatives and assigns and ETI, its shareholders,
officers,
* Confidential treatment has been requested for marked portion
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directors, employees, agents, representatives, successors and assigns from and
against any and all liabilities, damages, and expenses, including but not
limited to attorneys' fees, paid by such parties to third parties during or
after the term of this Agreement, by reason of any charge, claim or legal action
by any third person, including but not limited to an employee, agent or
representative of Pegas, relating to or arising out of injuries, deaths,
illnesses or related damages sustained or incurred by such person or entity that
results from or in any way, directly or indirectly, is connected with the
manufacture, sale or use of any Patented Product, Other Royalty Product or
Related Technology by Pegas; provided, however, that Pegas will defend and have
sole control over the defense of any action against such parties, and ETI and
Dr. Slepian will promptly notify Pegas of any action related to the Patented
Products, Other Royalty Products or Related Technology of which they become
aware. Notwithstanding the foregoing, Pegas shall have no liability under this
Section 6.1 to the extent that any injury, death, illness or damages are
reasonably attributable to the failure of ETI or Dr. Slepian to disclose to
Pegas material information known to ETI or Dr. Slepian (and not known to Pegas)
regarding the safety of such products or technology.
6.2 Patent Marking. Pegas will mark all Patented Products and Other
Royalty Products sold by it with the number of any applicable patent within the
Patent Rights in such form as satisfies the marking provisions of the United
States, and any other applicable patent laws and regulations. Until such time as
an applied for patent is issued, Other Royalty Products will be marked to
disclose that a patent application is pending. Pegas will comply with, and this
Agreement will be subject to, all laws, rules and regulations of the United
States that may be applicable to the disclosure or export of the Patent Rights
and/or the Related Technology and the sale or export of the Patented Products
and Other Royalty Products.
6.3 Insurance. During the term of this Agreement and for ten (10) years
after the end of the term of this Agreement, Pegas will obtain and maintain at
its expense product liability insurance, in which ETI and Dr. Slepian shall be
named as additional insureds against all claims, demands or causes of action
arising out of alleged defects in or out of the use of Patented Products or
Other Royalty Products made by Pegas. The limits of liability of such insurance
applicable to ETI and Dr. Slepian will not be less than the limits of liability
from time to time generally applicable to Pegas for comparable products
manufactured and sold by Pegas, but in no event will such limits be less than a
combined single limit of [*] prior to the first commercial sale in the
United States of a Patented Product or Other Royalty Product, or less than a
combined single limit of [*] thereafter. Notwithstanding the foregoing,
Pegas shall not be obligated to maintain product liability insurance under this
* Confidential treatment has been requested for marked portion
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Section 6.3 until the commencement of human clinical trials for a Patented
Product or an Other Royalty Product, or to the extent that Pegas self-insures
such liability and has the financial resources reasonably necessary to do so.
Each insurance policy will provide that it may not be cancelled or
amended without giving at least thirty (30) days prior notice to ETI and Dr.
Slepian. Upon request by ETI or Dr. Slepian, Pegas will provide ETI with a
certificate or certificates of its insurance company or companies evidencing
that such insurance has been obtained and setting forth the limits of liability.
Upon request by ETI or Dr. Slepian, not less than thirty (30) days prior to the
expiration of any such insurance, Pegas will provide ETI with an insurance
certificate or certificates of its insurance company or companies evidencing
that such insurance has been extended or that the new insurance coverage has
been obtained by Pegas and setting forth the limits of liability. With each such
certificate by an insurance company or companies, an officer of Pegas will
certify that the limits of liability applicable to ETI and Dr. Slepian are not
less than the limits of liability generally applicable to Pegas for comparable
products manufactured and sold by it. The insurance coverage obtained by Pegas
for ETI and Dr. Slepian, pursuant to the provisions of this Section, will be
provided by the same insurance companies that provide comprehensive general
liability insurance, including product liability insurance, to Pegas for the
Patented Products. If the companies providing insurance for Pegas are changed,
the companies providing insurance for ETI and Dr. Slepian will be changed so
that the same companies are providing insurance for both Pegas and ETI and Dr.
Slepian.
ARTICLE 7
TERM AND TERMINATION
7.1 Term. This Agreement shall become effective as of the Effective Date
and, unless earlier terminated pursuant to the other provisions of this Article
7, shall continue in full force and effect until the later of (i) the expiration
of the last-to-expire patent within the Patent Rights; (ii) the abandonment of
the last patent application within the Patent Rights; or (iii) the date
royalties cease to accrue under Section 2.2 above. Upon the expiration of this
Agreement, Pegas' license under Section 2.1 with respect to Related Technology
shall survive, provided that such license shall thereafter be non-exclusive.
7.2 Default. If either party materially breaches this Agreement (including
a material breach of any warranty under Section 5.1 above, which breach has a
materially adverse effect on the other party), the other party may elect to give
such party written notice describing the alleged default. If the party in
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default has not cured such default within thirty (30) days after receipt of such
notice or, assuming the default can be cured, commenced to cure such default
within such thirty (30) days after receipt of notice and cured such default
within ninety (90) days after receipt of notice, the notifying party will be
entitled, in addition to any other rights it may have under this Agreement, to
terminate this Agreement by giving notice to take effect immediately. If either
party receives notification from the other of a default and if the party alleged
to be in default notifies the other party in writing within thirty (30) days of
receipt of such default notice that it disputes the asserted default, the matter
will be submitted to arbitration as provided in Section 10.2 of this Agreement.
In such event, the non-breaching party shall not have the right to terminate
this Agreement until it has been determined in such arbitration proceeding that
the other party materially breached this Agreement, and the breaching party
fails to cure such breach within ninety (90) days after the conclusion of such
arbitration proceeding.
7.3 Termination by Pegas. Pegas may terminate this Agreement, in its
entirety or as to any particular patent or patent application within the Patent
Rights, at any time by giving ETI at least thirty (30) days prior written
notice; provided, however, that Pegas shall not exercise its right to terminate
under this Section 7.3 prior to the later of either (i) the second anniversary
of the Effective Date, or (ii) the end of the period for with Pegas provides
funding to ETI or Dr. Slepian's employer under Article 3 herein. From and after
the effective date of a termination under this Section 7.3 with respect to a
particular patent or patent application, such patent(s) and patent
application(s) shall cease to be within the Patent Rights for all purposes of
this Agreement, and all rights and obligations of Pegas with respect to such
patent(s), patent application(s) and products covered thereby shall terminate.
Upon a termination of this Agreement in its entirety under this Section 7.3, all
rights and obligations of the parties shall terminate, except as provided in 7.5
below, and Pegas shall return to ETI all written materials provided by ETI or
Dr. Slepian to Pegas containing Confidential Information of ETI or Dr. Slepian;
provided, however, that Pegas may retain one (1) copy of such Confidential
Information for archival purposes. Upon such a termination of this Agreement,
Pegas will consider granting to ETI a license to improvements made by Pegas with
respect to the products for which Pegas has terminated all of its activities, on
such terms as may be mutually agreed.
7.4 Bankruptcy. To the extent permitted by applicable law, in the event
that:
(a) Pegas (i) applies for or consents to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of
all or substantial all of its
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property, (ii) makes a general assignment for the benefit of its
creditors, (iii) commences a case under the United States Bankruptcy Code,
or files a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, or composition or readjustment, with respect to
substantially all of its debts, or (iv) adopts any resolution of its board
of directors or stockholders for the purpose of effecting any of the
foregoing; or
(b) a proceeding or case is commenced without the application or
consent of Pegas that seeks a remedy described in (a) above and such
proceeding or case continues undismissed, or an order, judgment or decree
approving or ordering any of such remedies shall be entered and continue
unstayed and in effect, for a period of sixty (60) days from and after the
date service of process is effected upon Pegas;
then in any such event, all rights under this Agreement will be deemed to have
automatically expired as of a date seven (7) days prior to that event, except
those obligations concerning confidentiality, which shall survive termination of
this Agreement for any reason.
7.5 Survival. The provisions of Articles 1, 5, 6 and 10, and of Sections
3.4, 4.2(b), 4.4 and 4.6, shall survive and continue in effect after the
expiration or any termination of this Agreement, except that:
(a) Upon a termination under Section 7.2 above (or 9.3 below) by
reason of a breach by Pegas, or a termination of this Agreement in its
entirety under Section 7.3 above, the provisions of Article 5 and Section
4.6(a) shall terminate and not so survive;
(b) Upon a termination of this Agreement under Section 7.2 above by
reason of a breach by ETI or Dr. Slepian, all provisions of this Agreement
shall survive, except that Section 4.2(b) and Articles 3 and 9 shall
terminate and not so survive;
(c) Upon any termination of this Agreement, other than under Section
7.3 above, any sublicense granted hereunder shall survive, provided that
upon request by ETI, the sub-licensee promptly agrees in writing to be
bound by the applicable provisions of this Agreement. It is understood
that survival of such sublicense shall not imply any continued license to
Pegas hereunder; and in no event shall ETI or Dr. Slepian be required to
assume any obligations of Pegas that extend beyond or that are in any way
more burdensome than the obligations of ETI or Dr. Slepian to Pegas
hereunder; and
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(d) ETI's right to receive royalties that accrued prior to any
expiration or termination of this Agreement shall also survive.
ARTICLE 8
OTHER AGREEMENTS
Concurrent with the execution of this Agreement, the parties will cause
the execution of the Consulting Agreement and Stock Purchase Agreement, in the
forms attached hereto as Exhibits E and F, respectively. It is understood that
this Agreement is independent of such Consulting Agreement and such Stock
Purchase Agreement.
ARTICLE 9
DUE DILIGENCE
9.1 Obligation to Exploit. Pegas shall use commercially reasonable
efforts to bring one or more Patented Products and/or Other Royalty Products to
market and to meet the market demand therefor.
9.2 Milestones. Pegas shall be deemed not to have satisfied its
obligations under Section 9.1 above by, directly or through its sublicensees, if
Pegas fails to:
(a) submit an investigational new drug application covering [*]
Patented Product or Other Royalty Product to the United States Food
and Drug Administration ("FDA") or an equivalent application with a
corresponding authority in another country (each, an "IND") within [*]
after the Effective Date; or
(b) submit a New Drug Application covering a Patented Product or
Other Royalty Product to the FDA or an equivalent application with a
corresponding authority in another country (each, an "NDA") within [*]
after submission of an IND for such Patented Product or Other Royalty
Product; or
(c) begin to market such Patented Product or Other Royalty Product
within [*] after receiving approval of such NDA from the FDA or
corresponding authority in another country.
Notwithstanding the foregoing, if Pegas fails to meet the milestones specified
in this Section 9.2, such failure shall not be deemed a breach of Section 9.1
above if prudent and reasonable
* Confidential treatment has been requested for marked portion
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<PAGE>
business considerations, or any event or condition beyond Pegas' reasonable
control, justifies a delay in achieving such milestones. It is understood that
meeting the milestones set forth in this Section 9.2 shall not alone satisfy all
obligation of Pegas under 9.1 above. As used herein, "IND" and "NDA" include
comparable filings with respect to medical devices.
9.3 Remedy. Upon Pegas' failure to perform in accordance with Section 9.1
above (itself or through sublicensees), and Pegas's failure to comply with its
obligations thereunder within one hundred and eighty days (180) of a
determination by an arbitration in accordance with Section 10.2 below that Pegas
did not meet its obligations under Section 9.1, ETI shall have the right to
terminate this Agreement upon written notice to Pegas. Notwithstanding the
foregoing, after Pegas or a sublicensee of Pegas has begun Phase III clinical
trials for a Patented Product or an Other Royalty Product, ETI shall not have a
right to terminate this Agreement under this Section 9.3, but instead, under the
same conditions set forth in the preceding sentence for termination of this
Agreement by ETI under this Section 9.3, ETI shall have the right to convert the
license granted hereunder to a non-exclusive license. This Section 9.3 sets
forth ETI's sole remedy for a failure by Pegas to meet its obligations under
Section 9.1 above.
9.4 Adjustment. If Pegas' rights under this Agreement become non-exclusive
under Section 9.3 above, and ETI grants a license under the Patent Rights to a
third party at a lower royalty rate than that set forth in Article 2 above, ETI
shall so notify PEGAS and the royalty rate payable by PEGAS hereunder shall be
reduced to such lower royalty rate.
ARTICLE 10
GENERAL
10.1 Notices. Any notice required or permitted to be given under this
Agreement will be sufficient if in writing and delivered personally or by
registered or certified mail, postage prepaid and return receipt requested, as
follows (or to such other address as the parties will designate by notice to the
other in accordance with this Section 10.1) and will be deemed to have been
given as of the date of personal delivery, or as of the date on the receipt or
as of the date returned unclaimed if sent by registered or certified mail:
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<PAGE>
If to Pegas: Pegas Pharmaceuticals, Inc.
2200 Sand Hill Road
Menlo Park, California 94025
Attention: Stephen C. Rowe
Vice President,
Corporate Development
If to Dr. Slepian
or ETI: Marvin J. Slepian, M.D.
Endoluminal Therapeutics, Inc.
1201 E. Placita del Cervato
Tucson, Arizona 85718
10.2 Arbitration. Any dispute, controversy or claim of either party
arising out of, in relation to, or in connection with this Agreement will be
finally settled by binding arbitration under the Licensing Agreement Arbitration
Rules of the American Arbitration Association by one (1) arbitrator appointed in
accordance with such rules. The arbitrator shall apply the laws of the State of
California to the merits of any dispute, controversy or claim, without regard to
conflicts of law principles. Judgment upon the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof. The place of
arbitration will be Tucson, Arizona if the arbitration is initiated because of a
claim by Pegas of breach by ETI or Dr. Slepian, and shall be in Santa Clara
County, California, if the arbitration is initiated because of a claim by ETI or
Dr. Slepian of breach by Pegas. The parties agree that the arbitrator may grant
injunctive relief. Notwithstanding the foregoing, before appointment of the
arbitrator and in exceptional circumstances even thereafter, either party to
this Agreement may apply to any court of competent jurisdiction for a temporary
restraining order, preliminary injunction, or other interim or conservatory
relief, as necessary, without breach of this Section 10.2 and without any
abridgment of the power of the arbitrator. The parties agree that, any provision
of applicable law notwithstanding, they will not request, and the arbitrator
shall have no authority to award, punitive or exemplary damages against any
party except as provided in Article 5 herein. The costs of any arbitration,
including without limitation administrative and arbitrator's fees, shall be
shared equally by the parties. Each party shall bear the cost of its own
attorneys' fees and expert witness fees, if any.
10.3 Relationship of the Parties. The relationship of the parties is that
of independent contractors, and nothing contained herein will constitute the
parties to be partners, joint venturers, or agents of the other, or to create
the relationship of employer and employee.
10.4 Force Majeure. Neither party will be responsible to the other party
for non-performance or delay in performance of
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<PAGE>
any terms or conditions of this Agreement due to acts of God, acts of
governments, wars, riots, strikes, accidents in transportation, or other causes
beyond its reasonable control even though not similar in nature to those
enumerated.
10.5 Governing Law. This Agreement will be governed by and construed and
enforced in accordance with the laws of the State of California, without regard
to conflicts of law principals.
10.6 Assignment. This Agreement shall not be assignable by a party hereto
without the written consent of Pegas and Dr. Slepian, which consent shall not be
withheld unreasonably. Notwithstanding the foregoing, upon written notice to Dr.
Slepian, Pegas may transfer and assign this Agreement, without such consent, to
an entity that succeeds to substantially all of its business or assets relating
to this Agreement; and upon prior written notice to Pegas, ETI may assign to any
third party its right to receive Royalty payments hereunder. This Agreement
shall inure to and be binding upon successors and assigns of a party hereto.
10.7 Waiver. No waiver of any breach of any provision of this Agreement
will constitute a waiver of any prior, concurrent, or subsequent breach of the
same or any other provisions hereof, and no waiver will be effective unless made
in writing.
10.8 Modifications. This Agreement can be modified or amended only by
written agreement duly signed by the parties.
10.9 Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision will be fully severable; this Agreement will be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof; and the remaining provisions of this
Agreement will remain in full force and effect.
10.10 Complete Agreement. This Agreement sets forth the entire agreement
and understanding of the parties in respect of the transactions contemplated
hereby and supersedes all prior agreements, arrangements and understandings
relating to the subject matter hereof.
10.11 No Implied Obligations. It is understood that nothing in this
Agreement shall be deemed to prevent Pegas from commercializing products similar
to or competitive with Patented Products or Other Royalty Products; provided
that the foregoing does not relieve Pegas of any of its obligations under this
Agreement.
10.12 No Consequential Damages. EXCEPT AS PROVIDED IN ARTICLE 5, IN NO
EVENT SHALL EITHER PARTY BE LIABLE FOR SPECIAL,
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<PAGE>
INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF ANY BREACH OF THIS AGREEMENT.
10.13 Counterparts and Headings. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original and both together
shall be deemed to be one and the same agreement. All headings, the cover page
and the table of contents in this Agreement are inserted for convenience of
reference only and shall not affect its meaning or interpretation.
10.14 Confidential Terms. Each party agrees not to disclose any terms of
this Agreement to any third party without Pegas', ETI's and Dr. Slepian's
written consent, except as required by securities or other applicable laws, to
prospective investors and to such party's accountants, attorneys and other
professional advisors.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
MARVIN J. SLEPIAN, M.D. PEGAS PHARMACEUTICALS, INC.
("Dr. Slepian") ("Pegas")
By: /s/ Marvin J. Slepian By: /s/ Stephen C. Rowe
-------------------------- ----------------------------
Marvin J. Slepian, M.D. Stephen C. Rowe
Vice President
Corporate Development
ENDOLUMINAL THERAPEUTICS, INC.
("ETI")
By: /s/ Marvin J. Slepian
--------------------------
Marvin J. Slepian, M.D.
President
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<PAGE>
EXHIBIT D
License Terms
In the event that Dr. Slepian or ETI ("Grantor") exercises the right to
grant an additional license under the Patent Rights to a licensee of a Dominated
Patent, the license under the Patent Rights shall be subject to and limited by,
and Grantor shall be bound by, the provisions set forth below. All capitalized
terms used in this Exhibit D and not otherwise defined shall have the meanings
assigned to them in the Agreement to which this Exhibit D is attached.
1. The license(s) to be granted by Grantor under the Patent Rights shall
be subject to the following:
(a) the license shall be a nonexclusive license under the Patent Rights to
practice inventions claimed in the Dominated Patent, and shall be granted only
to a licensee of Grantor under the Dominated Patent (a "Permitted Licensee");
(b) the license may include the right to grant sublicenses, but only to
manufacture, sell and/or use products developed in substantial part by the
Permitted Licensee;
(c) the license (and any sublicense) shall not include the right to
practice the Patent Rights at any time during the term of the license in
connection with the manufacture, sale or use of a Competitive Product; and
(d) the license shall not be assignable, except to a party that succeeds
to substantially all of the business or assets of the Permitted Licensee.
2. In the event that Grantor grants a license as contemplated under 1
above, Grantor shall be bound by the following:
(a) Grantor shall pay to Pegas a royalty on sales of Patented Products and
Other Royalty Products by the Permitted Licensee, or any sublicensee of the
Permitted Licensee, as follows:
(i) [*] of Net Sales received by the Permitted Licensee or its
affiliates upon their respective sales of Patented Products;
(ii) [*] of Net Sales received by the Permitted Licensee's
non-affiliate sublicensees upon their sales of Patented Products; and
* Confidential treatment has been requested for marked portion
<PAGE>
(iii) [*] of the Net Revenues received by the Permitted Licensee,
its affiliates and sublicensees upon their respective sales of Other
Royalty Products.
Royalties under this Exhibit D shall be payable until the later of (1) the
expiration of the last-to-expire patent within the Patent Rights, or (2) fifteen
(15) years after the first accrual of any royalty under this Exhibit D on sales
by the Permitted Licensee. If a product that has been sold as a Patented Product
in a country ceases to be a Patented Product in such country prior to the end of
the period in clause (2) above, because all claims within the Patent Rights that
cover such product in such country have expired, the product shall thereafter be
deemed an "Other Royalty Product" in such country until the end of such period.
(b) "Net Sales" shall mean the gross receipts paid to the Permitted
Licensee, its affiliates or sublicensees for sales of Patented Product(s) or
Other Royalty Products (as the case may be) worldwide less (i) all trade,
quantity and cash discounts actually allowed and refunded, (ii) all credits and
allowances actually refunded on account of rejection, returns, billing errors or
retroactive price reductions, (iii) duties and tariffs paid by the seller, (iv)
freight and transportation costs paid by the seller, and (v) excise, sale and
use taxes and equivalent taxes paid by the seller.
(c) Sections 2.4 through 2.6 of the Agreement shall apply to Grantor with
respect to the royalties described above, mutatis mutandis; provided that the
currency rate for conversion under 2.5(c) shall be the rate used by the
Permitted Licensee in its report to Grantor.
* Confidential treatment has been requested for marked portion
-2-
<PAGE>
APPENDIX E
Form of Consulting Agreement
see attached
<PAGE>
[LETTERHEAD]
August 22, 1997
Marvin J. Slepian, M.D.
5001 North Summit Ridge
Tucson, AZ 85750
Dear Dr. Slepian:
We are pleased to have you continue to participate as a consultant and
advisor to Focal, Inc. I hope that you will agree that our work together over
the past four years has been interesting and rewarding; I know that I personally
have been pleased with the valuable input that you have provided to the company.
As part of this consulting arrangement, you will continue as a consultant and
advisor to Focal in the field of interventional cardiology, restenosis therapy
and endoluminal paving.
As a consultant, we will pay you $20,000 annually, to be paid monthly to
the University of Arizona. Focal will pay the University a overhead charge not
to exceed 20% for their role in disbursing these fees to you. This letter is an
amendment to the May 5, 1997 Letter Ammendment to the Agreement for Consulting
Services first dated and executed on August 7, 1992 and serves to extend the
term of this agreement for one year.
As a consultant you shall:
1. Advise Focal on the direction for the scientific program for
restenosis therapy and be available for review of the company's
research plans and results;
2. Be available to consult to the company in the area of physician and
patient needs in the field of interventional cardiology;
3. Attend outside meetings and scientific conferences as requested by
the company to support the scientific, financial and regulatory
advancements of the company; and
4. Agree to avoid conflicts of interest, and notify Focal prior to
working with any other company in the areas of the interventional
cardiology, restenosis therapy or endoluminal paving.
To continue your consultancy, please sign below and return one of the
originals to me; the other is for your files. Your consultancy will have a
duration of one year, effective on August 1, 1997 and ending July 31, 1998,
unless either you or Focal terminates this consulting agreement. The term of the
agreement may be extended by written agreement, and the agreement may be
terminated by either party for any reason on 30 days notice.
<PAGE>
M. Slepian, M.D.
August 22, 1997
Page 2
All of us at Focal are pleased to have you continue as a consultant.
Sincerely,
/s/ Laurence A. Roth
-----------------------------------
Laurence A. Roth
Director, Cardiovascular Programs
Accepted and Agreed to:
For Focal, Inc.
/s/ Marvin J. Slepian /s/ [Illegible]
- ---------------------------- ----------------------------
Marvin J. Slepian, M.D. Name
9/2/97 8/29/97
- ---------------------------- ----------------------------
Date Date
<PAGE>
APPENDIX F
Form of Stock Purchase Agreement
see attached
<PAGE>
EXHIBIT 10.12
COLLABORATION AND LICENSE AGREEMENT
This COLLABORATION AND LICENSE AGREEMENT (the "Agreement"), effective as of
April 25, 1996 (the "Effective Date"), is made by and between Focal, Inc., a
Delaware corporation having offices at 4 Maguire Road, Lexington, Massachusetts
02173 ("Focal"), Ciba-Geigy Corporation, a New York corporation having offices
at 556 Morris Ave., Summit, New Jersey 07901 ("Ciba"), and Chiron Corporation, a
Delaware corporation having offices at 4560 Horton Street, Emeryville,
California 94608 ("Chiron"). Chiron and Ciba are sometimes hereinafter referred
to collectively as "Ciba/Chiron."
BACKGROUND
A. Focal is developing its FocalGell-TM- polymer and associated catheter
delivery system for use in the prophylaxis, treatment and/or inhibition of
diseases in humans.
B. The parties wish to enter into a research collaboration to conduct
preclinical research with respect to certain products utilizing Hydrogel
Polymers for the prophylaxis, treatment and/or inhibition of vascular restenosis
and/or stenosis, all as further described herein in humans.
C. Focal is willing to grant to Chiron and Ciba, and Chiron and Ciba wish
to obtain licenses under Focal's patents and proprietary technology with respect
to commercialization of such products, subject to Focal's right and commitment
to manufacture and supply such products to Chiron and Ciba, all on the terms and
conditions set forth below.
NOW THEREFORE, for and in consideration of the covenants, conditions, and
undertakings hereinafter set forth, it is agreed by and between the parties as
follows:
1
DEFINITIONS
1.1 "Affiliate" shall mean any entity which controls, is controlled by or
is under common control with a party hereto. An entity shall be regarded as in
control of another entity for purposes of this definition if it owns or controls
more than fifty percent (50%) of the shares of the subject entity entitled to
vote in the election of directors (or, in the case of an entity that is not a
corporation, for the election of the corresponding managing authority). A
"Controlled Affiliate" shall mean an entity that is controlled (as defined
above) by a party to this Agreement. Notwithstanding the foregoing, Ciba and
its Affiliates shall not be deemed Affiliates of Chiron and its Affiliates for
the purposes of this Agreement unless and until such time as Ciba is authorized
to control the management and affairs of Chiron pursuant to that certain
Governance Agreement between Ciba and Chiron dated as of November 20, 1994 as
amended or otherwise modified from time to time.
<PAGE>
2
<PAGE>
1.2 "Angioplasty" shall mean any percutaneous transluminal procedure
within a blood vessel (including, for all purposes of this Agreement, an artery
or a vein, whether natural, grafted or prosthetic) which is performed to remove
or reduce an obstruction within such blood vessel for the purpose of improving
the flow of blood within such blood vessel. For purposes of this Agreement,
"Angioplasty" shall include without limitation percutaneous transluminal
coronary angioplasty (PTCA) or balloon angioplasty, atherectomy (rotational,
excisional, or laser) and stenting.
1.3 "Ciba/Chiron Compound" shall mean a compound that is a drug
(including, without limitation, a biologic, antisense molecule, ribozyme or
genetic sequence) or potential drug candidate, which in each case is or was
discovered, developed or acquired by Ciba or Chiron, including, in each case,
all modifications and derivatives of such a compound. Notwithstanding the
foregoing, it is understood and agreed that "Ciba/Chiron Compound" shall not
include the Combination Product defined in Section 12.1.1 below or subject
matter owned by Focal under Section 12.1.3 below.
1.4 "Product Development" shall mean for purposes of this Agreement all
toxicology, pharmacology, safety, animal efficacy and preclinical studies (other
than those preclinical studies included under the Research), clinical trials,
regulatory affairs and all other activities reasonably required to obtain all
governmental approvals required to market a Product within the Field in the
Major Countries.
1.5 "Control" shall mean possession of the ability to grant the rights
provided for herein without violating the terms of any agreement or other
arrangements with a third party.
1.6 "Delivery Systems" shall mean Energy Sources, catheters and other
components, which in each case were, or are developed by or for Focal, for use
in the local delivery of Products within the Field. As used herein, "Energy
Source" shall mean the instrument that generates light or other energy sources
to polymerize Hydrogel Polymer, together with any fiber optic cables or other
components for the delivery of the light or other energy sources to the
catheter.
1.7 "Developing Party" shall mean, as to each Product, Chiron or Ciba or
Chiron and Ciba jointly. As to Products which contain a Ciba/Chiron Compound
provided by only one party, such party shall be the Developing Party. As to all
other Products, Chiron and Ciba shall determine and shall notify Focal in
writing prior to the commencement of any Research with respect to such Product
of the identity of the Developing Party for such Product. Unless Focal is
otherwise notified in writing, the Developing Party of the First Generation
Products shall be Chiron and Ciba jointly.
1.8 "FDA" shall mean the U.S. Food and Drug Administration.
1.9 "Field" shall mean the percutaneous in vivo intraluminal deposition
within blood vessels (as defined in Section 1.2) of Hydrogel Polymer with or
without therapeutically active agents, for the prophylaxis, treatment or
inhibition of (i) restenosis in connection with Angioplasty; [*]. It is
* Confidential treatment has been requested for marked portion
3
<PAGE>
understood and agreed that the Field shall not include without limitation the
application of any such Hydrogel Polymer [*] to stents or other items that
are inserted within blood vessels.
1.10 "First Generation Product" shall mean a First Generation FocalGel
Product and/or a First Generation Radiopharmaceutical Product, together with all
applicable Delivery Systems, for use within the Field.
1.11 "First Generation FocalGel Product" shall mean a formulation comprised
of Hydrogel Polymer alone (but that does not include a Ciba/Chiron Compound or a
Radiopharmaceutical), together with all applicable Delivery Systems, for use
within the Field.
1.12 "First Generation Radiopharmaceutical Product" shall mean a
formulation comprised of Hydrogel Polymer in combination with one or more
Radiopharmaceuticals (but that does not include a Ciba/Chiron Compound),
together with all applicable Delivery Systems, for use within the Field.
1.13 "Focal Technology" shall mean Focal Know-How and Focal Patents.
1.14 "Focal Know-How" shall mean confidential information (as defined in
Article 14), tangible and intangible, and materials, including, but not limited
to: pharmaceutical, chemical, physical, mechanical, biological and biochemical
products; technical and nontechnical data and information, and/or the results of
tests, assays, methods and processes; and drawings, sketches, plans, diagrams,
specifications and/or other documents containing said information and data; in
each case that is Controlled by Focal or its Controlled Affiliates during the
term of this Agreement and which (i) pertains to the development, manufacture,
use or sale of Hydrogel Polymer or any New Polymer licensed to Ciba/Chiron
pursuant to Section 2.4.3 or any Delivery Systems, or the application of
Hydrogel Polymer, New Polymer or Delivery Systems to the development,
manufacture, use or sale of Products; or (ii) is developed by Focal in the
course of performing the Research or in performing its obligations under this
Agreement.
1.15 "Focal Patents" shall mean all patents and all reissues, renewals,
re-examinations and extensions thereof, and patent applications therefor, and
any divisions or continuations, in whole or in part, or foreign counterparts
thereof, which claim or would be infringed by the manufacture, sale or use of
Hydrogel Polymer, any Delivery System or any Product, or which claim Focal
Know-How, and that are Controlled by Focal or its Controlled Affiliates during
the term of this Agreement. Focal Patents include, without limitation, the
patents and patent applications listed in [*].
1.16 "Fragmentation and Embolization Study" shall have the meaning set
forth in Section 3.3.1 below.
1.17 "Hydrogel Polymer" shall mean (i) [*]; or (ii) any other polymer
Controlled by Focal as of the Effective Date; or discovered or developed as a
result of the Research Program conducted under this Agreement.
4
<PAGE>
1.18 "IND" shall mean an Investigational New Drug Application or an
Investigational Device Exemption for a Product, each as defined in the U.S.
Food, Drug and Cosmetic Act and the regulations promulgated thereunder, or their
foreign equivalents in any country.
1.19 "Major Country" shall mean the United States, Japan, the United
Kingdom, Germany, France or Italy.
1.20 "Manufacturing Committee" shall have the meaning set forth in
Section 3.1.1.
1.21 "NDA" shall mean a New Drug Application, Premarket Approval
Application and/or Product License Application, as required under the U.S. Food,
Drug and Cosmetics Act and the regulations promulgated hereunder, or its foreign
equivalent in a Major Country.
1.22 "Net Sales" shall mean the gross amount billed by Ciba, Chiron, or
their respective Affiliates or Subdistributors, to third parties worldwide for
sales of Products, less (i) allowances for all discounts (including, but not
limited to, cash discounts, pharmacy incentive programs, and all other
substantially similar incentive programs), and rebates (including but not
limited to all governmental and managed healthcare rebates and hospital
performance incentive program chargebacks) actually taken, granted or accrued,
(ii) credits, refunds and returns (including but not limited to wholesaler and
retailer returns), and (iii) in each case if paid or accrued in accordance with
generally accepted accounting practice, by Ciba, Chiron or their respective
Affiliates or Subdistributors: transportation, insurance and postage charges, in
each case, with respect to the shipment of the Product to the purchaser, and
(iv) sales, use and other taxes similarly incurred, duties and other similar
governmental charges, in each case paid with respect to the sale to the
customer. For the removal of doubt, Net Sales shall not include sales by Ciba
or Chiron to Affiliates or Subdistributors for resale. A "sale" shall include a
transfer or other disposition for consideration other than cash, in which case
such consideration shall be valued at the fair market value thereof.
1.23 "Platelet Antagonist" shall mean any drug or substance whose primary
biological activity and intended purpose is the inhibition of the role of
platelets in vascular wound healing, including, but not limited to those
compounds identified in [*]. Notwithstanding the foregoing, the
determination of whether a drug or substance is a "Platelet Antagonist" shall
only be made based upon the known biological activity and intended purpose at
the time the drug or substance is first selected for inclusion as a Second
Generation Product or, in the case of Section 2.2.2, at the time the same is
first selected by Focal or its licensee (whichever is earlier) for research
or commercialization.
1.24 "Production Costs" with respect to units of a Product shall mean the
direct and indirect costs (but excluding general and administrative expenses)
associated with the manufacture and/or preparation of such Product, calculated
in accordance with generally accepted accounting principles in the United
States. With respect to units or portions acquired from a non-Affiliate vendor,
Production Costs shall mean the amounts paid to the vendor plus costs associated
with acquisition from such vendor, in each case including without limitation
freight, insurance, shipping, packaging and other
* Confidential treatment has been requested for marked portion
5
<PAGE>
similar costs associated with acquiring such portions or units for delivery
F.O.B. to the Developing Party's destination point. Prior to the time at which
Ciba and/or Chiron become obligated to reimburse Focal for any Production Costs,
the parties shall mutually agree upon the method of calculating such Production
Costs.
1.25 "Products" shall mean, collectively and individually, the First
Generation Products and Second Generation Products. It is understood that in no
case shall "Product" be deemed to include any product or formulation that
includes either a [*] or, except as provided under Section 2.2 below,
a Platelet Antagonist.
1.26 "Radiopharmaceutical" shall mean any radionuclide as incorporated into
Hydrogel Polymer, including without limitation the covalent binding of a
radionuclide (e.g., 1(125)), noncovalent immobilization of a radionuclide, or
incorporation of a radioactive form of a therapeutic agent on a carrier molecule
(e.g., 1(125) albumin, polymeric microspheres, etc.). It is understood that a
Radiopharmaceutical shall not be deemed a Ciba/Chiron Compound hereunder.
1.27 "Research Committee" shall have the meaning set forth in
Section 3.1.1.
1.28 "Research" shall mean all activities relating to fragmentation and
embolization studies of the type described in Section 3.3.1 below, and with
respect to each Product, (i) formulation and release studies, (ii) animal
screening activities (for formulation and release, not designed to establish
animal efficacy), (iii) Hydrogel Polymer or New Polymer (as defined in
Section 2.4.3) design, (iv) development of Energy Sources, catheters and other
device components intended for use in the local delivery of Products, and
(v) other activities conducted by Focal as mutually agreed.
1.29 "Research Period" shall mean, for each Product, the period upon
commencement of the Research Program and continuing until completion or
termination of the Research for such Product.
1.30 "Research Plan and Budget" shall mean, for each Product, the plan
and budget for the Research to be conducted by Focal with respect to such
Product [*], as modified from time to time in accordance with Section 3.2
below.
1.31 "Research Program" shall mean all Research and other activities
conducted by a party hereto pursuant to a Research Plan and Budget then in
effect.
[*]
[*]
* Confidential treatment has been requested for marked portion
6
<PAGE>
1.34 "Second Generation Product" shall mean a formulation comprising
Hydrogel Polymer in combination with a Ciba/Chiron Compound selected pursuant to
Article 3 (whether or not also including a Radiopharmaceutical), together with
all applicable Delivery Systems, in each case for use within the Field.
Notwithstanding the foregoing, except as provided under Section 2.2 below,
Second Generation Products shall not include any such formulation incorporating
[*] or Ciba/Chiron Compound that is a Platelet Antagonist.
1.35 "Committee" shall have the meaning set forth in Section 3.1 below.
1.36 "Subdistributor" shall mean, with respect to a particular Product, a
third party who has obtained through the Developing Party directly or indirectly
the right to distribute, promote and/or market such Product.
2
LICENSE
2.1 Grant. Subject to the terms and conditions of this Agreement, Focal
hereby grants to Chiron and Ciba and their respective Affiliates an exclusive,
worldwide license under the Focal Technology, including Focal Technology which
is licensed from third parties, with right to sublicense, to develop, make, have
made, use, sell and have sold Products for use within the Field and as provided
in Section 2.4.2(b), except that Focal retains the exclusive right to make and
have made all Products in accordance with Article 8 hereof. It is understood
that, as between Ciba and Chiron, the foregoing license to Ciba and its
Affiliates shall be limited to Products for which Ciba is the Developing Party
hereunder, and the license to Chiron and its Affiliates shall be limited to
those Products for which Chiron is the Developing Party hereunder.
Notwithstanding the foregoing, Ciba/Chiron acknowledges that Focal may
obtain Energy Sources included within the Products from third party suppliers,
and the rights granted under this Article 2 with respect to such Energy Sources,
shall be nonexclusive. Such licenses set forth in this Article 2 shall be
subject to such further limitations as are applicable to the rights to Focal
which limitations have been disclosed to Ciba and Chiron in writing prior to
execution of this Agreement.
[*]
* Confidential treatment has been requested for marked portion
7
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[*]
* Confidential treatment has been requested for marked portion
8
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2.3 Radiopharmaceuticals. Focal shall identify to Ciba and Chiron the
Radiopharmaceutical(s) which Focal proposes to use in the First Generation
Radiopharmaceutical Product. Focal will endeavor to supply
Radiopharmaceutical(s) incorporated into a First Generation Product to Ciba and
Chiron under Article 8; it is understood, however, that Focal has no rights to
any Radiopharmaceutical as of the Effective Date and makes no representation or
warranty that Focal will obtain rights to supply such Radiopharmaceutical.
2.4 Exclusivity of Efforts.
2.4.1 (a) For a period of three (3) years after the Effective
Date, neither Ciba, Chiron nor their Affiliates shall develop, manufacture,
market, sell or otherwise distribute any product, other than Products, which
product is specifically intended by Ciba, Chiron or such Affiliate for use
within the Field at the time of Ciba or Chiron's development, manufacture,
marketing, sale or distribution. Subject to Section 3.3.4, nothing herein shall
preclude preclinical research by Ciba, Chiron or their respective Affiliates
within the Field.
(b) Neither Ciba, Chiron nor their respective Affiliates shall
seek regulatory approval to market or promote any Product for use outside the
Field, and Ciba, Chiron and their respective Affiliates shall market, promote
and distribute the Products only in accordance with applicable laws and
regulations, and only as a combination including the Delivery System. Subject
to the foregoing provisions of this Section 2.4.1(b), the Developing Party shall
not be deemed to have exceeded the scope of the licenses set forth in
Section 2.1 above by reason of off label use of Products outside the Field.
2.4.2 By reason of the license granted in Section 2.1, during the
term of this Agreement, Focal shall not conduct research, develop, manufacture,
market, sell or distribute, or grant to a third party a right or license to
conduct research, develop, manufacture, market, sell or distribute, any product
incorporating any Hydrogel Polymer which product is specifically intended by
Focal or such third party for use within the Field, except as may be approved by
Ciba or Chiron, or as provided below. It is understood that Focal may conduct
research, development, manufacture, marketing, sale or distribution of products
incorporating Hydrogel Polymers for use outside the Field; provided that Focal,
its Controlled Affiliates and licensees with respect to such products shall not
seek regulatory approval to market or promote any such product for use within
the Field, and Focal, its Controlled Affiliates and licensees shall market,
promote and distribute such products only in accordance with applicable laws and
regulations. Focal shall not be deemed to have granted a license within the
Field by reason of off label use of any such product. It is understood that the
foregoing restrictions on licensees apply only to products subject to the
license from Focal.
Notwithstanding the foregoing provisions of this Section 2.4.2:
[*]
* Confidential treatment has been requested for marked portion
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(b) This Section 2.4.2 is subject to Section 2.2 and
Section 2.4.3.
2.4.3 Subject to Section 2.2 above, during the term of this
Agreement, Focal hereby grants to each of Ciba and Chiron the right of first
refusal to expand the Field to include within the licenses granted under
Section 2.1 any New Polymer. "New Polymer" shall mean any polymer other than a
Hydrogel Polymer which is discovered, developed, acquired or otherwise
Controlled by Focal or its Controlled Affiliates after the Effective Date and
during the term of this Agreement.
(a) Prior to proceeding, alone or with any third party, or
granting any right or license to a third party, to develop or commercialize any
New Polymer, or product incorporating a New Polymer, specifically intended for
use in the Field, Focal shall notify Ciba and Chiron in writing. The notice
shall include a description of the New Polymer. Upon written request by Ciba or
Chiron within thirty (30) days after receipt of such a notice, the parties shall
commence negotiations in good faith with respect to commercially reasonable
terms under which the licenses in Section 2.1 shall be expanded to include the
New Polymer.
(b) If (i) neither Ciba nor Chiron requests within such thirty
(30) day period to commence such negotiations, or both Ciba and Chiron notify
Focal that they are not interested in including the New Polymer within the
licenses granted hereunder; or (ii) the parties do not enter into a letter of
intent with respect to the New Polymer within ninety (90) days after the date of
Focal's notice; or (iii) the parties do not enter into a definitive written
agreement within ninety (90) days after the parties enter into a letter of
intent pursuant to (ii) above (in each case, the "Negotiation Period"), the New
Polymer shall not be included within the Field, and Focal may proceed to
commercialize such New Polymer itself or grant rights or licenses to third
parties with respect to the New Polymer, on terms not more favorable to the
third party than those terms last offered to Ciba and/or Chiron hereunder.
2.5 No Rights Outside Field. Except as expressly provided in this
Agreement, including without limitation in Sections 2.4.1(b) and 2.4.3, nothing
in this Agreement shall be deemed to grant Ciba or Chiron any rights or licenses
to exploit any Hydrogel Polymer, New Polymer or Focal Technology outside the
Field, and Focal expressly reserves the right to grant exclusive licenses under
the Focal Technology to commercialize any and all products and components
outside the Field. It is understood, without limitation, that if a third party
has independent intellectual property or other rights to commercialize the same
or similar compound as a Ciba/Chiron Compound (other than Hirudin or Tissue
Factor Pathway Inhibitor or derivatives or modifications thereof) outside the
Field, Focal reserves the right to grant exclusive licenses under Focal
Technology to such party for use of such compound outside the Field, subject to
the restrictions set forth in this Agreement on the use of data and information
arising from this Agreement. Subject to Article 8, it is further understood
that neither Ciba nor Chiron grant to Focal any actual or implied rights or
licenses under any Ciba or Chiron patents or intellectual property to
commercialize Ciba/Chiron Compounds.
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3
RESEARCH
3.1 Committees Generally.
3.1.1 As to each Product, the Developing Party and Focal shall
establish the following Committees: a research committee to approve the
Research Plan and Budget and to oversee, review and coordinate the Research
Program with respect to such Product ("Research Committee"); an advisory
development committee to monitor and review the Developing Party's Product
Development with respect to such Product ("Development Committee"); an
advisory manufacturing committee to monitor and review Focal's development of
manufacturing capacity with respect to such Product under the Manufacturing
Plan ("Manufacturing Committee"); and an advisory marketing committee to
monitor and review the Developing Party's activities with respect to the
marketing, promotion and distribution of such Product ("Marketing
Committee"). The Development Committee, Manufacturing Committee and
Marketing Committee are referred to herein collectively and individually as
"Advisory Committees." The Advisory Committees and the Research Committee
are referred to collectively and individually herein as "Committees."
3.1.2 Each Committee shall be comprised of an equal number of
representatives from the Developing Party and Focal, selected by such party,
it being understood that when Ciba and Chiron are jointly the Developing
Party, Ciba and Chiron together shall have a combined number of
representatives on the Committee equal to the number of Focal
representatives. The Developing Party and Focal each may replace its
Committee representatives at any time, with prior written notice to the
other. The Developing Party and Focal each shall bear its own personnel and
travel costs and expenses relating to Committee meetings. With the consent of
the Developing Party and Focal, other representatives of Focal or the
Developing Party may attend Committee meetings as nonvoting observers.
3.1.3 Research Committee.
(a) The Research Committee shall meet quarterly, or as
otherwise agreed by the parties, alternating between the location of Focal
and of the Developing Party, or at such locations as the parties agree. At
its meetings, the Research Committee will (i) monitor the progress of the
Research Program toward its objectives, and (ii) review and approve the
Research Plan and Budget, pursuant to this Article 3. The host party's lead
representative shall chair meetings of the Research Committee and shall be
responsible for preparing the meeting agendas and minutes.
(b) Wherever possible, the decisions of the Research Committee
shall be made by unanimous consent of the Developing Party and Focal.
However, in the event that unanimous decisions cannot be reached, decisions
of the Research Committee as described in Section 3.1.3 shall be by majority
vote (based upon votes being cast by an equal number of representatives of
Focal and the
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Developing Party). There shall be no tie-breaker; and in the event of
deadlock the matter in question shall be referred to selected executive
officers of Focal and the Developing Party for final resolution.
(c) The Research Committee for a Product shall terminate upon
completion or termination of all activities within the Research Program for
such Product, provided that if after termination of the Research Committee
for a Product the Developing Party and Focal desire that additional Research
be performed with respect to such Product, the Developing Party and Focal
shall reconstitute the Research Committee for such Product.
(d) Prior to the earlier of (i) termination of the Research
Committee for a Product, and (ii) commencement of any study which may result
in the achievement of any of the milestones set forth in Section 4.2.1 or
milestones 1 or 2 set forth in Section 4.2.2, the Research Committee for the
Product shall establish the criteria to be used in determining whether the
First Generation Product milestones set forth in Section 4.2.1 below or
milestones 1 and 2 of the Second Generation Product milestones set forth in
Section 4.2.2 below shall have occurred with respect to such Product
("Committee Criteria").
3.1.4 Advisory Committees. After commencement of Product
Development for a particular Product (and in the case of the Marketing
Committee, after the filing of an NDA for such Product), Advisory Committees
for such Product shall meet semi-annually, or as otherwise agreed by Focal
and the Developing Party, alternating between the location of Focal and of
the Developing Party, or at such locations as Focal and the Developing Party
may agree. Focal's participation in the Development Committee and Marketing
Committee shall be advisory only, and the Developing Party shall control
decision-making within the Development Committee and Marketing Committee.
The role of the Development Committee and Marketing Committee shall be to
review development and marketing plans and to provide advisory input with
respect to thereto, but not to make operational or strategic decisions.
Except as otherwise provided under Article 8 below, Developing Party's
participation in the Manufacturing Committee shall be advisory only, and
Focal shall control decision-making within the Manufacturing Committee. When
Focal or the Developing Party's participation is advisory only, the other
party's lead representative shall chair meetings of the Advisory Committee
and shall be responsible for preparing the meeting agendas and minutes.
3.2 Plans and Budgets. The Research Program will be carried out in
accordance with the Research Plan and Budget then in effect. By October 1 of
each calendar year, Focal and/or the Developing Party shall propose to the
Research Committee appropriate modifications, if any, of the Research Plan
and Budget for the next succeeding year, and upon approval of such
modifications of the Research Plan and Budget by the Research Committee, such
modified plans and budgets shall be reflected in the Research Plan and Budget
for purposes of this Agreement. In addition, the Research Committee shall
review the Research Plan and Budget on an ongoing basis and may modify the
Research Plan and Budget as the Research Committee shall approve from time to
time.
3.3 Research Program. Focal shall be primarily responsible for
conducting the Research for each Product, with assistance from Ciba/Chiron.
In each case, such Research shall be conducted solely
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<PAGE>
pursuant to a Research Program, as further described in the Research Plans
and Budgets, and Focal shall use its reasonable efforts to diligently perform
the Research Program in accordance with the Research Plan and Budget then in
effect.
3.3.1 Initial Feasibility of First Generation Products and First
Generation Radiopharmaceutical Products.
(a) Within ninety (90) days after the Effective Date, Focal,
Ciba and Chiron shall define and initiate, themselves or by a third party
approved by Focal, Chiron and Ciba, a fragmentation and embolization study
for Hydrogel Polymer ("Fragmentation and Embolization Study"). Upon
completion of the Fragmentation and Embolization Study, the parties shall
meet promptly (in person or by telephone), but in no event more than fifteen
(15) days after such completion, to determine whether the results of the
Fragmentation and Embolization Study meet the study criteria as are mutually
agreed upon in writing by the parties ("Study Criteria"). Subject to Section
3.3.3(b), if the results of the Fragmentation and Embolization Study as
reasonably determined by both Ciba and Chiron meet the Study Criteria, the
parties shall continue with the Research Program with respect to the First
Generation FocalGel Product in accordance with the Research Plan and Budget.
(b) If both Ciba and Chiron determine that the results of the
Fragmentation and Embolization Study meet the Study Criteria, the parties
shall also proceed with a Research Program in accordance with the Research
Plan and Budget to evaluate the First Generation Radiopharmaceutical Product,
which shall include evaluation of use of the Hydrogel Polymer for the
interstitial radiation through local delivery or immobilization of
Radiopharmaceuticals to inhibit cell proliferation, and the Developing Party
shall conduct a commercial assessment of the First Generation
Radiopharmaceutical Product.
(c) If, in the reasonable judgment of both Ciba and Chiron,
the results of the Fragmentation and Embolization Study do not meet the Study
Criteria, Ciba and Chiron shall have the right to terminate this Agreement
pursuant to Section 16.3 promptly after completion of the Fragmentation and
Embolization Study, effective upon thirty (30) days written notice to Focal,
and in such event all rights and licenses granted to Ciba and Chiron
hereunder shall terminate and all such rights and licenses shall revert to
Focal.
3.3.2 Commencement of Research for First Generation Product.
Subject to Section 3.3.3(b), the Research Program with respect to First
Generation FocalGel Product shall be initiated promptly after the Effective
Date in accordance with the Research Plan and Budget. Regardless of whether
or not the First Generation FocalGel Product or the First Generation
Radiopharmaceutical Product are successful or are pursued by Chiron and/or
Ciba, Chiron and Ciba shall retain the exclusive license under Section 2.1 in
the Field unless and until this Agreement is terminated in accordance with
Article 16.
3.3.3 Selection of Second Generation Products.
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(a) At any time and from time to time during the term of this
Agreement, Chiron and/or Ciba may select Ciba/Chiron Compounds to be
incorporated into Second Generation Products. Prior to commencement of
Research or Product Development with respect to a Ciba/Chiron Compound that
the Developing Party intends to include in a Product, the Developing Party
shall notify Focal in writing of the Ciba/Chiron Compound to be included
within such Research or Product Development, together with the biological and
physical characteristics of the Ciba/Chiron Compound, including without
limitation the known chemical structure and mechanisms of action of such
Ciba/Chiron Compound ("Compound Notice"). Within thirty (30) days after
Focal's receipt of the Compound Notice, Focal shall notify the Developing
Party if the Ciba/Chiron Compound described in the Compound Notice is within
the definition of [*]. If Focal does not so notify the Developing Party,
Research shall be initiated promptly with respect to such Ciba/Chiron
Compound.
(b) Ciba and Chiron agree to proceed with, and to engage Focal
to perform Research on, at least [*] Second Generation Products;
provided, however, if, in the judgment of Chiron and Ciba, the First
Generation FocalGel Product or the First Generation Radiopharmaceutical
Product is effective, based on the pig efficacy model, and Ciba and Chiron
are diligently proceeding with Product Development of the First Generation
FocalGel Product or the First Generation Radiopharmaceutical Product under
this Agreement, at such time Chiron and/or Ciba may but shall not be
obligated to, continue with evaluation and development of Second Generation
Products. If Chiron and/or Ciba are diligently proceeding with Research or
Product Development of Second Generation Products in accordance with this
Section 3.3.3, Chiron and/or Ciba may, but shall not be obligated to,
continue with Research and Product Development of First Generation Products.
(c) Except as provided in Section 3.3.3(b), the [*] Ciba/Chiron
Compounds to be included within Second Generation Products shall be
determined as follows. Ciba shall select the [*] Ciba/Chiron Compound to be
included in a Second Generation Product, and Ciba shall be the Developing
Party with respect to such Second Generation Product. Such [*] Ciba/Chiron
Compound [*] and shall be delivered to Focal as soon as reasonably
practicable but not later than within thirty (30) days after the Effective
Date. The Research Program on such [*] Second Generation Product shall be
initiated promptly after delivery of the [*] Ciba/Chiron Compound to Focal.
A [*] Ciba/Chiron Compound shall be selected for inclusion in a Second
Generation Product within six (6) months after the Effective Date, and a [*]
Ciba/Chiron Compound shall be selected for inclusion in a Second Generation
Product within twelve (12) months after the Effective Date; provided that if
Ciba or Chiron have not determined by the end of such periods that the
results of the Fragmentation and Embolization Study meet the Study Criteria,
the foregoing periods shall be extended until ninety (90) days after it is
determined that the results of the Fragmentation and Embolization Study meet
the Study Criteria (such six (6) or twelve (12) month period, as applicable
and as so extended, being referred to below as the "Selection Period"); and
provided further that in the event Ciba or Chiron selects for use in a Second
Generation Product a Ciba/Chiron Compound that is within the definition of [*],
as described in Section 3.3.3(a), the Selection Period for such Second
Generation Product, as the case may be, shall be reasonably extended. The
Research with respect to each Second Generation Product shall be initiated
promptly upon selection of such Second Generation Product for inclusion in
the Research Program in accordance with the Research Plan and Budget.
14
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<PAGE>
(d) Upon selection of each Second Generation Product in
accordance with the foregoing, and subject to Focal's right to decline to
participate in the Research and to transfer technology in accordance with
Section 3.3.4, Focal and the Developing Party shall promptly agree upon a
Research Plan and Budget to include a full, active and expedient Research
Program for such selected Second Generation Product.
3.3.4 Focal Right to Perform Research. Notwithstanding Section
2.1 above, or any other provision of this Agreement, Focal shall have the
exclusive right at its election to conduct any and all Research relating to
First Generation Products and Second Generation Products, and Ciba and Chiron
agree not to conduct or have conducted any such Research except to have such
Research performed by Focal hereunder or as otherwise provided in this
Section 3.3.4. If at any time a Developing Party desires that additional
Research be conducted with respect to a Second Generation Product, the
Developing Party shall so notify Focal and provide Focal with a description
of the Research proposed to be performed. If Focal elects to perform such
Research, Focal and the Developing Party shall establish a reasonable
Research Plan and Budget for such Research Program, and Focal shall proceed
with such Research Program in accordance with this Agreement. In the event
that Focal elects not to conduct such Research, the Developing Party may
conduct such Research on its own, and subject to the last sentence of Section
1.25, the product that is the subject of such Research within the Field shall
become one of the "Products" selected by Ciba and Chiron. If the Developing
Party elects to conduct such Research on its own, Focal shall disclose to the
Developing Party Focal Know-How necessary for the Developing Party to perform
the Research Focal declined to perform as provided in this Section 3.3.4
above, and such assistance to the Developing Party as is reasonably necessary
to enable the Developing Party to perform such Research.
3.4 Product Development.
3.4.1 Selection of Products. Subject to Section 3.3.3(b), with
respect to the First Generation FocalGel Product or the First Generation
Radiopharmaceutical Product or any of the first three Second Generation
Products, if in the judgment of the Developing Party such product
demonstrates efficacy, including without limitation demonstration of efficacy
in a pig or other mutually agreed upon large animal model, the Developing
Party shall use reasonable commercial efforts to conduct Product Development
of the Product in question, at the Developing Party's sole expense. Focal
shall be informed with respect to such Product Development. Focal agrees to
provide reasonable mutually agreed technical support as reasonably necessary
pursuant to the Research Plan and Budget; however, except as otherwise
expressly agreed in writing, Focal shall have no obligation to perform
pre-clinical studies other than those contained in the Research Plan and
Budget or clinical studies or other portions of Product Development. It is
understood during the term of this Agreement, the Developing Party may select
a Product for Product Development at any time.
3.4.2 Regulatory Filings. With respect to each Product, the
Developing Party shall determine the most effective regulatory pathway for
obtaining approval to manufacture, market and sell the Product. Unless
otherwise agreed, all regulatory filings shall be prepared, filed and owned
by the Developing Party in the Developing Party's name at the Developing
Party's expense, except for such
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regulatory registrations as Focal is required to hold as manufacturer of the
Product, which shall be prepared, filed and owned by Focal at Focal's
expense. The Developing Party and Focal shall each provide to the other such
reference rights, in each case as may reasonably be required for the
preparation and filing of all such regulatory documents with respect to the
Products, and as otherwise provided in Article 6.
3.5 Diligence. It is understood that nothing contained in the Article 3
shall be deemed to limit Focal's rights under Article 11 or 16 below.
4
DEVELOPMENT PROGRAM FUNDING
4.1 Funding of Research and Development.
4.1.1 Provision of Ciba/Chiron Compounds. As required under the
Research Plans and Budgets with respect to Second Generation Products, the
Developing Party shall supply to Focal free of charge such quantities of
Ciba/Chiron Compounds as are reasonably required for Focal to perform its
obligations under the Research Program.
4.1.2 Research Initiation Payment for First Second Generation
Product. In consideration for the scientific benchmark of initiating the
Research Program with respect to the first Second Generation Product, in
addition to the amounts to be paid under Section 4.1.3 below, within thirty
(30) days following first delivery of a Ciba/Chiron Compound to Focal, Ciba
shall make a nonrefundable initial payment to Focal in the amount of [*]
("Research Initiation Fee") creditable as provided in Section 4.2.2(a).
4.1.3 Ongoing Research Funding. The Developing Party shall pay
to Focal for each Focal full time equivalent conducting the Research in
accordance with the Research Plans and Budgets a full-time equivalent
personnel charge, which incorporates all of Focal's direct and indirect
expenses for such personnel ("FTE Rate"), together with such other costs as
are specifically set forth in the Research Plans and Budgets or approved by
the Research Committee. The parties agree that the FTE Rate for the period
commencing on the Effective Date and expiring on December 31, 1997 shall be
[*] per full-time equivalent person per year. Each subsequent calendar
year after 1997, the FTE Rate shall increase by the percentage change
specified during the most recent calendar year in the Consumer Price Index,
for All Urban Consumers for Boston, Massachusetts, as published by the U.S.
Department of Labor, Bureau of Labor Statistics; provided that for the
adjustment to be made for calendar year 1998, the adjustment shall equal the
increase in the Consumer Price Index over the 1997 calendar year. As used
herein, a "full-time equivalent" (or "FTE") shall mean a full-time person
dedicated to the Research Program, or in the case of less than a full-time
dedicated person, a full-time, equivalent person year, based upon a total of
one thousand eight hundred eighty (1,880) hours per year of work related to
the Research Program, to the extent such full-time equivalent personnel are
included as headcounts in the Research Plan and Budget. The FTEs working on
each Research Program shall be
* Confidential treatment has been requested for marked portion
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an appropriate mix of Ph.D. and other scientists and personnel, qualified to
perform the work in question as approved by the Research Committee. The
foregoing amounts to be reimbursed by the Developing Party are referred to
below as the "Research Costs".
4.1.4 Payment. Within thirty (30) days after the Effective
Date, and on or before the first day of each subsequent calendar quarter
during the Research Period, the Developing Party shall pay to Focal the
Research Costs budgeted for the quarter in the Research Plan and Budget then
in effect. Within sixty (60) days following the end of each calendar year
during the Research Period, Focal shall provide to the Developing Party a
summary of the Research Costs actually incurred by Focal during such year.
If the actual Research Cost amounts incurred by Focal in accordance with the
approved Research Plan and Budget for a calendar year were less than the
budgeted amounts paid by the Developing Party to Focal in advance for such
calendar year, the excess shall be recouped by way of a reduction from the
next payments due to Focal under this Section 4.1.4 provided that at the end
of the Research Program any such excess not then recouped shall be repaid by
Focal to the Developing Party within thirty (30) days after the end of the
Research Period.
4.1.5 Reimbursement for Past Research Expenditure. As
reimbursement of past research expenditures incurred by Focal with respect to
research relating to potential Products within the Field, Ciba/Chiron shall
pay to Focal a nonrefundable and noncreditable payment to Focal in the amount
of [*] within ten (10) days following the Effective Date.
4.2 Milestone Payments.
4.2.1 First Generation Product Milestones. Subject to Section
4.2.3(b) below, Ciba/Chiron agree to make the following payments to Focal
upon the first occurrence of each milestone specified below for each of the
First Generation Products:
FIRST GENERATION PRODUCT MILESTONES PAYMENT
----------------------------------- -------
1. Filing of the first IND by Chiron or Ciba
(regardless of where the IND is filed) [*]
2. Demonstration of efficacy at the end of
[*], as determined by the applicable
Committee Criteria. [*]
4.2.2 Second Generation Product Milestones. Ciba/Chiron agree
to make the following payments to Focal with respect to Second Generation
Products upon the occurrence of each milestone specified below:
* Confidential treatment has been requested for marked portion
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SECOND GENERATION PRODUCT MILESTONES PAYMENT
------------------------------------ -------
1. Initial demonstration of formulation and [*]
release of the Second Generation Product
in an animal model, as determined by the
applicable Committee Criteria, for up to a
maximum of [*]:
2. The first demonstration of efficacy of any [*]
Second Generation Product in a pig coronary
model, as determined by the applicable
Committee Criteria:
3. Filing of the first IND, by the Developing [*]
Party (in a major country) or initiation of
human clinical trials in any country, for each
Second Generation Product, up to a maximum of
[*]:
4. Acceptance for filing by the FDA or foreign [*]
equivalent in a Major Country, whichever
occurs first, of an NDA by the Developing
Party for each Second Generation Product, up
to a maximum of [*]:
5. First commercial sale of each Second [*]
Generation Product in the first Major Country,
up to a maximum of [*]:
For any additional Second Generation Products
beyond [*] there will be [*] milestone
payments.
(a) It is understood that milestone 1, 3, 4, and 5 of this
Section 4.2.2 above shall be paid with respect to each Second Generation
Product to meet such milestone, up to a maximum of [*], and milestone 2 of
this Section 4.2.2 above shall be due only with respect to the [*] Second
Generation Product to meet such milestone. In addition, the Research
Initiation Fee paid pursuant to Section 4.1.2 above shall be applied as a
credit to the payment upon the occurrence of milestone 1 of this Section
4.2.2 above for such [*] Second Generation Product (i.e., [*]).
(b) After an aggregate of [*] has been paid by
Ciba/Chiron to Focal with respect to milestone 1 of Section 4.2.2, if a
Second Generation Product for which Ciba/Chiron has paid the fee for
milestone 1 under this Section 4.2.2 does not meet milestone 2 above and all
further research and development of such Second Generation Product is
discontinued, then [*] of the fee paid
* Confidential treatment has been requested for marked portion
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with respect to such Second Generation Product for such milestone 1 shall be
credited against the fee payable for milestone 1 with respect to the next
Second Generation Product to meet such milestone 1; provided, that if
Ciba/Chiron receives such a credit, the amount taken by Ciba/Chiron as such a
credit shall be carried forward and the payments due upon milestone 1 under
4.2.2 above shall be made for Second Generation Products beyond [*] until a
maximum of [*] has been paid hereunder upon the satisfaction of such
milestone with respect to Second Generation Products.
4.2.3 Other.
(a) Focal and the Developing Party agree to promptly notify
the other in writing of its achievement of any milestone. Except as
otherwise provided under paragraph (b) below, if at the time a particular
milestone is achieved under Sections 4.2.1 or 4.2.2, above, any prior
milestones under the same Section 4.2.1 or 4.2.2 have not been achieved with
respect to the same Product, or if the Committee Criteria are not met for a
particular milestone but Ciba or Chiron nonetheless proceeds with Product
Development for the same Product toward the next milestone (or in the case of
milestone 2 under 4.2.1 above, toward [*], the payments for such prior
milestones shall then be due. The payments set forth in Section 4.2.1 and
4.2.2 shall each be due and payable within sixty (60) days after written
notice of the milestone event is delivered to the other party, subject in the
case of a milestone achieved by Focal, to the Developing Party's verification
thereof during such sixty (60) day period.
(b) If, in the course of performing Product Development with
respect to a Second Generation Product or First Generation
Radiopharmaceutical Product, Ciba or Chiron performs a control study using a
First Generation FocalGel Product as a control, and thereby achieves a First
Generation FocalGel Product milestone, but neither Ciba nor Chiron proceeds
with Research or Product Development with respect to such First Generation
FocalGel Product, Ciba and Chiron shall not be obligated to make the
milestone payment that would otherwise be due under Section 4.2.1 for such
First Generation FocalGel Product. However, if in such event Ciba/Chiron
proceed with Research or Product Development of such First Generation
FocalGel Product, milestone 1 for such First Generation FocalGel Product
shall then be due and no further milestones shall be due under Section 4.2.1
for such First Generation FocalGel Product.
5
RECORDKEEPING; PUBLICATION
5.1 Reports and Records.
5.1.1 Records. Each party shall maintain records of work
performed by such party under the Research Program (or cause such records to
be maintained) in sufficient detail and in good scientific manner as will
properly reflect all work done and results achieved in the performance of the
* Confidential treatment has been requested for marked portion
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Research Program (including all data in the form required under any
applicable governmental regulations).
5.1.2 Reports. During the Research Period, Focal shall provide
the Research Committee with a semi-annual written report summarizing the
progress of the Research Program. The Developing Party agrees to provide
Focal with semi-annual written progress reports with respect to the Product
Development performed by such party with respect to each Product during the
preceding semi-annual period. Such reports shall be Confidential Information
of the Developing Party under Article 14.
5.2 Publication. Except as required by law, none of the parties hereto
shall publish or publicly disclose any results, information or data arising
from any Research or Product Development for a First Generation Product or
Second Generation Product without the prior written consent of Focal and the
Developing Party, which consent shall not be unreasonably withheld.
6
USE OF PRECLINICAL AND CLINICAL DATA
6.1 Access by Developing Party. Focal shall allow Developing Party to
have prompt access to all records and data generated in the course of
performing the Research Program on behalf of such Developing Party with
respect to each Product at reasonable times and in a reasonable manner.
Focal shall further provide to the Developing Party access to all data and
records arising from process development and manufacturing activities
conducted by Focal pursuant to Article 8 with respect to each Product at
reasonable times and in a reasonable manner.
6.2 Access by Focal.
(a) The Developing Party shall provide to Focal such preclinical
and clinical data with respect to Products as is necessary for Focal to
conduct its process development, manufacturing and regulatory filing
responsibilities with respect to the Products. All such data shall be deemed
Confidential Information of the Developing Party, subject to Article 14, and
shall be used solely for the purpose for performing Focal's obligations
hereunder with respect to the Products.
(b) The parties recognize that in connection with development of
products which incorporate the same or similar Hydrogel Polymer or New
Polymer as is incorporated into the Products, Focal may be required by the
FDA or other regulatory agencies to provide access to safety information
generated through preclinical and clinical studies by the Developing Party
using such Hydrogel Polymer or New Polymer. The Developing Party agrees to
provide Focal with a copy of each adverse event report filed with the FDA
with respect to a Product containing a Hydrogel Polymer or New Polymer,
except to the extent it can be determined that the adverse event arises from
a Ciba/Chiron Compound; and the Developing Party agrees to permit Focal to
reference its FDA filings with respect to the safety of the Hydrogel Polymer
or the Now Polymer. Nothing herein shall allow Focal direct access to
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preclinical or clinical data with respect to any Product, except for use
solely in connection with Product development and manufacture pursuant to
Section 6.1(a). All information provided to Focal pursuant to this Section
6.2(b) shall be Confidential Information of the Developing Party; may be used
only as provided in this Section 6.2(b); and may be disclosed to third
parties only as necessary for the purposes of this Section 6.2(b), subject to
confidentiality obligations no less restrictive than those set forth in
Article 14.
7
MARKETING ASSISTANCE; OTHER
7.1 Marketing Assistance. On request of the Developing Party, for
twelve (12) months after receipt of government approval to market and
distribute the first Product, Focal will provide reasonable assistance during
Focal's normal business hours, not to exceed three full-time equivalents (as
defined in Section 4.1.3), in training Ciba/Chiron's sales and marketing
personnel in the use of the Products at times and locations to be agreed upon
in writing by the parties. Ciba/Chiron personnel trained by Focal in the use
of the Products shall be responsible for training the remainder of
Ciba/Chiron's sales and marketing force. In addition, Focal will provide
in-service training of interventional cardiologists, and participate in such
customer evaluations and cardiology medical convention exhibitions of
Products, as are agreed upon from time to time during the term of this
Agreement by the parties. Ciba/Chiron shall reimburse Focal for all
reasonable travel, lodging and per diem expenses incurred by Focal in
connection with providing the services set forth in this Section 7.1 within
thirty (30) days after date of invoice.
7.2 Regulatory Reporting. Pursuant to applicable regulations of the FDA
and foreign equivalent agencies, whether with respect to drugs, biologics or
medical devices, each party may be required to report to the FDA or foreign
equivalent agency information that reasonably suggests that a Product may
have caused or contributed to the death or serious injury or has
malfunctioned and that the Product would be likely to cause or contribute to
a death or serious injury if the malfunction were to recur. Focal shall
provide to the Developing Party prompt notice of all adverse events with
respect to Products, whether or not serious as defined in applicable
regulations of the FDA or foreign equivalent, together with sufficient
information about such events to enable the Developing Party to comply with
its regulatory reporting obligations. The Developing Party agrees to provide
Focal with prompt notice of all adverse events with respect to Products,
whether or not serious as defined in applicable regulations of the FDA or
foreign equivalent, together with sufficient information about such events to
enable Focal to comply with its regulatory reporting obligations. The
reports of information on adverse events referred to in this Section 7.2
shall be no more extensive or frequent than is required by the FDA or foreign
equivalent.
8
MANUFACTURING RIGHTS
8.1 Manufacturing. Subject to this Article 8 and the Developing Party's
supply of Ciba/Chiron Compounds as set forth in this Section 8.1 below, Focal
shall manufacture, or have
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manufactured by a third party and supply to the Developing Party, and the
Developing Party shall purchase from Focal, reasonable requirements of
Product, in a form ready for final packaging, for (i) the Developing Party to
perform Product Development of such Product, and (ii) supply of Products for
commercial sale. The Developing Party shall supply without charge to Focal,
in sterile, stable, bulk form, such quantities of Ciba/Chiron Compounds as
are reasonably required for Focal to manufacture Products in accordance with
this Article 8. In the event that Focal elects to utilize a third party to
manufacture a Product for supply to the Developing Party, the Developing
Party shall have the right to approve such third party supplier, which
approval shall not be withheld unreasonably. It is understood that the
expectation of the parties is that Focal shall have the right to utilize
third party manufacturers, and that the Developing Party's consent shall only
be withheld to the extent reasonably necessary to maintain quality, ensure
the availability of sufficient capacity to supply the necessary quantity in a
timely manner in accordance with the Manufacturing Plan as described below,
ensure reasonable protection of the Developing Party's Confidential
Information against disclosure to competitors, and for similar reasonable
concerns.
8.2 Transfer Prices.
8.2.1 Product Development Transfer Price.
(a) The parties agree that Focal's use of Products in the
course of the Research Program will ordinarily be included within the FTE
Rate payable pursuant to Section 4.1.3. In the event that extraordinary
requirements for Products arise pursuant to the Research Program, the cost of
such extraordinary supply shall be a Research Cost subject to approval of
both parties pursuant to the approval of the Research Plan and Budget for the
Product in question.
(b) Focal shall provide to the Developing Party Products for
use in Product Development at a transfer price equal to Focal's Production
Cost thereof, provided that the Production Cost for the Disposable Components
of each Product supplied for use in human clinical trials shall not exceed [*].
For purposes of this Section 8.2.1. "Disposable Components" shall mean only
Hydrogel Polymer and catheter components of Products.
8.2.2 Commercial Transfer Prices. Focal shall provide Products
to Ciba/Chiron for commercial sale at a price equal to [*] Net Sales by
Ciba/Chiron and its Affiliates and Subdistributors set forth in this Section
8.2.2 below:
(i) With respect to First Generation FocalGel Products, [*].
(ii) With respect to First Generation Radiopharmaceutical
Products, [*].
(iii) With respect to Second Generation Products, [*].
* Confidential treatment has been requested for marked portion
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In the event that the Supply Agreement continues after expiration of all
patents governing the Product in a given jurisdiction, the parties shall
negotiate in good faith a reasonable reduction in the transfer price to
reflect the lack of patent coverage in such country.
8.2.3 Energy Source. Notwithstanding the foregoing provisions
of Section 8.2, Energy Sources shall be provided at [*]. In the event that
Focal does not manufacture the Energy Source, but rather obtains it from a
third party, the Developing Party shall have the right to purchase the Energy
Source directly from such third party as mutually agreed by the Developing
Party and such third party.
8.2.4 Promotional Samples. With respect to any Products that
are supplied to Ciba or Chiron for use as samples, or otherwise to be used or
distributed in other than full commercial sales (other than as part of a
Research Program or for use in Product Development), the transfer price for
such Products or other materials shall equal [*] to be mutually agreed upon
by the parties in the Supply Agreement.
8.2.5 Undue Hardship. The parties will review and monitor
Production Costs through the Manufacturing Committee on an ongoing basis with
the goal of maintaining Production Costs at the lowest reasonable level,
including consideration of use of third party suppliers. As of the Effective
Date, both parties believe that the financial terms reflected in this Section
8.2 reflect the agreed balance of interests and burdens between the parties,
and the parties expect to preserve such terms. However, in the event that
the total of actual and reasonably anticipated Net Sales over a period of at
least one (1) year create an unreasonable burden as to the profitability of
this manufacturing arrangement to one party, in relation to the burden to the
profitability to the other, the parties agree to equitably adjust the terms
hereof to remedy such unreasonable burden. In making such adjustments, the
parties shall reasonably consider such factors as the respective
contributions made and risks borne by the parties in connection with the
discovery, research, development and commercialization of the Product in
question, the reasonable expectation of the parties as to profitability of
such Products and the like.
8.3 Supply Agreement. Within one hundred eighty (180) days following
commencement of [*] with respect to each Product, Focal and the Developing
Party shall enter into a mutually agreed upon Supply Agreement for [*]
commercial supply of such Product on commercially reasonable terms, including
without limitation those set forth in this Article 8. The Supply Agreement
shall include reasonable and customary terms for ordering, forecasting,
provisional payment and reconciliation and the like.
8.4 Manufacturing Rights.
8.4.1 Focal shall at all times supply in accordance with the
Supply Agreement quantities of Products ordered by the Developing Party, its
Affiliates and Subdistributors, manufactured in compliance with all agreed
upon specifications and all applicable legal and regulatory requirements and
all warranties of Focal as set forth in the Supply Agreement; provided,
however, that if Focal fails to supply to the Developing Party reasonable
quantities of a Product, or fails to comply with the
* Confidential treatment has been requested for marked portion
23
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Manufacturing Plan (as defined below), in accordance with the Supply
Agreement, or Focal elects not to supply a Product or component thereof, the
Developing Party shall have the right to manufacture, or have manufactured
for it by a third party, such Product or component. However, the Developing
Party's right to manufacture or have manufactured such Product or component
shall be subject to its payment of a commercially reasonable royalty to
Focal, to be negotiated by the parties in good faith in lieu of the transfer
prices set forth in Section 8.2 for such Product or component; and in the
event the Developing Party has such Product or component manufactured by a
third party, such right shall be further subject to having in place
reasonable protections to ensure against unauthorized use and disclosure of
Focal confidential information. It is further understood that
notwithstanding the provisions of Section 2.1 and 2.2, the Developing Party
shall not have the right to sublicense to a third party the right to both
manufacture and sell Products, without Focal's consent which shall not be
unreasonably withheld.
8.4.2 The Supply Agreement shall include provisions to implement
the right of the Developing Party to manufacture or have manufactured
Products under Section 8.4. 1, including without limitation provisions for
the transfer of all Focal Know-how necessary for the manufacture of Products,
and requirements on the part of Focal to provide all necessary assistance to
the Developing Party reasonably necessary to enable it to assume the
manufacture of Products.
8.4.3 Manufacturing Plans.
(a) Focal represents and warrants that it currently has
sufficient capacity to supply all requirements of Ciba and/or Chiron for
Products for [*].
(b) As soon as reasonably practicable following commencement
of [*], Focal shall prepare a reasonable manufacturing plan for development
by Focal of the necessary capacity to supply the reasonable requirements of
the Developing Party for the [*].
(c) As soon as is reasonably practicable following
commencement of [*], Focal shall present for review and comment in the
Manufacturing Committee and approval by the Developing Party, which approval
shall not be unreasonably withheld, a process and manufacturing development
plan pursuant to which Focal will (i) supply all of the Developing Party's
reasonable requirements of such Product for [*]; (ii)
conduct or have conducted commercial manufacture of Products; and (iii)
create and qualify a second site or source of supply for commercial sale of
such Product ("Manufacturing Plan"). Each Manufacturing Plan provided
pursuant to this Section 8.4.3 shall include milestones and timelines and
shall be incorporated within the Supply Agreement for such Product.
Ciba/Chiron shall reimburse Focal for all direct and indirect costs and
expenses (excluding general and administrative expense); calculated in
accordance with generally accepted accounting principles in the United
States, which are incurred by Focal in accordance with a budget reasonably
agreed upon by the parties and the Manufacturing Committee for process
development, manufacturing scale-up, obtaining regulatory approvals and other
activities, in each case to the extent specific for the manufacture of
Products within the Field and reasonably
* Confidential treatment has been requested for marked portion
24
<PAGE>
necessary to manufacture or have manufactured and supply Products hereunder,
and obtain required regulatory approvals thereof, in accordance with
applicable laws.
(d) Focal shall provide quarterly reports to the
Developing Party through the Manufacturing Committee of the status of its
activities pursuant to this Section 8.4.3. The Developing Party shall have
the right to inspect the manufacturing facilities of Focal or any third party
supplier of a Product or component, during reasonable business hours, to
assess compliance with this Article 8 and the Supply Agreement.
9
THIRD PARTY ROYALTIES AND IMPROVEMENTS
9.1 Without limiting Section 13.2(a), Focal shall be responsible for the
payment of any royalties, license fees, or milestone payments due, and for
the performance of all other obligations, to third parties under those
licenses and/or agreements listed on [*] with respect to the marketing, sale
or distribution of Products by Ciba, Chiron or the Affiliates or
Subdistributors of Ciba or Chiron.
9.2 Without limiting Section 2.4.3, if during the term of this
Agreement, Focal acquires from a third party any additional Focal Technology,
other than the Focal Technology existing as of the Effective Date, which is
known to be useful in connection with the manufacture, use or sale of
Hydrogel Polymers, New Polymers or Products in the Field, Focal will make
available such additional technology for use within the Field under this
Agreement on mutually agreed upon terms and conditions intended to cause Ciba
and/or Chiron to bear a fair share of the acquisition cost of such additional
technology in relation to Focal and other third party licensees of Focal with
respect to such technology.
10
PAYMENTS; BOOKS AND RECORDS
10.1 Reports and Payments. The Supply Agreements to be entered into
under Section 8.3 above shall include provisions for quarterly written
reports to be made by the Developing Party to Focal within sixty (60) days
after the end of each calendar quarter, stating in each such report the
invoiced price and quantity of all Product sold, and the aggregate Net Sales
of such Product sold during such calendar quarter.
10.2 Payment Method. All payments to Focal under this Agreement shall be
made by check or bank wire transfer in immediately available funds to an
account designated by Focal. All payments hereunder shall be made in U.S.
dollars. Any payments due hereunder which are not paid on the date such
payments are due under this Agreement shall bear interest at the lesser of
one and one-half percent (1%) per month or the maximum rate permitted by law,
calculated on the number of days such payment is delinquent. This Section
10.2 shall in no way limit any other remedies available to Focal.
* Confidential treatment has been requested for marked portion
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10.3 Currency Conversion. If Net Sales are made in currency other than
U.S. dollars, for the purpose of calculating payments hereunder such Net
Sales shall be converted to U.S. dollars using the standard exchange rate
into U.S. dollars used by the Developing Party for financial reporting
purposes.
10.4 Withholding Taxes.
10.4.1 (a) If any withholding taxes become payable solely by
reason of an assignment under this Agreement by Ciba or Chiron to a foreign
Affiliate, the transfer prices and payments due hereunder shall be net of and
shall not include any amounts due with respect to such withholding taxes.
Accordingly, payments shall be made without deduction for any such
withholding taxes and the Developing Party shall be responsible for the
payment of all such taxes. If laws or regulations require that taxes be
withheld on payments to Focal under Article 4, 8 or 9, the paying party, will
(i) timely pay the taxes to the proper taxing authority, and (ii) send proof
of payment to Focal within sixty (60) days following payment. If Focal uses
a foreign tax credit received by Focal as a result of the payment of
withholding taxes by Ciba or Chiron and thereby reduces the amount of U.S.
income tax that Focal otherwise would have paid, Focal shall refund to Ciba
or Chiron, as applicable, the amount of such reduction with respect to such
foreign tax credit.
(b) If withholding taxes are payable with respect to payments
to Focal for any reason other than that set forth in Section 10.4.1 (a), the
Developing Party shall pay such withholding taxes and deduct the amount
thereof from the amounts otherwise due to Focal hereunder. The Developing
Party shall provide Focal with a written statement of any such taxes paid
with respect to Focal's tax liability.
10.5 Records; Inspection. Ciba, Chiron and Affiliates of Ciba and Chiron
shall keep complete, true and accurate books of account and records for the
purpose of determining the amounts payable under Articles 8, 9 and 10 and
Focal shall keep complete, true and accurate records of Research performed by
Focal hereunder, the Research Costs thereof, the activities of Focal pursuant
to Article 8 and the costs thereof, and the Production Costs of all Products
and components. Such books and records shall be kept at the principal place
of business of Ciba, Chiron or Focal or the Affiliate of Ciba, Chiron, or
Focal as the case may be, for at least three (3) years following the end of
the calendar quarter to which they pertain. Such records will be open for
inspection, during such three (3) year period by an independent certified
public accountant selected by Focal for inspections conducted by Focal, or a
representative selected by Ciba or Chiron with respect to inspections
conducted by Ciba or Chiron, and reasonably acceptable to the audited party,
such acceptance not be unreasonably withheld for the purpose of verifying the
amounts payable by Ciba/Chiron pursuant to Articles 8, 9 and 1 0, the amounts
of reimbursement payable under this Agreement with respect to Research Costs,
under Article 8 or the amounts of Production Costs, or other matters
reasonably necessary in connection with Research, process development or
manufacturing records maintained by Focal, as applicable. Such inspections
may be made no more than once each calendar year, during normal business
hours, as mutually agreed by Focal and Ciba or Chiron. The inspecting
accountant will be under confidentiality obligations to the audited party to
report to Focal only the amounts payable to Focal hereunder with respect to
Net Sales during the period in question, in the case of an audit by Focal,
and such matters as are the subject of the
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audit, including, but not limited to, FTE calculation Research Costs and
Production Costs in the case of an audit by Ciba or Chiron. Inspections
conducted under this Section 10.5 shall be at the expense of the auditing
party, unless a variation or error producing an underpayment in amounts
payable exceeding five percent (5%) of the amount paid for any period covered
by the inspection is established in the course of any such inspection,
whereupon all costs relating to the inspection for such period and any unpaid
amounts that are discovered will be paid by the audited party, together with
interest on such unpaid amounts at the rate specified in Section 10.2 above.
11
DUE DILIGENCE
The Developing Party shall use its reasonable commercial efforts to (i)
conduct expeditiously all Product Development for Products following
successful completion of the Research Program and other required preclinical
research to the extent required in the Major Countries; (ii) upon successful
completion of Product Development, apply for NDA approval in the Major
Countries; and (iii) upon receipt of NDA and other requisite marketing
approvals, subject to availability of Product supply, maximize Net Sales of
such Products in all Major Countries and other countries of the world in
which it is commercially reasonable to market the Products, all in a manner
consistent with the marketing of other products by the Developing Party.
12
INTELLECTUAL PROPERTY
12.1 Ownership of Inventions. Focal and the Developing Party shall each
promptly disclose to the other parties all Inventions as defined below.
Rights to such Inventions shall be as follows:
12.1.1 Definitions. For the purposes of this Section 12.1:
(a) "Patent Rights" shall mean patent applications, including
continuations (in whole or in part), divisionals, reissues, reexaminations
and foreign counterparts thereof, and issued patents on such applications, to
the extent the same claim and disclose Inventions;
(b) "Combination Product" shall mean a novel and possibly
patentably distinct composition of matter arising within a Research Program
or Product Development that comprises (i) a Ciba/Chiron Compound that is
supplied by Ciba or Chiron to Focal as a potential component of a Second
Generation Product, and (ii) a Focal Hydrogel Polymer as defined in Section
12.1.1(d) below;
(c) "Inventions" shall mean inventions or discoveries that are
first conceived, or first conceived and reduced to practice, (i) within a
Research Program or Product Development, or (ii) in the case of inventions or
discoveries by Ciba or Chiron, that are made using a Focal Hydrogel Polymer.
As used herein, references to Inventions shall include all Patent Rights and
other non-patent intellectual property rights to such Inventions necessary to
exploit such Patent Rights;
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(d) "Focal Hydrogel Polymer" shall mean a Hydrogel Polymer or
a Hydrogel Polymer formulation (i) supplied by Focal to Ciba or Chiron,
whether during the Research, Product Development, under the terms of Article
8, or otherwise, or (ii) disclosed in writing by Focal as a potential
component of a Product (in each case other than a Combination Product).
12.1.2 The Developing Party retains, and Focal hereby assigns to
the Developing Party, Focal's entire right, title and interest in and to
Inventions that are first conceived, or first conceived and reduced to
practice, by Focal alone or jointly with any other party hereto, to the
extent such Inventions consist of (a) chemical modifications of a Ciba/Chiron
Compound (i) which is supplied by Ciba or Chiron to Focal or (ii) which is
disclosed in writing by Ciba or Chiron to Focal as a potential component of a
Second Generation Product (in each case other than a Combination Product), or
(b) methods of manufacture or use of such a Ciba/Chiron Compound.
12.1.3 Focal retains, and each of Ciba and Chiron hereby assigns
to Focal, all right, title and interest, subject to Ciba's and Chiron's
rights in the Field under this Agreement, in and to Inventions that are first
conceived, or first conceived and reduced to practice, by Ciba or Chiron,
alone or jointly with any other party hereto, to the extent such Inventions
consist of (a) chemical modifications to a Focal Hydrogel Polymer (other than
a Combination Product) or (b) methods of manufacture or use of such a Focal
Hydrogel Polymer.
12.1.4 Except as may be otherwise mutually agreed to in writing
and subject to the rights and obligations of Article 2 and Article 8, the
Developing Party and Focal shall jointly own, but agree not to commercialize,
Patent Rights to any Invention to the extent such Invention consists of a
Combination Product or to the use of a Combination Product. Such restriction
on commercialization of Patent Rights under this Section 12.1.4 shall survive
any termination of this Agreement with respect to a Combination Product
during the term of any patents claiming the Combination Product or the use of
a Combination Product. It is understood that to the extent components of a
Combination Product may be exploited for purposes other than the combination
of a Ciba/Chiron Compound described in 12.1.1(b)(i) and a Focal Hydrogel
Polymer, described in Section 12.1.1.(b)(ii), such components and
exploitation shall not be covered by this Section 12.1.4, but shall instead
be covered by Sections 12.1.2, 12.1.3 and 12.1.5.
12.1.5 To the extent that ownership of an Invention is not
provided for under Sections 12.1.1, 12.1.2, 12.1.3 and 12.1.4 above, rights
to such Inventions shall be as follows:
(i) If the Invention is first conceived or first conceived and
reduced to practice by Focal alone, such Invention will be considered part of
the Focal Technology and will be solely owned by Focal subject to Ciba's and
Chiron's rights within the Field under this Agreement.
Focal hereby grants to Ciba and Chiron a royalty free,
fully paid, non-exclusive, worldwide, irrevocable license, with the right to
grant and authorize sublicenses, under the Inventions described in this
paragraph (i) to make, have made, use and sell products for [*].
* Confidential treatment has been requested for marked portion
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(ii) If the Invention is first conceived or first conceived and
reduced to practice by the Developing Party alone, such Invention will be
solely owned by the Developing Party.
The Developing Party hereby grants to Focal a royalty
free, fully paid, nonexclusive, worldwide, irrevocable license, with the
right to grant and authorize sublicenses (subject to the following sentence),
under the Inventions described in this paragraph (ii) to make, have made, use
and sell products, processes and or services involving a Hydrogel Polymer,
outside of the Field. Notwithstanding the foregoing, no Invention described
in this paragraph (ii) shall be sublicensed or otherwise made available to
[*].
(iii) If the Invention is first conceived or first
conceived and reduced to practice by the Developing Party jointly with Focal,
such Invention will be jointly owned by the inventing parties. The
Developing Party shall have the exclusive rights set forth in Article 2.
Except as provided in Article 2,
(a) Focal shall have the exclusive right under the
Inventions described in this paragraph (iii), with the right to grant and
authorize licenses and sublicenses (subject to paragraph (c) below), to make,
use, and sell products, processes and/or services, involving the use of Focal
Hydrogel Polymer, outside the Field.
(b) Each party will have a royalty-free right to make,
have made, use and sell the Invention, with the right to grant and authorize
licenses and sublicenses (subject to paragraphs (c) and (d) below) for all
other purposes.
(c) Notwithstanding the foregoing, no Invention described
in this Section 12.1.5(iii) shall be sublicensed or otherwise made available
[*].
(d) Prior to granting any license to Inventions governed
by this Section 12.1.5(iii) to a third party to develop a product for local
delivery, Ciba and/or Chiron, as the case may be, agree to offer Focal a
right of first refusal to develop such product for local delivery, under the
following terms. This paragraph (d) shall not apply to any license to such
an Invention by Ciba or Chiron to a third party for the manufacture, use or
sale of a product, including a product for local delivery, which is developed
by Ciba or Chiron, as the case may be.
Prior to granting any sublicense governed by this paragraph (d) to a
third party, Ciba or Chiron, as the case may be, shall notify Focal in
writing, describing the proposed sublicense and development project. Upon
written request by Focal within thirty (30) days after receipt of such a
notice, if Focal has the capability of performing the development project in
question, the parties shall commence negotiations in good faith with respect
to commercially reasonable terms under which the proposed license would be
granted to Focal rather than a third party.
* Confidential treatment has been requested for marked portion
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If (i) Focal does not request within such thirty (30) day period to
commence such negotiations, or Focal notifies Ciba or Chiron, as the case may
be, that Focal is not interested in obtaining the license in question; or
(ii) the parties do not enter into a letter of intent with respect to license
in question within ninety (90) days after the date of the notice from Ciba or
Chiron, as the case may be; or (iii) the parties do not enter into a
definitive written agreement within ninety (90) days after the parties enter
into a letter of intent pursuant to (ii) above, then Ciba or Chiron, as the
case may be, shall be free to proceed with the license in question to a third
party, on terms not more favorable to the third party than those terms last
offered to Focal hereunder.
12.1.6 Resolution of Ownership Disputes
(i) Any dispute regarding ownership of a particular Invention
shall be referred to the Research Committee or Advisory Committee, as
appropriate, for resolution. The Research Committee or Advisory Committee,
as the case may be, shall use all reasonable efforts to resolve such disputes
within sixty (60) days after such referral, including referral of questions
to outside independent experts where the Research Committee or Advisory
Committee, as the case may be, deems appropriate.
(ii) In the event the dispute cannot be resolved pursuant to
12.1.6 (i) hereinabove, the dispute shall be referred to the Chief Executive
Officer (CEO) of Focal and a senior executive of Ciba or Chiron, as
appropriate.
(iii) In the event the dispute cannot be resolved pursuant
to 12.1.6 (ii) hereinabove, the parties shall enter into non-binding
mediation. The mediation shall be conducted by an independent mediator
acceptable to the parties. Either party may serve upon the other party a
written demand for mediation and such mediation shall commence within thirty
(30) days of the other party's receipt of such demand, unless otherwise
authorized by the parties. Each party shall make available to the mediation
an authorized representative with the capacity to bind such party, and the
mediation shall be conducted as deemed appropriate by the mediator.
(iv) In the event the dispute cannot be resolved pursuant to
12.1.6 (iii) hereinabove, the dispute shall be referred to arbitration in
accordance with the rules then prevailing of the Center for Public Resources
("CPR"), 680 Fifth Avenue, New York, NY 10019, unless otherwise mutually
agreed. Unless otherwise agreed by the parties, the arbitration panel shall
consist of one neutral arbitrator selected in accordance with the CPR rules.
The results of the arbitration shall be binding upon the parties.
12.1.7 Rights and Obligations. Focal's interest in Patent Rights
to all Inventions shall be subject to the exclusive licenses granted to Ciba
and Chiron in the Field under Article 2. Except as expressly provided in
Article 2, this Article 12, or otherwise in this Agreement, it is understood
that no party shall have any obligation to account to any other party for
profits, or to obtain any approval of any other party to license or exploit
an Invention by reason of joint ownership of any Invention.
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12.1.8 Each party retains all right, title and interest to
inventions or discoveries, other than Inventions as defined in Section 12.1.1
(c), which are conceived or reduced to practice by it, whether solely or
jointly with third parties, except as specifically provided in this Agreement.
12.2 Patent Prosecution.
12.2.1 Focal Sole Inventions. Focal shall have the right, at its
expense, to control the preparing, filing, prosecuting and maintenance
worldwide of the patent applications and patents owned solely by Focal
pursuant to Section 12.1.3 or 12.1.5(i) above, in such countries as it deems
appropriate, and the conduct of any interferences, reexaminations, reissues,
oppositions or requests for patent term extensions using counsel of its
choice all at its expense. Focal agrees to make such additional foreign
filings as may be requested by Ciba and/or Chiron, to the extent it is able
to do so under applicable law, and subject to reimbursement by Ciba and/or
Chiron of costs with respect to such additional foreign filings; and provided
further that in the event a patent or application within the Focal Technology
applicable to Products within the Field is the subject of an interference,
request for reexamination, opposition or similar proceeding, Ciba and/or
Chiron shall reimburse Focal [*] of Focal's out-of-pocket costs of such
proceeding; provided, however, if Focal enters into an agreement granting
exclusive rights to a third party to sell products covered by the patent or
application that is the subject of such proceeding, Ciba and/or Chiron's
reimbursement shall be reduced [*] (e.g., Ciba and/or Chiron's percentage
would be reduced to [*], or [*].
12.2.2 Joint Inventions. The parties shall jointly pursue Patent
Rights for Inventions that are owned jointly by Ciba and/or Chiron, and Focal
under Sections 12.1.4 and 12.1.5 (iii) above by counsel mutually agreed to by
the joint owners, and the joint owners agree to take all reasonable action to
cooperate fully with each other in this regard. The joint owners [*]
the out-of-pocket expenses in connection with such activities as they are
incurred. If one joint owner elects [*] of expenses, the remaining joint
owner(s) shall have the right to file, prosecute and maintain such Patent
Rights in the name of such remaining joint owner(s).
12.2.3 Ciba and/or Chiron Sole Invention. Each of Ciba and
Chiron shall have the right, at Ciba and Chiron's expense, to control the
preparing, filing, prosecuting and maintenance worldwide of the patent
applications and patents owned solely by Ciba or Chiron, respectively,
pursuant to Section 12.1.2 or 12.1.5(ii) above, in such countries as Ciba or
Chiron deems appropriate, and the conduct of any interferences,
reexaminations, reissues, oppositions or requests for patent term extensions
for the Inventions owned by Ciba and Chiron pursuant to Section 12.1.2 or
12.1.5 above using counsel of its choice.
12.2.4 Cooperation.
(a) Focal shall keep Ciba and Chiron reasonably informed in a
timely manner as to the status of patent matters pertaining to the Focal
Patents, including Inventions made in the course of performing a Research
Program, including providing Ciba and Chiron copies of any significant
* Confidential treatment has been requested for marked portion
31
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documents that Focal receives from or sends to patent offices, such as
amendments and responses to official actions, notices of interferences,
reexaminations, oppositions or requests for patent term extensions, all as
reasonably requested by any other party hereto. Focal shall provide each of
Ciba and Chiron with copies of the complete patent prosecution files of the
Focal Patents and patent applications within sixty (60) days of the Effective
Date of this Agreement. Each of Ciba and Chiron shall have the right, but
not the obligation, to advise Focal on the prosecution and maintenance of the
Focal Patents and applications. It is understood, however, the Developing
Party's period of review shall not delay filings or submissions to meet
deadlines to preserve Focal's patent rights.
(b) Ciba and/or Chiron shall advise Focal in a timely manner
as to the status of all patent matters to which Focal has rights under
12.1.5(ii). Upon Focal's request, Ciba and Chiron promptly shall provide
Focal with copies of the complete patent prosecution files of patents and
patent applications for Inventions described in Sections 12.1.5(ii). Focal
shall have the right, but not the obligation, to advise Ciba and Chiron on
the prosecution and maintenance of patents and patent applications for
Inventions described in Sections 12.1.5(ii). It is understood, however,
Focal's period of review shall not delay filings or submissions to meet
deadlines to preserve Ciba and Chiron's patent rights.
12.3 Defense of Third Party Infringement Claims. If the manufacture,
preparation, sale or use of any Product pursuant to this Agreement results in
a claim, suit or proceeding (collectively, "Actions") alleging patent
infringement of a third party patent against Focal, Ciba or Chiron (or their
respective Affiliates or Subdistributors), such party shall promptly notify
the other parties hereto in writing. Except as otherwise provided in Article
15, the party subject to such Action shall have the exclusive right to defend
and control the defense of any such Action using counsel of its own choice,
at such party's own expense; provided, however, that the other parties may
participate in the defense and/or settlement thereof at its own expense with
counsel of its choice. The party defending the Action shall have the right,
but not the obligation, to defend the Action in the name of itself and the
other parties as may reasonably be required by law. The party subject to the
Action agrees to keep the other parties hereto reasonably informed of all
material developments in connection with any such Action, and shall not
compromise or settle such Action in a manner which would adversely impact the
other party or parties hereto without the prior written consent of such
party, which consent shall not be unreasonably withheld.
12.4 Enforcement. Subject to the provisions of this Section 12.4, in
the event that Focal, or Ciba and/or Chiron reasonably believes that any
Focal Technology necessary for the manufacture, use or sale of a Product is
infringed or misappropriated by a third party or is subject to a declaratory
judgement action arising from such infringement in such country, in each case
with respect to the manufacture, sale or use of a product within the Field,
such party shall promptly notify the other parties hereto, and thereafter the
parties shall consult with one another and keep the others reasonably
informed to the extent such infringement significantly affects the commercial
exploitation of Products. Focal will use commercially reasonable efforts
generally to enforce the Focal Technology with respect to substantial
continuing infringements of the Focal Technology, by initiating legal action,
licensing the infringing activities or otherwise as appropriate after
consultation with Ciba and Chiron. It is understood, however, that such
obligation shall not be deemed to require Focal to take such actions with
32
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respect to each such infringement, and Focal may take into account strategic
and other considerations in determining which infringers to take action
against, as well as when and whether to do so. Notwithstanding the foregoing
provisions of this Section 12.4 and the provisions set forth in Sections
12.4.1, 12.4.2, or 12.4.3 below, unless and until Ciba and/or Chiron
exercises the Option pursuant to Section 2.2 above, the provisions of this
Section 12.4 shall not apply to infringement of Focal Technology by a third
party with respect to Platelet Antagonists or [*].
12.4.1 In the event of a commercially significant infringement of
Focal Technology by a third party within the Field, Focal may, at the request
of Chiron and/or Ciba or at its own election, initiate an enforcement action
against such third party. Ciba and/or Chiron shall have the right to
participate in such action, which shall be conducted by counsel selected by
Focal and approved by Ciba and/or Chiron (which approval shall not be
withheld unreasonably), and Focal shall be responsible for the direction of
said counsel. Focal and Ciba and/or Chiron each shall pay [*] of the
reasonable out-of-pocket costs and expenses (including attorneys' and
professional fees) of actions initiated pursuant to this Section 12.4.1. Any
recoveries in an action initiated pursuant to this Section 12.4.1 shall be
applied first to reimburse the parties for all expenses of such action, and
any remaining recoveries from such Action applicable to the Field shall be
split between Focal and Ciba and/or Chiron with Ciba and/or Chiron retaining
[*] of the remaining recoveries applicable to the Field and Focal retaining
[*] of the remaining recoveries applicable to the Field; and Focal retaining
all of the remaining recoveries not applicable to the Field.
12.4.2 In the event that Focal elects not to initiate an action
to enforce the Focal Technology against a commercially significant
infringement by a third party in a country, which infringement consists of
the manufacture, sale or use of a product within the Field, within one
hundred eighty (180) days of a request by Ciba and/or Chiron to initiate such
action, Ciba and/or Chiron may initiate the requested action against such
infringement at its own expense with Focal's prior written approval, which
approval shall not be unreasonably withheld. Focal shall cooperate in such
action, and Ciba and/or Chiron shall keep Focal reasonably informed of the
progress of any such enforcement action. Ciba and/or Chiron shall reimburse
Focal's reasonable out-of-pocket costs and expenses necessary for such
cooperation. Focal shall have the right to participate in any such action
with counsel of its own choice at its own expense. Any recoveries with
respect to such action shall be retained by Ciba and/or Chiron, as
appropriate.
12.4.3 In the case of any third party infringement of Focal
Technology not governed by this Article 12, Focal shall have the right, but
not the obligation, to bring an action against such third party at Focal's
sole expense, and to retain any recoveries arising from such action.
12.5 Third Party Rights. The provisions of Sections 12.2.1 and 12.4
shall be subject to and limited by any agreements pursuant to which Focal
acquired any particular Focal Technology. As of the date of this Agreement,
all such agreements are identified in [*]. Notwithstanding the foregoing,
Focal shall use reasonable commercial efforts to preserve for Ciba and Chiron
the rights granted under this Article 12 with respect to Focal Technology
owned by third party licensors, and shall keep Ciba and Chiron reasonably
informed of, and cooperate with Ciba and Chiron in connection with,
* Confidential treatment has been requested for marked portion
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the filing, prosecution, maintenance and enforcement of Focal Patents owned
by such third party licensors.
13
REPRESENTATIONS AND WARRANTIES AND COVENANTS
13.1 Focal Warranties. Focal warrants and represents to Ciba and Chiron
that (i) it has the full right and authority to enter into this Agreement and
grant the rights granted herein; (ii) it has not previously granted and will
not grant any rights in conflict with the rights granted herein; (iii) to its
knowledge and belief, there are no existing or threatened actions, suits or
claims pending against it with respect to its right to enter into and perform
its obligations under this Agreement; (iv) it has not previously granted, and
will not grant during the term of this Agreement, any right, license or
interest in or to the Focal Technology, or any portion thereof, to
manufacture, sell or use a product in the Field, except to the extent
expressly authorized under this Agreement; (v) the agreements listed in [*]
constitute a complete and accurate list of all agreements between Focal and
third parties pertaining to the Field that are in existence as of the
Effective Date.
Focal further represents and warrants as follows:
(a) Subject to the agreements listed in [*], Focal Controls all
patent rights set forth in [*].
(b) All of the license agreements in [*] are in full force and
effect and as of the Effective Date, Focal has not received notice of any
asserted breach under any such license agreement, and Focal is not in breach
of its obligations under any such license agreement.
(c) As of the Effective Date, Focal has no Affiliates.
(d) As of the Effective Date, except as previously disclosed to Ciba and
Chiron, Focal does not know of any patent or trade secret rights which would
be infringed by the manufacture, use or sale of Hydrogel Polymer for use in
the Field, except for intellectual property licensed under the Agreements
listed in [*]. As used herein, "to know" means specific knowledge of a
particular patent or trade secret.
13.2 Focal Covenants. Focal hereby agrees that during the term of this
Agreement,
(a) Focal shall, at Focal's sole expense, comply with all of its
obligations as licensee under all third party license agreements in [*]; and
(b) Focal shall not terminate any such license agreement in [*]
without the prior written consent of Ciba/Chiron; and
* Confidential treatment has been requested for marked portion
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(c) Focal shall provide to Chiron and Ciba, promptly upon receipt
by Focal, any notices of default or termination received from the licensor
under any such third party license agreement in [*].
Focal acknowledges and agrees that any material breach by Focal under, or any
termination (without the consent of Ciba/Chiron) of, any third party license
agreement identified in [*] shall be deemed a breach of Focal's
obligations under this Agreement.
13.3 Ciba/Chiron Warranties. Ciba and Chiron warrant and represent to
Focal that (i) each has the full right and authority to enter into this
Agreement and grant the rights granted herein; (ii) each has not previously
granted and will not grant any rights in conflict with the rights granted
herein; and (iii) to each of Ciba's and Chiron's knowledge and belief, there
are no existing or threatened actions, suits or claims pending against it
with respect to its right to enter into and perform its obligations under
this Agreement.
13.4 Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS
ARTICLE 13, FOCAL, CIBA AND CHIRON EXPRESSLY DISCLAIM ANY WARRANTIES,
EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO THE RESEARCH,
PRODUCT DEVELOPMENT, AND THE FOCAL AND CIBA AND/OR CHIRON INTELLECTUAL
PROPERTY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, OR
FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF FOCAL TECHNOLOGY, PATENTED OR
UNPATENTED, AND NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES.
14
CONFIDENTIALITY
14.1 Confidential Information. Except as expressly provided herein, the
parties agree that, for the term of this Agreement and for the longer of five
(5) years after the termination of this Agreement or ten (10) years after the
Effective Date, the receiving party, including Affiliates and Consultants,
shall not publish or otherwise disclose and shall not use for any purpose any
confidential information furnished to it by any other party hereto pursuant
to this Agreement (including confidential information provided prior to the
Effective Date) which if disclosed in tangible form is marked "Confidential"
or with other similar designation to indicate its confidential or proprietary
nature, or if disclosed orally is orally confirmed as confidential or
proprietary by the party disclosing such information at the time of such
disclosure ("Confidential Information"). As used herein, Confidential
Information shall include all confidential or proprietary biological,
chemical or other materials provided to any other party hereunder.
Notwithstanding the foregoing, Confidential Information shall not include
information that, in each case as demonstrated by written documentation:
(a) was already known to the receiving party, other than under
an obligation of confidentiality to the disclosing party, at the time of
disclosure;
* Confidential treatment has been requested for marked portion
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(b) was generally available to the public or otherwise part of
the public domain at the time of its disclosure to the receiving party;
(c) became generally available to the public or otherwise part
of the public domain after its disclosure and other than through any act or
omission of the receiving party in breach of this Agreement; or
(d) was subsequently lawfully disclosed to the receiving party
by a person other than a party hereto or developed by the receiving party
without reference to any information or materials disclosed by the disclosing
party.
14.2 Permitted Disclosures. Notwithstanding the provisions of Section
14.1 above, the receiving party may disclose Confidential Information of the
disclosing party to its consultants, Affiliates, Subdistributors and
permitted sublicensees and subcontractors, provided that such disclosures are
under confidentiality restrictions no less stringent than those contained
herein. The receiving party may disclose Confidential Information of the
disclosing party to the extent such disclosure is required by applicable law,
regulation or court order, including without limitation filing and
prosecution of patents, prosecuting or defending litigation, submitting
information to tax or other governmental authorities, and/or manufacturing,
marketing and/or selling Products, or as reasonably necessary to exercise
other rights provided under this Agreement, (including rights under Article
12) provided that to the extent it may legally do so, the receiving party
will give reasonable advance written notice to the disclosing party of such
disclosure and, save to the extent inappropriate in the case of patent
applications, will use its reasonable efforts to secure confidential
treatment of such Confidential Information prior to its disclosure (whether
through protective orders or otherwise). The parties further shall have the
right to disclose Confidential Information of other parties hereto to the
extent reasonably necessary to carry out performance of this Agreement,
provided that the disclosing party uses at least the degree of care that it
uses with respect to its own Confidential Information, but in no event less
than reasonable care.
14.3 Confidentiality as to Ciba and Chiron. Since Chiron and Ciba are
jointly the Developing Party of the First Generation Products, Chiron, Ciba
and Focal all intend that information relating to the First Generations
Products will be disclosed to and used by all three parties in connection
with their activities under this Agreement. Similarly, all three parties
shall have access to, and the right to use, in accordance with this
Agreement, all information related to Second Generation Products as to which
Chiron and Ciba are jointly the Developing Party. With regard to Ciba/Chiron
Compounds owned by Chiron or Ciba individually, and with respect to Second
Generation Products as to which Chiron or Ciba is individually the Developing
Party, the party (Chiron or Ciba) which does not own the Ciba/Chiron Compound
or is not the Developing Party is referred to as the "Non Developing Party".
Focal agrees not to disclose to the non-Developing Party any Confidential
Information of the Developing Party, and Focal agrees not to use Confidential
Information of the Developing Party in connection with Second Generation
Products of the non-Developing Party, except to the extent authorized under
Section 6.2.
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15
INDEMNIFICATION
15.1 Indemnification of Focal. The Developing Party with respect to a
Product shall indemnify each of Focal and its Affiliates and the directors,
officers, and employees of Focal and such Affiliates and the licensors,
successors and assigns of any of the foregoing (the "Focal Indemnities"), and
hold each Focal Indemnitee harmless from and against any and all liabilities,
damages, settlements, claims, actions, suits, penalties, fines, costs or
expenses (including, without limitation, reasonable attorneys' fees and other
expenses of litigation) (any of the foregoing, a "Claim") incurred by any Focal
Indemnitee, arising from or occurring as a result of (a) the development,
marketing, sale or use of any Product, or the manufacture by the Developing
Party, its Affiliates, contractors or licensees of any Product, except to the
extent such claim is subject to indemnification by Focal pursuant to
Section 15.2; or (b) the negligence or willful misconduct of the Developing
Party.
15.2 Indemnification of Ciba/Chiron. Focal shall indemnify each of Ciba,
Chiron and their respective Affiliates and the directors, officers, and
employees of Ciba, Chiron and such Affiliates and the successors and assigns of
any of the foregoing (the "Ciba/Chiron Indemnities"), and hold each Ciba/Chiron
Indemnitee harmless from and against any and all liabilities, damages,
settlements, claims, actions, suits, penalties, fines, costs or expenses
(including, without limitation, reasonable attorneys' fees and other expenses of
litigation) (any of the foregoing, a "Claim") incurred by any Ciba/Chiron
Indemnitee, arising from or occurring as a result of or relating to (a) the
failure by Focal, its Affiliates or contractors to manufacture Products supplied
by Focal hereunder in accordance with the warranties set forth in the Supply
Agreement or with applicable law of the Major Countries; or (b) the negligence
or willful misconduct of Focal.
15.3 Procedure. A party (the "Indemnitee") that intends to claim
indemnification under this Article shall promptly notify the indemnifying party
(the "Indemnitor") in writing of any loss, claim, damage, liability or action in
respect of which the Indemnitee or any of its Affiliates, sublicensees or their
directors, officers, employees or agents intend to claim such indemnification,
and the Indemnitor shall have control of the defense and/or settlement thereof,
subject to the limitations set forth herein; provided that the Indemnitee shall
have the right to participate in the defense through its own counsel at the
Indemnitee's expense. The indemnity agreement in this Article 15 shall not
apply to amounts paid in settlement of any loss, claim, damage, liability or
action if such settlement is effected without the consent of the Indemnitor,
which consent shall not be withheld unreasonably. The failure to deliver
written notice to the Indemnitor within a reasonable time after the commencement
of any such action, if prejudicial to its ability to defend such action, shall
relieve such Indemnitor of any liability to the Indemnitee under this Article 15
but the omission so to deliver written notice to the Indemnitor shall not
relieve the Indemnitor of any liability that it may have to any Indemnitee
otherwise than under this Article 15. The Indemnitor shall not settle or
compromise any indemnified claim in a manner which would adversely impact the
Indemnitee without the Indemnitee's prior written consent, which shall not be
unreasonably withheld. The Indemnitee under this Article 15, its employees and
agents, shall cooperate fully with the Indemnitor and its legal representatives
at the Indemnitor's expense in the investigation of any action, claim or
liability covered by this indemnification.
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16
TERM AND TERMINATION
16.1 Term. This Agreement shall become effective as of the Effective Date
and, unless earlier terminated pursuant to the other provisions of this
Article 16, shall continue in full force and effect, until the last to expire or
be abandoned of the patents and patent applications within the Focal Technology,
or the date payments are no longer due under Articles 8 and 9 for such products
in such country, whichever is later. Upon expiration, but not earlier
termination of this Agreement, the licenses granted to Ciba and Chiron hereunder
shall become fully paid up, perpetual and nonexclusive. The Supply Agreement
entered into pursuant to Article 8 shall have a mutually agreed upon term and
mutually agreed upon renewal rights.
16.2 Termination for Cause. Either Focal or Ciba/Chiron may terminate this
Agreement in the event the other shall have materially breached or defaulted in
the performance of any of its material obligations hereunder, and such default
shall have continued for sixty (60) days after written notice thereof was
provided to the breaching party by the nonbreaching party. Any termination
shall become effective at the end of such sixty (60) day period unless the
breaching party (or any other party on its behalf) has cured any such breach or
default prior to the expiration of the sixty (60) day period.
16.3 Termination Upon Notice.
16.3.1 Ciba/Chiron may terminate this Agreement in its entirety
upon ninety (90) days prior written notice; provided, however, that such notice
of termination may not be given prior to three (3) months after the Effective
Date. Notwithstanding the foregoing, if the Fragmentation and Embolization
Study fails to meet the Study Criteria, as set forth in Section 3.3.1,
Ciba/Chiron shall have the right to terminate this Agreement upon thirty (30)
days prior written notice as set forth in Section 3.3.1(c).
16.3.2 Subject to the provisions of Article 11, Chiron and/or Ciba,
as Developing Party, shall have the right, at any time in its sole discretion to
discontinue development of any Product, and such discontinuation shall not be
deemed a termination of this Agreement or the licenses granted hereunder.
Ciba/Chiron shall promptly notify Focal of any such decision.
16.3.3 If at any time no First Generation Product or Second
Generation Product is included and being actively pursued within either the
Research or Product Development, and at such time neither a First Generation
Product nor Second Generation Product is being actively marketed and promoted
commercially by Ciba or Chiron, or their respective Affiliates or
Subdistributors under this Agreement, Focal shall have the right to terminate
this Agreement effective upon ninety (90) days written notice to Ciba and
Chiron. For purposes of this Section 16.3.3, "actively pursuing" a Product
shall mean devoting such resources to the Research and Product Development of
such Product as is reasonably required to complete such Product Development and
to obtain regulatory approvals to market the Product in Major Countries in an
expeditious manner in accordance with a reasonable plan for
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obtaining regulatory approvals (recognizing that approval in some Major
Countries may be sought after approval has been obtained and marketing commenced
in others); and "actively marketing and promoting" a Product shall mean devoting
such resources as are required to promote the Product in accordance with a
reasonable marketing plan in the Major Countries and other countries of the
world in which it is commercially reasonable to market the Products.
16.4 Effect of Termination or Expiration.
16.4.1 Accrued Obligations. Termination of this Agreement for any
reason shall not release any party hereto from any liability which, at the time
of such termination, has already accrued to the other party or which is
attributable to a period prior to such termination, nor preclude either party
from pursuing all rights and remedies it may have hereunder or at law or in
equity with respect to any breach of this Agreement. Subject to any liability
for damages by reason of a breach of this Agreement by Focal, Focal may retain
any amounts paid to it prior to the effective date of any termination of this
Agreement.
16.4.2 Return of Materials and Information. Upon any termination
or expiration of this Agreement, upon request of the disclosing party, each
receiving party shall return to the disclosing party or destroy all Confidential
Information owned by the other party, except to the extent the returning party
retains the right to use such Confidential Information under the surviving
provisions of this Agreement. Notwithstanding the foregoing, the receiving
party shall have the right to retain one copy of the Confidential Information
for archival purposes.
16.4.3 Survival. Articles 1, 14, 15, 16 and 17 and Sections 6.2,
7.2, 10.4, 10.5, 12.1 (excluding the first sentence of 12.1.7); first sentence
of 12.2.1, 12.2.2, and the first sentence of 12.5 shall survive expiration or
termination of this Agreement for any reason. Upon the expiration, but not an
earlier termination of this Agreement, Section 6.1, Article 8, first sentence of
12.1.7 and the Supply Agreement shall survive for the period specified in the
Supply Agreement, and the Supply Agreement shall provide for the transfer to the
Developing Party upon expiration thereof of any Focal Know-how necessary to
manufacture or have manufactured the Products then being supplied thereunder.
Upon the termination by any party hereto pursuant to Section 16.3 or by Focal
pursuant to Section 16.2, Section 5.2 shall survive only as Section 5.2 applies
to Ciba and Chiron's activities thereunder. Except as otherwise set forth in
the second sentence of Section 16.1 or Section 16.4.4 below, all other rights
including without limitation all licenses and obligations shall terminate upon
the expiration or earlier termination of this Agreement.
16.4.4 Other.
Without limiting the foregoing provisions of Section 16.4.3 above or
this Section 16.4.4 below, upon termination of this Agreement by Focal
pursuant to Section 16.3.3 or by Ciba and Chiron pursuant to Section 1 6.3.1,
(i) rights to First Generation Products shall revert to Focal; and (ii) Ciba
and Chiron shall transfer to Focal, all regulatory filings, regulatory,
approvals, other correspondence with regulatory authorities and other
preclinical or clinical data and information that relates to First
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Generation Products obtained or
generated in the course of performing Research or Product Development, subject
to payment by Focal of mutually agreed upon compensation to Ciba and Chiron for
value created by them with respect to such First Generation Products. Focal may
use and disclose any data, information and other information and other items
described in this Section 16.4.3 for any purpose. Under no circumstances will
Ciba or Chiron be obligated to provide to Focal any data or information on
Second Generation Products except as provided in Section 6.2(b) and Section 7.2.
17
MISCELLANEOUS
17.1 Bankruptcy. All licenses granted under this Agreement are deemed to
be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of
right to "intellectual property" as defined in Section 101 of such Code. The
parties agree that the licensee may fully exercise all of its rights and
elections under the Bankruptcy Code. The parties further agree that, in the
event a licensee elects to retain its rights as a licensee under such Code, the
licensee shall be entitled to complete access to all Focal Know-How, and copies
of any Focal Know-how in tangible form, all as necessary for the manufacture of
Products licensed to it hereunder. Such copies of Focal Know-how shall be
delivered to the licensee not later than (a) the commencement of bankruptcy
proceedings against the licensor, upon written request, unless the licensor
elects to perform its obligations under this Agreement, or (b) if not delivered
under (a) above, upon the rejection of this Agreement by or on behalf of the
licensor, upon written request.
17.2 Governing Law. This Agreement and any dispute arising from the
performance or breach hereof shall be governed by and construed and enforced in
accordance with, the laws of the State of New York, without reference to
conflicts of laws principles.
17.3 Force Majeure. Nonperformance of any party (except for payment
obligations) shall be excused to the extent that performance is rendered
impossible by strike, fire, earthquake, flood, governmental acts or orders or
restrictions, delay or failure of suppliers, or any other reason where failure
to perform is beyond the reasonable control and not caused by the negligence or
willful misconduct of the nonperforming party (each a "Force Majeure Event").
The party whose performance is prevented by a Force Majeure Event such event
shall promptly inform the other parties of its occurrence, and shall keep the
other parties informed of its progress in resolving the Force Majeure Event. In
the event that any Force Majeure Event prevents performance for more than sixty
(60) days, the parties shall reasonably negotiate alternative methods of
enabling the performance of this Agreement to continue, including authorizing
another party hereto to perform the obligations in question or obtaining such
performance from a third party, all on reasonable commercial terms.
17.4 Joint and Several Liability. Where obligations under this Agreement
are obligations of "Ciba/Chiron" or are obligations of the "Developing Party"
where the Developing Party is Ciba and Chiron jointly, each of Ciba and Chiron
shall be jointly and severally liable to Focal with respect to the performance
and any breach of such obligations. It is further understood and agreed that
40
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notwithstanding that an obligation of Focal hereunder is expressly stated as
being to "Ciba/Chiron" or the "Developing Party" where the Developing Party is
Ciba and Chiron jointly, the satisfaction or performance by Focal of any such
obligations to Ciba or Chiron shall be deemed to satisfy all obligations of
Focal to both Ciba and Chiron and the Developing Party.
17.5 No Implied Waivers; Rights Cumulative. No failure on the part of any
party to exercise and no delay in exercising any right under this Agreement, or
provided by statute or at law or in equity or otherwise, shall impair, prejudice
or constitute a waiver of any such right, nor shall any partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right.
17.6 Independent Contractors. Nothing contained in this Agreement is
intended implicitly, or is to be construed, to constitute Focal and Ciba and/or
Chiron as partners in the legal sense. No party hereto shall have any express
or implied right or authority to assume or create any obligations on behalf of
or in the name of any other party or to bind any other party to any contract,
agreement or undertaking with any third party.
17.7 Notices. All notices, requests and other communications hereunder
shall be in writing and shall be personally delivered or sent by registered or
certified mail, return receipt requested, postage prepaid, in each case to the
respective address specified below, or such other address as may be specified in
writing to the other parties hereto:
Ciba: Ciba-Geigy Corporation
556 Morris Avenue
Summit, New Jersey 07901
Attn: Office of the President
with a copy to: General Counsel
Chiron: Chiron Corporation
4560 Horton Street
Emeryville, CA 94608
Attn: President, Chiron Technologies
with a copy to: General Counsel
Focal: Focal, Inc.
4 Maguire Road
Lexington, Massachusetts 02173
Attn: Glenn Kazo
with a copy to: Wilson, Sonsini, Goodrich & Rosati
Professional Corporation
650 Page Mill Road
41
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Palo Alto, California 94304-1050
Attention: Kenneth A. Clark, Esq.
17.8 Affiliates; Assignment; Change of Control.
17.8.1 This Agreement shall not be assignable by any party to any
third party hereto without the written consent of the other parties hereto;
except that any party hereto may assign this Agreement without any other party's
consent (i) to an Affiliate of the assigning party or (ii) subject to
Section 17.8.2, to an entity that acquires substantially all of the business or
assets of the assigning party relating to the Products, in each case whether by
merger, acquisition, or otherwise. Any assignment not permitted hereunder shall
be deemed null and void. In the event a party hereto assigns this Agreement to
an Affiliate, or its Affiliate exercises any rights granted to such Affiliate
hereunder, the party shall guarantee the performance of such Affiliate, and any
action or inaction of the Affiliate shall be deemed an action or inaction of
such party.
17.8.2 Focal agrees to notify Ciba and Chiron prior to the closing
of any sale, merger, reorganization or other transaction which would result in
(i) a transfer of all or substantially all of the assets of Focal relating to
the subject matter of this Agreement; or (ii) a change in the ownership or
control of more than 50% of the equity interests or voting interests in Focal
being held by a third party (each a "Change of Control"). Unless Ciba and
Chiron consent to the Change of Control of Focal within thirty (30) days after
receipt of notice thereof from Focal, which consent shall not be unreasonably
withheld, if Focal is so acquired by a third party that is developing or
commercializing a product specifically intended for use within the Field, Focal
shall, at its election, either (i) have the Second Generation Products
manufactured by a third party manufacturer reasonably acceptable to Ciba/Chiron
as set forth in Section 8.1, or (ii) terminate Focal's manufacturing rights
under Article 8 with respect to Second Generation Products, subject to payment
of a royalty to Focal, and subject to the Developing Party's right to
manufacture or have manufactured such Product or component, all as provided in
Section 8.4.1.
17.8.3 Subject to the foregoing, this Agreement shall be binding on
and inure to the benefit of the permitted successors and assigns of the parties.
17.9 Modification. No amendment or modification of any provision of this
Agreement shall be effective unless in writing signed by the party to be
charged.
17.10 Severability. If any provision hereof should be held invalid,
illegal or unenforceable in any jurisdiction, all other provisions hereof shall
remain in full force and effect in such jurisdiction, to the extent such
remaining provisions are consistent with the intentions of the parties as
evidenced by this Agreement as a whole, and such remaining provisions shall be
liberally construed in order to carry out the intentions of the parties hereto.
Such invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of such provision in any other jurisdiction. The
parties will negotiate in good faith a valid, substitute provision that most
nearly reflects the original intent of the parties.
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17.11 Publicity. Each of the parties hereto agrees not to disclose to
any third party the financial terms of this Agreement without the prior written
consent of the other parties hereto, except to advisors, investors and others on
a need-to-know basis under circumstances that reasonably ensure the
confidentiality thereof, or to the extent required by law. Notwithstanding the
foregoing, if the parties agree upon and issue a press release to announce the
execution of this Agreement, together with a corresponding Question & Answer
outline for use in responding to inquiries about the Agreement, Ciba, Chiron and
Focal may each thereafter disclose to third parties the information contained in
such press release and Question & Answer outline without the need for further
approval by the other.
17.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together, shall constitute one and the same instrument.
17.13 Headings. Headings used herein are for convenience only and shall
not in any way affect the construction of or be taken into consideration in
interpreting this Agreement.
17.14 Patent Marking. Focal and Ciba and Chiron agree to mark and have
their Affiliates and sublicensees mark all patented Products they sell or
distribute pursuant to this Agreement in accordance with the applicable patent
statutes or regulations in the country or countries of manufacture and sale
thereof.
17.15 Export Laws. Notwithstanding anything to the contrary contained
herein, all obligations of Focal and Ciba/Chiron are subject to prior compliance
with United States export regulations and such other United States laws and
regulations as may be applicable, and to obtaining all necessary approvals
required by the applicable agencies of the government of the United States.
Focal and Ciba/Chiron shall cooperate with each other and shall provide
assistance to the other as reasonably necessary to obtain any required
approvals.
17.16 No Implied Licenses. Except as expressly provided herein, no
party hereto grants to any other party hereto any rights or licenses under such
party's patent rights, trade secrets or other intellectual property rights.
17.17 Entire Agreement. This Agreement, [*], and the Joint Defense
Agreement between the parties effective as of January 15, 1996, constitute
the entire agreement, both written or oral, with respect to the subject
matter hereof, and supersede all prior or contemporaneous understandings or
agreements, whether written or oral, among the parties hereto with respect to
such subject matter.
* Confidential treatment has been requested for marked portion
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in duplicate originals as of the date first above
written.
FOCAL INC. CIBA-GEIGY CORPORATION
By: /s/ David M. Clapper By: /s/ James M. Callahan
-------------------------------- -------------------------------------
Name: David M. Clapper Name: James M. Callahan
------------------------------ -----------------------------------
Title: President & CEO Focal, Inc. Title: President, Ciba Pharmaceuticals
----------------------------- ----------------------------------
CHIRON CORPORATION
By: /s/ Lewis T. Williams
-------------------------------------
Name: Lewis T. Williams, M.D., Ph.D.
-----------------------------------
Title: President, Chiron Technologies
----------------------------------
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Exhibit 10.13
DISTRIBUTION, LICENSE AND SUPPLY AGREEMENT
DISTRIBUTION, LICENSE AND SUPPLY AGREEMENT ("Agreement") dated as of
January 2, 1997, between ETHICON, INC, a company with its principal office at
Route 22, Somerville, New Jersey 08876-0151 ("'Ethicon"), and FOCAL, INC, a
company with its principal office at Four Maguire Road, Lexington, Massachusetts
02173 ("Focal").
WHEREAS, Focal and Ethicon desire to enter into this Agreement which will
set out the terms and conditions under which (i) Focal will undertake certain
development obligations with respect to its technology, (d) Focal will supply to
Ethicon the Products (as defined below) for use in the Field (as defined below)
in the Territory (as defined below), (iii) Ethicon will market and distribute
the Products and (iv) Focal will grant to Ethicon certain limited license rights
to manufacture or have manufactured, develop, market, distribute, sub-license
and sell Products in the Field;
NOW THEREFORE, in consideration of the mutual covenants and consideration
set forth herein, the parties hereto agree as follows:
SECTION 1
DEFINITIONS
(a) "Advisory Board" shall have the meaning set forth in Section
4(a)(i).
(b) "Affected Territories" shall have the meaning set forth in Section
6(b)(ii)(A).
(c) "Affiliate" shall mean, in relation to either party hereto, (i) any
company or other entity in which the relevant party directly or
indirectly holds more than 50% of the voting securities, (ii) any
company or other entity ("Holding Company") which holds directly or
indirectly more than 50% of the voting securities of the relevant
party, (iii) any other company or other entity in which more than
50% of the voting securities is directly or indirectly held by any
Holding Company of the relevant party or (iv) any company or other
entity in which the relevant party directly or indirectly holds less
than 50% of the voting securities but has management control of such
company or entity in that it
<PAGE>
has the ability to appoint and remove the majority of the directors
of such company or entity.
(d) "Affiliated Distributor" shall have the meaning set forth in Section
1(mmm).
(e) "Alternate Cardiovascular Sealant Candidate" shall have the meaning
set forth in Section 4(b)(iii)(B).
(f) "Alternate Gastrointestinal Sealant Candidate" shall have the
meaning set forth in Section 4(b)(iv)(B).
(g) "Anti-Adhesion Product" shall have the meaning set forth in Section
4(b)(v)(A).
(h) "Anti-Adhesion Product Agreement" shall have the meaning set forth
in Section 4(b)(v)(A).
(i) "Applicable Forecast" shall have the meaning set forth in Section
7(d)(ii).
(j) "Audit Report" shall have the meaning set forth in Section 7(b)(ii).
(k) "Bankruptcy Event" shall mean the person or entity in question
becomes insolvent, or voluntary or involuntary proceedings by or
against such person or entity are instituted in bankruptcy or under
any insolvency law, or a receiver or custodian is appointed for such
person or entity, or proceedings are instituted by or against such
person or entity for corporate reorganization or the dissolution of
such person or entity, which proceedings, if involuntary, shall not
have been dismissed within sixty (60) days after the date of filing,
or such person or entity makes an assignment for the benefit of its
creditors, or substantially all of the assets of such person or
entity are seized or attached and not released within sixty (60)
days thereafter.
(l) "Cardiovascular Sealant Candidate" shall have the meaning set forth
in Section 4(b)(iii)(A).
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(m) "Cardiovascular "Studies" shall have the meaning set forth in
Section 4(b)(iii)(A).
(n) "Change in Control" shall mean (i) the liquidation or dissolution of
Focal or the sale or other transfer by Focal (excluding transfers to
subsidiaries) of all or substantially all of its assets; or (ii) the
occurrence of a tender offer, stock purchase, other stock
acquisition, merger, consolidation, recapitalization, sale or
transfer of assets, or other transaction as a result of which any
person, entity or group which is not a stockholder of Focal (or an
affiliate of any such stockholder) as of the date of this Agreement
(a "New Controlling Holder") (A) becomes the beneficial owner,
directly or indirectly, of securities of Focal representing more
than 50% of the ordinary shares of Focal or representing more than
50% of the combined voting power with respect to the election of
directors (or members of any other governing body) of Focal's then
outstanding securities, (B) obtains the ability to appoint a
majority of the Board of Directors (or other governing body) of
Focal, or (C) obtains the ability to direct the general operations
or management of Focal or any successor to Focal's business;
provided, however, that (x) a New Controlling Holder shall not
include, and a Change in Control shall not be deemed to exist on
account of the acquisition of Focal securities by, (1) Ethicon or
its Affiliates, or (2) any venture capital investor, financial
institution or any similar passive investor, and (y) in no event
shall a Change in Control be deemed to include the issuance by Focal
of equity to the public through a public offering or offerings.
(o) "Claims" shall have the meaning set forth in Section 7(g)(i).
(p) "Clinical Trials" shall mean that portion of the clinical
development program which generally provides for the introduction
into humans of a product or formulation with the purpose of
establishing the safety and/or efficacy for the desired claims and
indications.
(q) "Commercial Use" shall mean, with respect to any Product, the sale
by Ethicon, its Affiliates, licensees and/or assignees to
independent third parties or to an Affiliated Distributor.
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(r) [*]
(s) Conversion Right" shall have the meaning set forth in Section
3(d)(ii).
(t) "Delivery System" shall mean the devices, other than a Light System,
developed or obtained by Focal and/or Ethicon that are to be used in
the delivery of a Hydrogel Formulation (including but not limited to
syringes, syringe extensions, flow-through brushes and other
components).
(u) "Delivery System 1" shall mean the Delivery System that is specified
in [*]
(v) "Direct Costs" shall mean the cost of manufacture inclusive of
materials, direct labor, transport costs and an appropriate
allocation of production, warehousing, administration and technical
service overheads calculated in accordance with generally accepted
accounting practices.
(w) "Dural Sealant Formulation" shall mean the Hydrogel Formulation that
is specified in [*]
(x) "Dural Sealant Product" shall mean a product that consists of the
Dural Sealant Formulation and Delivery System 1.
(y) "EPC States" shall have the meaning set forth in Section 6(a)(i)(B).
(z) "Ethicon Delivery System" shall mean a Delivery System developed or
obtained by Ethicon that is to be used in the delivery of any
Hydrogel Formulation.
* Confidential treatment has been requested for marked portion
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(aa) "Ethicon Inventions" shall have the meaning set forth in Section
6(c)(ii).
(bb) "Ethicon Offer" shall have the meaning set forth in Section
3(e)(iii).
(cc) [*]
(dd) "Ethicon Standards" shall have the meaning set forth in Section
7(b)(ii)
(ee) "E.U." shall mean the European Union, as recognized as of the date
of this Agreement.
(ff) "Event of Default" shall have the meaning set forth in Section 8(f).
(gg) "Event of Force Majeure" shall have the meaning set forth in Section
9(h)(i).
(hh) "Existing Patents" shall mean Patents which exist or have been
applied for as of the date of this Agreement.
(ii) "FDA" shall mean the U.S. Food and Drug Administration, or any
successor agency thereto.
(jj) "Field" shall mean (i) all human intraoperative surgical sealing of
air and fluid leaks using any Hydrogel Polymer and (ii) [*]
provided, however, that the Field shall not include (A) the use of
any Hydrogel Polymer solely for purposes of drug delivery (it being
understood that drug delivery does not include medicated devices or
medical devices which are being promoted and sold as sealants), and
(B) the use of any Hydrogel Polymer for the prophylaxis, treatment
and/or inhibition of restenosis and/or stenosis.
* Confidential treatment has been requested for marked portion
-5-
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(kk) "First Commercial Sale" shall mean, with respect to a country, the
earlier of (i) the date on which Ethicon first sells a Product to a
third party in such country in the Territory pursuant to this
Agreement and (ii) the date that is six (6) months after the date on
which a Product receives Regulatory Approval in such country in the
Territory.
(ll) "Focal Counter Offer" shall have the meaning set forth in Section
3(e)(iv).
(mm) "Focal Delivery System" shall mean a Delivery System, other than
Delivery System 1 or the VATS Delivery System, developed or obtained
by Focal that is to be used in the delivery of any Hydrogel
Formulation.
(nn) "Focal Inventions" shall have the meaning set forth in Section
6(c)(i).
(oo) "Focal Patent Application" shall have the meaning set forth in
Section 6(a)(i).
(pp) "Force Majeure Notice" shall have the meaning set forth in Section
9(h)(i).
(qq) "Gastrointestinal Sealant Candidate" shall have the meaning set
forth in Section 4(b)(iv)(A).
(rr) "Gastrointestinal Studies" shall have the meaning set forth in
Section 4(b)(iv)(A).
(ss) "Holding Company" shall have the meaning set forth in Section 1(c).
(tt) "Hydrogel Formulation" shall mean the combination at specified
ratios and concentrations of a Hydrogel Polymer and, if applicable,
any solvents, initiators, stabilizers, excipients and any other
ingredients contained within a formulation.
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(uu) [*]
(vv) "Improved Formulation" shall mean a Hydrogel Formulation that (a) is
not the Lung Sealant Formulation or the Dural Sealant Formulation
but comprises the Hydrogel Polymer contained in the Lung Sealant
Formulation or the Dural Sealant Formulation, (b) does not contain a
biologically active ingredient (e.g.. a drug or medication), and (c)
is developed by Focal during the term of this Agreement to replace
the Lung Sealant Formulation or the Dural Sealant Formulation.
(ww) "Improved Product" shall mean any product that consists of (a) the
Lung Sealant Formulation or the Dural Sealant Formulation and a
Focal Delivery System or an Ethicon Delivery System, or (b) an
Improved Formulation and Delivery System 1, the VATS Delivery
System, a Focal Delivery System or an Ethicon Delivery System.
(xx) "Infringement Claim" shall have the meaning set forth in Section
6(b)(i).
(yy) "Infringement Notice" shall have the meaning set forth in Section
6(b)(ii)(A).
(zz) "Infringement Suit" shall have the meaning set forth in Section
6(b)(i)(C).
(aaa) "Initial Forecast" shall have the meaning set forth in Section 7(h).
(bbb) "Initial Product" shall mean (a) the Lung Sealant Product and/or (b)
the Dural Sealant Product.
* Confidential treatment has been requested for marked portion
-7-
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(ccc) "Joint Inventions" shall have the meaning set forth in Section
6(c)(iii).
(ddd) "Joint Invention Patent(s)" shall have the meaning set forth in
Section 6(c)(iii).
(eee) "Know-How" shall mean all know-how, including the Manufacturing
Technology, owned, controlled or acquired by Focal at any time prior
to or during the term of this Agreement, including without
limitation, processes, techniques, methods, products, software
(including the source code related thereto), components,
apparatuses, or chemical materials and other materials and
compositions, which (i) is related to any of the Products or (ii)
may be necessary to enable Ethicon to manufacture, develop, use or
sell the Products.
(fff) [*]
(ggg) "Lung Sealant Formulation" shall mean the Hydrogel Formulation that
is specified in [*]
(hhh) "Lung Sealant Product" shall mean a product that consists of the
Lung Sealant Formulation and Delivery System 1.
(iii) "Manufacturing Plan" shall have the meaning set forth in Section
7(b)(i).
(jjj) "Manufacturing Standards" shall have the meaning set forth in
Section 7(b)(ii).
(kkk) "Manufacturing Technology" shall mean, with respect to each Product,
the know-how, technical specifications, instructions, processes and
other intellectual property and information that (i) is owned,
controlled or acquired by Focal at any time prior to or during the
term of this Agreement, and (ii) is used or related to the
manufacture of
* Confidential treatment has been requested for marked portion
-8-
<PAGE>
such Product including, but not limited to, good manufacturing
procedures (such as FDA good manufacturing practices) and good
laboratory procedures, all such material to be in sufficient clarity
and detail to enable it to be followed by a skilled person.
(lll) "NAFTA" shall mean all of the United States, Canada and Mexico
(including any territories or possessions thereof), as the same
shall exist on the date of this Agreement.
(mmm) "Net Sales" shall mean, with respect to any Product, the amount
derived by Ethicon, its Affiliates, licensees and assignees from the
sale of such Product to independent third parties and/or to any
Affiliate of Ethicon acting as a distributor and/or wholesaler (an
"Affiliated Distributor"), in each case after (i) subtracting all
normal and customary discounts of any type or nature which are
provided solely in connection with such Product (such as cash
discounts, volume discounts, rebates, marketing subsidies and
credits), and (ii) taking into account all authorized returns of
such Product, provided, however, that in the case of sales or other
transfers to an Affiliated Distributor, such sales or transfers
shall, for the purpose of determining Net Sales, be deemed to be the
fair market value of such sales or transfers, where the fair market
value shall be determined from the sales of similar volumes of
similar Products to independent third parties. The parties
understand and agree that in calculating any royalties on Net Sales
payable by Ethicon under this Agreement, such calculations shall be
based upon either (A) sales or other transfers to independent third
parties, or (B) sales or other transfers to Affiliated Distributors,
but not both.
In the event that a Product is sold in the form of a combination
product, the amount invoiced for such Product shall be deemed to be
the invoiced price of such Product as if sold separately by Ethicon,
its Affiliates, licensees or assignees.
(nnn) "Net Selling Price" shall have the meaning set forth in Section
7(c)(ii)(E)(1).
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(ooo) "New Controlling Holder" shall have the meaning set forth in Section
1(n).
(ppp) "New Product" shall mean any product that (a) consists of a Hydrogel
Formulation with or without a Delivery System, (b) is not an Initial
Product or an Improved Product or a VATS Product, and (c) is
developed by Focal or jointly by the parties pursuant to this
Agreement for use in the Field in the Territory.
(qqq) "New Product Programs" shall have the meaning set forth in Section
4(b)(vii).
(rrr) "Notice Quarter" shall have the meaning set forth in Section
7(l)(ii)(B).
(sss) "Notification" shall have the meaning set forth in Section 3(e)(ii).
(ttt) "Patent(s)" shall mean (i) all the patents and applications for
patents, if any, that are identified in [*] any applicable foreign
counterparts thereof, as well as all continuations,
continuations-in-part, divisions and renewals thereof, and any
amendments and modifications thereto, and all patents which may be
granted thereon, and all reissues, reexaminations, extensions,
patents of addition and patent of importation thereof, (ii) any
patent application which is owned or otherwise controlled by Focal
and is related to or based on any Know-How that is developed during
the term of this Agreement, and any division, continuation or
continuation-in-part of any such application and any patent which
shall issue based on such application, divisional, continuation or
continuation-in-part, and any patent which is a reissue or extension
thereof or a patent of addition to any such patent, and (iii) all
patent applications and patents which are owned or otherwise
controlled by Focal and which, but for the license granted herein,
the manufacture or sale of a Product would infringe a Valid Claim.
(uuu) "PCT" shall have the meaning set forth in Section 6(a)(i)(A).
* Confidential treatment has been requested for marked portion
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(vvv) "Prime Rate" shall mean the highest Prime Rate of interest as quoted
in U.S. edition of The Wall Street Journal from time to time.
(www) "Product" shall mean (a) the Initial Products, (b) Improved
Products, (c) VATS Products, or (d) New Products.
(xxx) "Purchase Price" shall mean the price paid by Ethicon to Focal for a
Product manufactured by or for Focal and supplied to Ethicon
pursuant to Section 7.
(yyy) "Regulatory Approval" shall mean, with respect to any country,
filing for and receipt of all regulatory agency registrations and
approvals (including, but not limited to, approvals of all final
Product labelling) required for the marketing and sale of a Product
for the indication for which it is being marketed in such country.
With respect to the E.U., Regulatory Approval shall mean CE- Mark
certification for sale of the Product within all the applicable E.U.
countries.
(zzz) "Regulatory Filings" shall mean all applications, filings,
materials, studies, data and documents of any nature whatsoever
(including any supporting information related thereto) filed with,
or prepared in connection with, any Regulatory Approval process in
any country or territory.
(aaaa) "Requirements for Full Royalty" shall have the meaning set forth in
Section 6(d)(i)(A).
(bbbb) "Sales Threshold" shall have the meaning set forth in Section
3(d)(ii).
(cccc) "Secondary Facilities" shall have the meaning set forth in Section
7(b)(i).
(dddd) "Specifications" shall have the meaning set forth in Section
7(a)(ii)
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(eeee) "Territory" shall mean the entire world, excluding only NAFTA.
(ffff) "Trigger Date" shall have the meaning set forth in Section 3(d)(ii).
(gggg) "Triggering Event shall have the meaning set forth in Section
7(1)(ii)(A).
(hhhh) "Unremedied Facilities Deficiency" shall have the meaning set forth
in Section 7(b)(ii).
(iiii) "UT Agreement" shall mean that certain patent and technology
agreement between Focal (formerly known as Pegas) and the Board of
Regents of the University of Texas System dated as of June 11, 1992
with respect to Hydrogel Polymers.
(jjjj) "Valid Claim" shall mean any claim in (a) any unexpired patent
which has not been held invalid by a non-appealed or unappealed
decision by a court or other appropriate body of competent
jurisdiction, or (b) any patent application that is filed in good
faith and is pending in any national or regional patent office.
(kkkk) [*]
(llll) [*]
(mmmm) [*]
* Confidential treatment has been requested for marked portion
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SECTION 2
DISCLOSURES
Focal expressly understands and acknowledges that Ethicon is currently and in
the future will evaluate and/or pursue other business opportunities and products
for the medical sealant, adhesive and adhesion prevention markets. Ethicon in
its sole discretion may participate in these markets alone or in other business
or research arrangements with third parties, both now and during the term of
this Agreement. Focal acknowledges that the consideration contemplated by this
Agreement, including but not limited to, the financial considerations and the
other obligations to be undertaken by Ethicon as specified in this Agreement, is
complete and adequate consideration for Focal entering this Agreement.
SECTION 3
DISTRIBUTION AND LIMITED LICENSE RIGHTS
(a) Grant of Rights.
(i) Subject to the terms and conditions of this Agreement, Focal
hereby grants to Ethicon (A) an exclusive right and license,
under Patents and Know-How, to use (including the undertaking
of development work and the seeking of Regulatory Approval,
all as contemplated herein), market, advertise, promote,
distribute and sell the Products in the Field throughout the
Territory and (B) a right and license, under Patents and
Know-How, to make and have made the Products in the Field,
solely in accordance with the provisions of Section 7(l).
(ii) Ethicon shall have the right to grant sublicenses to any
Affiliate or to any third party with respect to any rights
conferred upon Ethicon under this Agreement; provided,
however, that any sublicense shall be subject in all respects
to the same terms, conditions and provisions contained in this
Agreement; and provided further, however, that Ethicon shall
not be entitled to sub-license in its entirety Ethicon's
rights and obligations under this Agreement (other than where
Ethicon has exercised its rights to manufacture Products
pursuant to this Agreement or
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in connection with a permitted assignment of this Agreement), such
sub-licensing being restricted to those countries in the Territory
where it is commercially desirable or necessary to sell the Products
through a third party or parties.
(b) Exclusivity Provisions.
(i) During the term of this Agreement and except as specifically
permitted in this Agreement, Focal shall not:
(A) with respect to the Territory, grant or license to or
otherwise permit any third party to (a) use, make, have
made, lease, sell or otherwise commercialize the
Products in the Field or (b) use the Know-How to make,
have made, use, lease or sell or otherwise commercialize
any product that competes with the Products in the
Field; and
(B) with respect to the Territory, (a) use, make, have made
lease, sell or otherwise commercialize the Products in
the Field or (b) use the Know-How to make, have made,
use, lease or sell or otherwise commercialize any
product that competes with the Products in the Field.
As used in subsections (A) and (B) above, the phrase
"competes with the Products" shall not be deemed to
refer to the occasional and sporadic off-label use of
products in the Field.
(ii) Except as may be contemplated by this Agreement, Focal shall
cooperate with Ethicon and take all actions reasonable and
appropriate to prohibit and prevent third parties, including
any licensee of Focal, from making, using, leasing or selling
any, product which uses the Know-How which is obtained from or
through Focal in competition with any Product in the Field,
including, without limitation, the termination of licenses and
contract rights.
(iii) Except as may be contemplated by this Agreement, Focal shall
not, with respect to any products which use the Know-How,
place on such product or its packaging any CE mark obtained in
connection with or related to any Product, or allow any such
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CE mark to be placed thereon, either by Focal or by any third
party.
(c) UT Agreement and Rights.
(i) Focal shall, at its own expense, take all such actions and
proceedings as shall be necessary to ensure that the UT
Agreement remains in force and effect and that Focal's rights
under the UT Agreement to the Know-How (to the extent such
rights are granted under the UT Agreement) shall remain in
full force and effect. In the event that Focal fails to take
any such actions and proceedings, Ethicon shall have the right
to require that Focal take, and Focal agrees to take all such
actions as Ethicon shall reasonably deem necessary or
desirable in order to ensure that the UT Agreement remains in
force and effect and that Focal's rights under the UT
Agreement to the Know-How shall remain in full force and
effect, including, but not limited to, the execution and
filing of any court-related filings and documents, the pursuit
of injunctive proceedings, and any similar measures. If the
Board of Regents of the University of Texas System gives Focal
notice under Article 4.6 of the UT Agreement, Focal shall
decide in 90 days whether to undertake reasonable efforts to
sponsor research toward developing such PRODUCT ( as defined
in the UT Agreement). If Focal decides not to undertake such
development, Focal should inform Ethicon of such notification
and allow Ethicon to pursue its rights to proceed with said
development.
(ii) Focal shall, within five business days after notice thereof,
provide written notice to Ethicon of any challenges or claims
with respect to the UT Agreement, or alleged breaches under
the UT Agreement.
(iii) Focal shall not allow or agree to any amendment, waiver or
modification to the UT Agreement (which amendment, waiver or
modification restricts, modifies or limits in any way
Ethicon's rights under this Agreement) without the prior
written consent of Ethicon.
(d) Obligations of Ethicon.
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(i) Upon receipt of all necessary and appropriate Regulatory
Approvals, Ethicon shall, in a manner generally consistent
with the manner in which Ethicon markets and sells its own
products, market and sell either (A) one Product for at least
two (2) different indications, or (B) at least two (2)
different Products, in either case, as applicable, for use as
human surgical sealants in the Field pursuant to this
Agreement.
(ii) In the event that (A) after the date of the fifth anniversary
of the First Commercial Sale of the first Product in the E.U.
(the "Trigger Date"), Ethicon sells a Competing Product in
either the E.U. or Japan and (B) it can be reasonably
demonstrated that the aggregate Net Sales in the Territory for
all the Products decrease by the Sales Threshold as a direct
result of Ethicon's sale of such Competing Product, then Focal
shall have the right to convert (the "Conversion Right") the
rights and licenses granted to Ethicon pursuant to Section
3(a) into co-exclusive (as to Focal only, acting directly or
indirectly through a distributor) rights, provided that the
Conversion Right shall not be applicable to [*]. For purposes
of this paragraph, the term "Sales Threshold" shall mean the
decrease, in any calendar year which commences on or after the
Trigger Date, in the aggregate Net Sales of all three products
by an amount greater than [*] when compared to the Net Sales
for the immediately previous calendar year. Exercise of the
Conversion Right by Focal shall be made in writing upon no
less than thirty (30) days prior notice to Ethicon. Upon
exercise of the Conversion Right, (A) with respect to Products
that are not supplied by Focal pursuant to Section 7, any
royalty that Ethicon is obligated to pay Focal pursuant to
Section 6(d) on the sale in the Territory of Products other
than [*]) shall be reduced by [*] and (B) with respect
to Products that are supplied by Focal pursuant to
Section 7, the Purchase Price that Ethicon is obligated to
pay Focal pursuant to Section 7(c)(ii) for Products (other
than [*]) shall be reduced by an amount equal to [*], if any,
that Ethicon would be obligated to pay Focal per unit
of such Product pursuant to Section 6(d) (exclusive
of any reduction pursuant to this Section 3(d)(ii)),
but for the fact that Focal is supplying such
Product to Ethicon pursuant to Section 7.
(e) [*]
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[*]
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[*]
SECTION 4
DEVELOPMENT AND REGULATORY PROCEDURES
(a) Advisory Board.
(i) Advisory Board Composition. The parties agree to form an
advisory board made up Of not more than four (4) individuals each
from Focal and Ethicon, which shall include Focal's President and a
Vice President of Ethicon (the "Advisory Board"). The Advisory Board
will meet from time to time to discuss the development and
regulatory programs for the Products. The location, time and length
of such meetings shall be agreed to by the parties. The Advisory
Board shall alternate the location of its meetings between the
facilities of each of the parties or by mutual agreement meet at
either facility or telephonically. Meetings of the Advisory Board
shall be held at least as frequently as once per calendar quarter.
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(ii) Advisory Board Responsibilities. The Advisory Board role shall
include (A) evaluating and determining which products to develop,
(B) reviewing the progress of the development of Products, (C)
reviewing the seeking of Regulatory Approval for the Products in the
Territory, (D) reviewing the expenditure of funding on all
development work by Focal under this Agreement, (E) discussing a
marketing strategy for NAFTA and the Territory with a goal to avoid
inconsistencies in the marketing of Products, and (F) reviewing the
initial marketing, selling and distribution plans for each Product
in the Territory.
(iii) Reports, Etc. Each party shall be responsible for submitting
appropriate reports to the Advisory Board with respect to the
progress of those aspects of the development of Products and/or the
Regulatory Approval progress of Products for which it has
responsibility. Such reports shall be submitted not less frequently
than quarterly outlining the progress of such party, and identifying
any significant issues which require the attention of the Advisory
Board.
(b) Development and Regulatory Approvals
(i) Lung Sealant Product.
(A) Focal shall, at its own expense and with the reasonable
cooperation of Ethicon, conduct those preclinical
studies and Clinical Trials, and undertake such product
development work, process development work and other
steps and actions, including preparation of
documentation and applications, as shall be reasonably
necessary to obtain, in as prompt a fashion as is
reasonably practicable, Regulatory Approval in the E.U.
of the Lung Sealant Product [*]. Although Focal shall
have the responsibility for conducting such work, it
shall give adequate and due consideration to Ethicon's
concerns and priorities in connection with such process.
As part of such work, Focal shall (1) develop a
preclinical prototype [*] and (2) evaluate a [*]
comprising such precinical prototype [*] System in a
relevant animal model.
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(B) Copies of all Regulatory Filings made by Focal in
connection therewith shall be provided to Ethicon within
fourteen (14) days after each such submission, and
Ethicon shall be permitted to use and cross-reference
such Regulatory Filings, solely in connection with
Ethicon's rights under this Agreement.
(C) Ethicon shall have responsibility for filing at its own
expense and in its own name (or that of its Affiliates)
The Regulatory Filings for Regulatory Approval of the
Lung Sealant Product in countries in the Territory
outside of the E.U. Ethicon agrees to make Regulatory
Filings for Regulatory Approval of the Lung Sealant
Product in the following countries: Japan, Brazil,
Australia, South Africa and such other countries in the
Territory outside of the E.U. as Ethicon shall
determine. Such Regulatory Filings shall be conducted in
accordance with Ethicon's normal and customary
procedures for the submission of regulatory filings. Any
Clinical Studies required in connection with such
filings which are in addition to those Clinical Trials
which are required to be conducted for purposes of U.S.
Regulatory Approval or CE marking shall be done at the
expense of Ethicon. Copies of all such Regulatory
Filings by Ethicon shall be provided to Focal within
fourteen (14) days after each such submission. Focal
shall provide to Ethicon all such assistance and
information as shall be reasonably necessary for Ethicon
to make such Regulatory Filings.
(ii) Dural Sealant Product.
(A) Focal shall, at its own expense and with the reasonable
cooperation of Ethicon, conduct those preclinical
studies and Clinical Trials, and undertake such product
development work, process development work and other
steps and actions, including preparation of
documentation and applications, as shall be reasonably
necessary to obtain, in as prompt a fashion as is
reasonably practicable, Regulatory Approval in the E.U.
of the Dural Sealant Product [*]. Although Focal shall
have the responsibility for conducting such work, it
shall give adequate and due consideration to
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Ethicon's concerns and priorities in connection with
such process.
(B) Copies of all Regulatory Filings made by Focal in
connection therewith shall be provided to Ethicon within
fourteen (14) days after each such submission, and
Ethicon shall be permitted to use and cross-reference
such Regulatory Filings, solely in connection with
Ethicon's rights under this Agreement.
(C) Ethicon shall have responsibility for filing at its own
expense and in its own name (or that of its Affiliates)
the Regulatory Filings for Regulatory Approval of the
Dural Sealant Product in countries in the Territory
outside of the E.U. Ethicon agrees to make Regulatory
Filings for Regulatory Approval of the Dural Sealant
Product in the following countries: Japan, Brazil,
Australia, South Africa and such other countries in the
Territory outside of the E.U. as Ethicon shall
determine. Such Regulatory Filings shall be conducted in
accordance with Ethicon's normal and customary
procedures for the submission of regulatory filings. Any
Clinical Studies required in connection with such
filings which are in addition to those Clinical Trials
which are required to be conducted for purposes of U.S.
Regulatory Approval or CE marking shall be done at the
expense of Ethicon. Copies of all such Regulatory
Filings by Ethicon shall be provided to Focal within
fourteen (14) days after each such submission. Focal
shall provide to Ethicon all such assistance and
information as shall be reasonably necessary for Ethicon
to make such Regulatory Filings. Although Ethicon shall
have the responsibility for obtaining such Regulatory
Approvals, it shall give adequate and due consideration
to Focal's concerns in connection with such process.
(iii) Cardiovascular Sealant.
(A) Focal shall, at its own expense and with the cooperation
and reasonable assistance of Ethicon, conduct those
animal studies (the "Cardiovascular Studies") as shall
be necessary to evaluate the effectiveness [*]
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[*]
(B) Within sixty (60) days after the completion of the
Cardiovascular Studies, the Advisory Board shall review
such studies and determine whether further development
work in connection with the Cardiovascular Sealant
Candidate should be undertaken. In the event that the
members of the Advisory Board agree that further
development work in connection with the Cardiovascular
Sealant Candidate should be undertaken, the Advisory
Board shall determine (1) which additional studies
should be undertaken in order to obtain sufficient
information to initiate Clinical Trials in the E.U. and
in Japan, and (2) how to proceed with the seeking of
Regulatory Approval for the Cardiovascular Sealant
Candidate as a Product in the Territory. Ethicon, at its
own expense, shall have the responsibility for
conducting the requisite development work and for
obtaining Regulatory Approval for the Cardiovascular
Sealant Candidate in the Territory; provided, however,
that Ethicon may, upon agreement by Focal, utilize
Focal's services for the performance of selected
development work, such development work to be provided
at cost by Focal. In the event that the members of the
Advisory Board agree that further development in
connection with the Cardiovascular Sealant Candidate
should not be undertaken but that the parties should
consider a program to develop a New Product for use as
an intraoperative surgical sealant in cardiovascular
surgery (an "Alternate Cardiovascular Sealant
Candidate"), then the parties shall discuss in good
faith the initiation of such program in accordance with
the provisions set forth in Section 4(b)(vii). In the
event that the parties have not agreed to initiate a
development program with respect to the Cardiovascular
Sealant Candidate or an Alternate Cardiovascular Sealant
Candidate within [*] after completion of the
Cardiovascular Studies, then Ethicon shall be entitled,
in its sole and unfettered discretion and at its own
expense, to undertake its own preclinical development,
clinical development, Regulatory Approval and/or
commercialization program with respect to the
Cardiovascular Sealant Candidate in the Territory, and
Focal shall be under no obligation to participate in
such program. Ethicon shall (1) have all
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rights to use Patents and Know-How for the sole purpose
of undertaking any such Ethicon program(s) with respect
to a Cardiovascular Sealant Candidate in the Territory,
(2) provide the Advisory Board with such information as
shall be necessary to enable the Advisory Board to
fulfill its responsibilities with respect to such
Cardiovascular Sealant Candidate under Section 4(a)(ii),
and (3) be obligated to pay Focal (i) the Purchase Price
of such Cardiovascular Sealant Candidate pursuant to
Section 7, if such Product is being supplied by Focal,
or (ii) if Focal is not supplying such Product to
Ethicon, royalties on the sales of such Cardiovascular
Sealant Candidate in the Territory pursuant to Section
6(d).
(iv) Gastrointestinal Sealant.
(A) Focal shall, at its own expense and with the cooperation
and reasonable assistance of Ethicon, conduct those
animal studies (the "Gastrointestinal Studies") as shall
be necessary to evaluate the effectiveness of [*]
(B) Within sixty (60) days after the completion of the
Gastrointestinal Studies, the Advisory Board shall
review such studies and determine whether further
development work in connection with the Gastrointestinal
Sealant Candidate should be undertaken. In the event
that the members of the Advisory Board agree that
further development work in connection with the
Gastrointestinal Sealant Candidate should be undertaken,
the Advisory Board shall determine (1) which additional
studies should be undertaken in order to obtain
sufficient information to initiate Clinical Trials in
the E.U. and in Japan, and (2) how to proceed with the
seeking of Regulatory Approval for the Gastrointestinal
Sealant Candidate as a Product in the Territory.
Ethicon, at its own expense, shall have the
responsibility for conducting the requisite development
work and for obtaining Regulatory Approval for the
Gastrointestinal Sealant Candidate in the Territory;
provided, however, that Ethicon may, upon agreement by
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Focal, utilize Focal's services for the performance of
selected development work, such development work to be
provided at cost by Focal. In the event that the members of
the Advisory Board agree that further development in
connection with the Gastrointestinal Sealant Candidate should
not be undertaken but that the parties should consider a
program to develop a New Product for use as an intraoperative
surgical sealant in gastrointestinal surgery (an "Alternate
Gastrointestinal Sealant Candidate"), then the parties shall
discuss in good faith the initiation of such program in
accordance with the provisions set forth in Section 4(b)(vii).
In the event that the parties have not agreed to initiate a
development program with respect to the Gastrointestinal
Sealant Candidate or an Alternate Gastrointestinal Sealant
Candidate within [*] after completion of the Gastrointestinal
Studies, then Ethicon shall be entitled, in its sole and
unfettered discretion and at its own expense, to undertake its
own preclinical development, clinical development, Regulatory
Approval and/or commercialization program with respect to the
Gastrointestinal Sealant Candidate in the Territory, and Focal
shall be under no obligation to participate in such program.
Ethicon shall (1) have all rights to use Patents and Know-How
for the sole purpose of undertaking any Ethicon programs(s)
with respect to a Gastrointestinal Sealant Candidate in the
Territory, (2) provide the Advisory Board with such
information as shall be necessary to enable the Advisory Board
to fulfill its responsibilities with respect to such
Gastrointestinal Sealant Candidate under Section 4(a)(ii), and
(3) be obligated to pay Focal (i) the Purchase Price of such
Gastrointestinal Sealant Candidate pursuant to Section 7, if
such Product is being supplied by Focal, or, (ii) if Focal is
not supplying such Product to Ethicon, royalties on the sales
of such Gastrointestinal Sealant Candidate in the Territory
pursuant to Section 6(d).
(v) Anti-Adhesion Products.
(A) [*]
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(B) [*]
(C) [*]
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[*]
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(vi) Improved Products. Provided that Ethicon (A) has not abandoned
the development, marketing and/or sale in the Territory of the
Lung Sealant Product and the Dural Sealant Product, and (B)
has not caused an Event of Default, Ethicon shall have the
right to develop, market and sell the Improved Products, if
any, under substantially equivalent terms and conditions as
those that apply to the Initial Products; provided, that
Ethicon shall bear all of the expense of conducting any,
preclinical and clinical development, and of obtaining the
Regulatory Approvals, required to commercialize any such
Improved Products in the Field in the Territory.
(vii) New Products. The Advisory Board shall meet no less frequently
than once every six (6) months to discuss programs utilizing
the Know-How to develop New Products ("New Product Programs").
Either Ethicon or Focal may propose New Product Programs. The
Advisory Board shall be responsible for developing plans, time
lines and budgets for any New Product Program, and obtaining
the required approvals to initiate such program. Although each
New Product Program shall be discussed and agreed to on an
individual basis, each such program shall follow these general
guidelines:
(A) Development of Hydrogel Polymers and Hydrogel
Formulations. Focal shall at all times be exclusively
responsible for the technical development of Hydrogel
Polymers and Hydrogel Formulations.
(B) Development of Delivery Systems; Preclinical Studies;
Clinical Studies; Regulatory Approval. Focal and Ethicon
shall agree on the division of labor appropriate for the
development of Delivery Systems, the conduct of
preclinical and clinical studies, and the pursuit of
Regulatory Approval.
(C) Development Funding.
1. New Product Programs that are approved by the
Advisory Board shall be funded as follows:
(a) [*] for New Product Programs that are
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intended to develop Products that shall be
marketed and sold in the Territory and
NAFTA, or
(b) [*] for New Product Programs that are
intended to develop Products that shall be
marketed and sold only in the Territory.
2. For development work conducted by Focal and funded
by Ethicon, Ethicon shall pay to Focal an amount
to be agreed upon by the parties, intended to
cover the direct and indirect expenses incurred by
Focal in the conduct of a New Product Program.
(D) Commercial Terms. Excluding the development funding set
forth above, the general commercial terms for Initial
Products shall also apply to New Products. The parties
agree, however, to negotiate in good faith a Purchase
Price and royalty rate for New Products which (a)
reflect the cost of manufacture of such New Product
relative to the projected commercial selling price and
(b) reasonably approximate the relative margins
contemplated for the, Initial Products.
(viii) Japan Regulatory Approval. Ethicon shall, at its own expense
and with the cooperation and reasonable assistance of Focal,
prepare such documentation and applications, and undertake
such other steps and actions, as shall be reasonably necessary
to obtain Regulatory Approval in Japan of the Lung Sealant
Product and the Dural Sealant Product. Copies of all
Regulatory Filings made by Ethicon in connection therewith
shall be provided to Focal within fourteen (14) days after
each such submission. Ethicon shall use reasonable efforts to
file for such Regulatory Approval for (A) the Lung Sealant
Product within [*] after the date that Focal submits the
clinical portion required for Regulatory Approval for such
Product in the E.U. and (B) the Dural Sealant Product
within [*] after the date that Focal submits the clinical
portion required for Regulatory Approval for such Product in
the E.U.; provided, however, that the dates for filing in
Japan set forth in (A) and (B) above are subject to adjustment
by mutual agreement of the parties [*]
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[*] In the event that Ethicon does not file for Regulatory
Approval in Japan for (1) the Lung Sealant Product within the
time period set forth in (A) above, and/or (2) the Dural
Sealant Product within the time period set forth in (B) above,
then (a) Focal shall have the fight to terminate the rights
and licenses granted to Ethicon pursuant to Section 3(a) with
respect to the Lung Sealant Product and/or the Dural Sealant
Product, as the case may be, in Japan, and (b) Ethicon shall
provide Focal with all pre-clinical, clinical and regulatory
data and materials that Ethicon owns or otherwise controls
that relate to the applicable Product and are useful in
obtaining Regulatory Approval for such Product in Japan and
shall grant Focal the right to utilize such pre-clinical,
clinical and regulatory data and materials to the extent
necessary to obtain such Regulatory Approval.
(ix) Failure by Focal to Pursue E.U. Regulatory Approvals.
(A) Ethicon's Right to Pursue Regulatory Approval. If (1)
Focal ceases active pursuit of Regulatory Approval for
the Lung Sealant Product or does not receive CE marking
for such Product [*], or (2) Focal ceases active pursuit
of Regulatory Approval for the Dural Sealant Product or
does not receive CE marking for such Product in the [*]
then Ethicon shall be given notice of such event by
Focal and Ethicon shall be entitled to take such steps
and actions as shall be necessary to obtain such
Regulatory Approval; provided, however, that the dates,
set forth in (1) and (2) above are subject to adjustment
by mutual agreement of the parties [*] Ethicon's
exercise of its right to pursue Regulatory Approval for
a given Initial Product in no way relieves Focal of its
obligations to pursue Regulatory Approval for any other
Initial Product under this Agreement, nor does Ethicon's
exercise of such rights for a given Initial Product
cause the provisions of subsection (B) below to apply to
any other Initial Product.
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(B) Consequences. In the event that Ethicon exercises its
right to pursue Regulatory Approval in the E.U. for the
Lung Sealant Product and/or the Dural Sealant Product,
then
1. if Focal is supplying such Product(s) to Ethicon
pursuant to Section 7 and, but for the fact that
Focal is supplying such Product(s), Ethicon would
be obligated to pay a royalty to Focal on the sale
of such Product(s) in the E.U. pursuant to Section
6(d), then the Purchase Price for such Product(s)
shall be (a) for such Product(s) purchased prior
to the second anniversary of the First Commercial
Sale of such Product(s), the price set forth in
Section 7(c)(ii)(A)(1), except that such price
shall be based upon [*] of the Net Selling Price
of such Product(s) [*] and (b) for such Product(s)
purchased on or after such second anniversary, [*]
of the Net Selling Price of such Product(s), but
in no event less than [*] per unit of such
Product(s);
2. if Focal is supplying such Product(s) to Ethicon
pursuant to Section 7 but Ethicon would not be
obligated to pay a royalty to Focal on the sale of
such Product(s) in the E.U. pursuant to Section
6(d) if Focal was not supplying such Product(s),
then the Purchase Price for such Product(s) shall
be (a) for such Product(s) purchased prior to the
second anniversary of the First Commercial Sale of
such Product(s), the price set forth in Section
7(c)(ii)(A)(1), except that such price shall be
based upon [*] of the Net Selling Price of such
Product(s) [*] and (b) for such Product(s)
purchased on or after such second anniversary,
[*] of the Net Selling Price of such Products(s),
but in no event less than [*] per unit of such
Product(s); and
3. if Focal is not supplying such Product(s) to
Ethicon pursuant to Section 7 and Ethicon is
obligated to pay a royalty to Focal on the sale of
such Product(s) in the E.U. pursuant to Section
6(d), then the royalty payable
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to Focal shall equal [*] of the Net Selling Price
of such Product(s).
In the event that Ethicon exercises its right to pursue
Regulatory Approval in the E.U. for a Product pursuant
to this Section 4(ix), Ethicon shall be entitled to
deduct from the Purchase Price for units of such Product
or from the royalty payable to Focal on the sale of
units of such Product, as the case may be, any
reasonable costs that Ethicon incurs in obtaining such
Regulatory Approval.
(x) U.S. Regulatory Approval. Focal shall use diligent efforts,
acting either by itself, through a clinical research
organization or, subject to the [*] with one or more third
parties, to pursue and obtain Regulatory Approval for the
Initial Products in the US. in as prompt a fashion as
reasonably possible. If Focal ceases active pursuit of
Regulatory Approval for an Initial Product in the U.S., then
Focal shall immediately notify Ethicon of such cessation and,
if it can be reasonably demonstrated that a failure to obtain
such Regulatory Approval is likely to have a material adverse
effect on Ethicon's rights in the Territory with respect to
any Initial Product, Ethicon shall, upon such cessation, be
entitled to take such steps and actions as shall be necessary
to obtain such Regulatory Approval. Focal acknowledges that
Ethicon's right to pursue Regulatory Approval for such Initial
Product in the U.S. in no way relieves Focal of its
obligations to pursue Regulatory Approval in the Territory for
the Products in the manner required by this Agreement.
(xi) Product Labeling. The parties acknowledge that the Products
sold in the Territory shall bear labels which prominently
display the name of Ethicon or its designated Affiliate. Focal
agrees that it shall provide such reasonable cooperation and
assistance to Ethicon as shall be necessary for Ethicon to
obtain any CE marking in its own name for any of the Products
to the extent necessary either (A) to enable the Products to
include the labeling set forth in the preceding sentence, or
(B) to enable Ethicon to effectively market the Products in
the E.U. (as shall be mutually agreed upon by the parties).
(c) Training. Focal, if requested, shall be responsible for providing
training on the Products to Ethicon's sales personnel. In addition,
Focal shall provide technical
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support at all customer conventions. Such training and support shall
be at levels and times reasonably agreed between the parties from
time to time and shall be at Ethicon's cost. Focal shall not be
obligated to provide training and support at levels beyond that
which its available personnel reasonably permits.
SECTION 5
MILESTONE PAYMENTS AND DEVELOPMENT FUNDING
(a) Milestone Payments. In consideration of Focal entering into this
Agreement, and of Focal's reaching certain milestones relating to
the Products, Ethicon shall pay to Focal the following payments:
(i) the sum of [*] due within seven (7) days of the execution of
this Agreement, to reimburse Focal for past research
expenditures relating to Products; and
(ii) the sum of [*] due within fourteen (14) days after receipt by
Ethicon of written verification that the Lung Sealant Product
has received CE marking necessary to market, distribute and
sell the Lung Sealant Product throughout the E.U.; and
(iii) the sum of [*] due within fourteen (14) days after receipt by
Ethicon of written verification that the Dural Sealant Product
has received CE marking necessary to market, distribute and
sell the Dural Sealant Product throughout the E.U., [*]
(b) Development Funding and Scientific Benchmark Payments. In
consideration of Focal entering into this
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Agreement, and of Focal's undertaking development activities
relating to Products, Ethicon shall provide Focal with the following
development funding and scientific benchmark payments:
(i) the sum of [*] to be paid in quarterly installments of
[*] each on the first business day of each calendar
quarter during 1997; and
(ii) the sum of [*] to be paid in quarterly installments of
[*] each on the first business day of each calendar
quarter during 1998.
SECTION 6
PATENTS AND INVENTIONS; ROYALTIES
(a) Patents.
(i) Prosecution. Focal and Ethicon agree that, with respect to any
patent application, contained in Patents, that is solely owned
or otherwise controlled by Focal (a "Focal Patent
Application"), the obligations and expenses of patent
prosecution and issuance shall be apportioned as follows:
(A) Focal agrees to file and to faithfully prosecute, at its
Sole expense, initial United States Focal Patent
Applications and any additional United States Focal
Patent Applications, divisionals, continuations,
continuations-in-part, reissues, reexaminations, and the
like, including Patent Cooperation Treaty ("PCT")
applications, but only to the extent necessary to
protect the rights in the Territory granted to Ethicon
under this Agreement.
(B) Focal shall file Focal Patent Applications at its own
expense in at least Japan, Canada, the European Patent
Convention states (the "EPC States"), Australia, Brazil
and South Africa, unless the parties agree in writing
that any such filings should not be made. In addition,
Focal agrees
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to designate and file in such other countries as the
parties shall mutually agree.
(C) Focal shall, within twenty (20) days of mailing or
receipt, provide Ethicon with copies of all future filed
Focal Patent Applications and all correspondence from
and to patent offices worldwide relating to both the
future filed Focal Patent Applications and any issued
patents based thereon, reexaminations, reissues or the
like.
(D) If Focal does not prosecute a Focal Patent Application
or obtain an issued patent based thereon, Focal shall so
notify Ethicon and Ethicon shall, in its sole
discretion, have the right to assume the prosecution of
such Focal Patent Application in the Territory at its
expense on a country by country basis for such Focal
Patent Application. In the event Ethicon elects to pay
such costs related to the prosecution of such Focal
Patent Application and obtains an issued patent based
thereon, it shall have the right to offset [*] of
such costs and expenses against any royalties which
become due under Section 6(d) in the country where
such patent is obtained.
(ii) Maintenance. Ethicon shall, in jurisdictions in the Territory,
have the duty and responsibility to pay or reimburse Focal for
all taxes, maintenance fees and annuities on all patents
contained in the Patents that are solely owned or otherwise
controlled by Focal.
(iii) Patent Term Extensions. The parties agree to cooperate in
order to avoid loss of any rights which may otherwise be
available to the parties under the United States Drug Price
Competition and Patent Term Restoration Act of 1984, to the
extent necessary to protect the rights in the Territory
granted to Ethicon under this Agreement, the Supplementary
Certificate of Protection of the Member States of the European
Community and other similar measures in any other country in
the Territory. Without limiting the foregoing, Focal agrees to
notify Ethicon promptly upon receipt of Regulatory Approval to
market a Product in the United States and Focal agrees to
timely file an application for patent extension within the
sixty (60) day period following such Regulatory Approval. The
same shall apply with respect to the approval by the Health
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Authorities in a country of the E.U. or approval by the
appropriate authorities in any other country in the Territory.
(b) Infringement.
(i) Infringement of Third Party Rights. If, as a result of the
manufacture, use or sale of any Product in any country of the
Territory, a third party sues, threatens to sue, or brings
other action for patent infringement against Focal or Ethicon
and/or any of their respective Affiliates (an "Infringement
Claim"), or if either party shall become aware of third-party
patent rights, Focal and Ethicon shall discuss in good faith
an appropriate response to such claim and shall determine by
mutual agreement an appropriate course of action.
(A) If an Infringement Claim exists with respect to an
Initial Product or an Improved Product that comprises
the Lung Sealant Formulation or the Dural Sealant
Formulation, and it is jointly determined in good faith
that a third-party patent poses a substantial risk to
such Initial Product or Improved Product in any country
in the Territory, then (1) Focal shall be responsible
for obtaining such license from such third-party and
shall pay all costs and fees associated with such
license, and (2) Ethicon shall have the right to suspend
performance of its obligations (other than payment
obligations arising prior to such suspension) with
respect to such Initial Product or Improved Product in
the country or countries in which such Infringement
Claim poses a substantial risk, such suspension right to
remain in effect until Focal obtains a license from such
third party or the Infringement Claim is otherwise
resolved to Ethicon's satisfaction. As used above, the
term "substantial risk" means that the claims of such
third-party patent cover, the manufacture, use or sale
of an Initial Product or Improved Product that comprises
the Lung Sealant Formulation or the Dural Sealant
Formulation.
(B) If an Infringement Claim exists with respect to a New,
Product or an Improved Product that does not comprise
the Lung Sealant Formulation or the Dural Sealant
Formulation, and it is jointly determined to be
necessary to obtain a license from such third party,
Focal and Ethicon shall be jointly responsible for
negotiating such license, it
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being understood that each shall make every effort to
minimize the license fees and/or royalty payable to such
third party, and each shall bear [*] of the costs and
fees associated with such license. In the event that
Ethicon shall be obligated to pay a license fee and/or
royalty to any such third party in any country of the
Territory, then Ethicon shall have the right to deduct
an amount equal to [*] of such payments made by Ethicon
to such third party (1) from any royalties payable to
Focal on the sale of such Product in such country
pursuant to Section 6(d), and (2) if Ethicon is paying
a Purchase Price to Focal for such Product pursuant to
Section 7, from that portion of such Purchase Price
equal to the royalty that would be payable to Focal
pursuant to Section 6(d) if Focal were not supplying
such a Product; provided, however, that in no event
shall such royalty or such portion of the Purchase Price
be reduced in any quarter by more than [*]. Any portion
of a deduction that is not available for the quarter due
to the foregoing limitation may be carried forward and
deducted from payments otherwise due hereunder for
subsequent quarters.
(C) [*]
(ii) Infringement by a Third Party.
(A) In the event that either party suspects or discovers
that there is infringement of a Patent in the Field in
the Territory involving a Product by a third party, the
party that suspects or discovers such infringement shall
notify
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the other in writing to that effect (an "Infringement
Notice"), including with said written notice evidence
establishing a case of infringement by such third party,
and an identification of the jurisdictions in the
Territory in which such infringement is alleged to have
occurred (the "Affected Territories").
(B) Ethicon shall have the right, but not the obligation, to
bring suit or other legal actions, in its own name and
on its own behalf to the extent permitted by the law of
the applicable jurisdiction, against any third party
infringers of the Patents in the Affected Territories.
If Ethicon undertakes such action against third party
infringers, Focal shall cooperate with Ethicon to the
extent necessary for the effective prosecution of such
action and shall, at Focal's election, either (A) join
as a party to such suit or other legal action, or (B)
take such other action as may be necessary to enable
Ethicon to bring such suit or other legal action. To the
extent that Focal is given the capacity under the UT
Agreement to take actions against third party
infringers, such capacity shall be made available to
Ethicon. The right of Ethicon to undertake action
against third party infringers shall terminate upon (A)
Ethicon notifying Focal that it is withdrawing from any
legal challenge or suit of such third party infringers,
(B) Ethicon notifying Focal that it has resolved such
alleged infringement or (C) Focal obtaining the right to
bring suit in its own name in accordance with Section
6(b)(ii)(C) below.
(C) Ethicon shall bear all the expenses of any infringement
suit either brought by it, or initiated by Focal or a
Focal licensee at Ethicon's behest, and shall, with
respect to any damages (i) be entitled to retain all
damages or other monies awarded or received in
settlement of such suit up to the amount required to
cover its reasonable out-of-pocket expenses in such suit
and (ii) with respect to any excess amounts, shall split
such remaining amount with Focal on the following basis
- [*] to Ethicon, [*] to Focal. Focal and/or its
Affiliates will cooperate with Ethicon in any such suit
and shall have the right to consult with Ethicon and be
represented by its counsel at its own expense. If,
within one hundred eighty (180) days, or a shorter
period if
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mandated by local law, from the date of delivery of the
Infringement Notice, Ethicon has not (A) notified Focal
that it is withdrawing from any legal challenge or suit
of such third party infringers, (B) notified Focal that
it has resolved such alleged infringement or a
discontinuance of such infringement, or (C) brought suit
against the third party infringer, then Focal shall have
the right, in its sole discretion, but not the
obligation, to bring such suit at its own expense and in
its own name, if possible. Focal shall bear all the
expenses of any suit brought by it and shall, with
respect to any damages, (i) be entitled to retain all
damages or other monies awarded or received in
settlement of such suit up to the amount required to
cover its reasonable out-of-pocket expenses in such suit
and (ii) with respect to any excess amounts, shall split
such remaining amount with Ethicon on the following
basis - [*] to Focal,[*] to Ethicon. Ethicon shall
cooperate with Focal in any such suit and shall have the
right to consult with Focal and be represented by its
counsel at its own expense.
(c) Inventions
(i) Title to any inventions or discoveries made by Focal employees
or its representatives (A) without inventive contribution of
Ethicon employees or agents, (B) without the use of Ethicon
information which, at the time of conception or reduction to
practice, constituted confidential information of Ethicon (as
defined in Section 9(a)(i)), and (C) based on any Know-How
related in any way to a Product and developed during Focal's
performance under this Agreement ("Focal Inventions") shall
belong to Focal.
(ii) Title to any inventions or discoveries made by Ethicon
employees or its representatives (A) without inventive
contribution by Focal employees or agents, (B) without the use
of Know-How which, at the time of conception or reduction to
practice, constituted confidential information of Focal (as
defined in Section 9(a)(i)), and (C) conceived and first
reduced to practice under this Agreement (hereinafter,
"Ethicon Inventions") shall belong to Ethicon. Ethicon may
file patent application(s) for Ethicon Inventions in its own
discretion and at its own expense.
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(iii) Any inventions or discoveries (A) conceived or reduced to
practice jointly by employees or agents of Focal and Ethicon
or (B) reduced to practice by employees or agents of Ethicon
and based on any Know-How which, at the time of such reduction
to practice, constituted confidential information of Focal (as
defined in Section 9(a)(i)) or (C) reduced to practice by
employees or agents of Focal and based on any information
which, at the time of such reduction to practice, constituted
confidential information of Ethicon (as defined in Section
9(a)(i)), shall belong to Focal and Ethicon jointly (the
"Joint Inventions"). Focal and Ethicon shall execute any
assignments necessary to effect the distribution of ownership
of joint Inventions specified in this Section 6(c)(iii). After
joint Inventions are reduced to practice, each party shall
have sole responsibility for filing, prosecuting and
maintaining applications or patents and local counterparts
thereof (the "Joint Invention Patent(s)") in its geographical
area (Territory or NAFTA, respectively) as defined under this
Agreement, but shall give full consideration to
recommendations of the other party, including selection of
attorney(s). Each party shall bear the expenses of filing,
prosecution and maintenance of joint Invention Patents in its
geographical area. If either party declines to file, prosecute
or maintain a joint Invention Patent in a jurisdiction in its
geographical area, it shall notify the other party in writing
before any applicable due date or other deadline and no later
than fifteen (15) days after such decision. The notified party
shall have the option to file, prosecute or maintain at its
expense on a country by country basis each such joint
Invention Patent. In that event, the party paying all the
costs and expenses shall cease to have any further obligation
under this Agreement to pay a royalty to the other party on
such joint Invention Patent in such country until the party
recovers half the total costs and expenses of such patent
filings, prosecution and maintenance.
(iv) Each party shall require its employees or agents responsible
for conducting research in performance of this Agreement to
keep contemporaneous records of their results and findings in
sufficient detail to document any inventions of discoveries
made by such employees and agents under this Agreement in
bound notebooks (which notebooks shall be reviewed and signed
by a witness on a regular basis).
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(v) Focal and Ethicon will cooperate in a timely manner to
prepare, review and execute patent applications and all such
further papers, as may be necessary to enable the parties to
protect joint Inventions by patent in any and all countries.
(vi) Ethicon hereby agrees that it shall not, except as permitted
under this Agreement, either alone or in collaboration with a
third party, market and/or sell any product in the Field in
NAFTA that embodies, and/or the manufacture of which utilizes,
a joint Invention. Focal hereby agrees that it shall not,
except as permitted under this Agreement, either alone or in
collaboration with a third-party, market and/or sell any
product in the Field in the Territory that embodies, and/or
the manufacture of which utilizes, a joint Invention. If (A)
Focal wishes to practice a patented Joint Invention in the
Field in NAFTA or (B) either party wishes to practice a
patented joint Invention outside the Field in NAFTA and/or the
Territory, the party practicing the patented Joint Invention
shall pay a royalty of [*] of the Net Sales of any product
covered by a joint Invention Patent (where Net Sales is
redefined for purposes of this paragraph to refer to the
amount invoiced on sales of any product covered by a joint
Invention Patent), unless said joint Invention is used solely
by a party in fulfilling its obligations under this Agreement;
provided, however, that if a party seeks to practice a
patented joint Invention for which it did not pay its share of
the cost and expenses, such party shall have to reimburse the
party that paid the costs and expenses [*] of the costs and
expenses incurred in the country or countries in which the
party seeking to practice the joint Invention will make, have
made, use, lease or sell any product covered by a joint
Invention Patent prior to practicing the patented Joint
Invention. A party practicing a joint Invention (1) shall only
be obligated to pay the [*] royalty with respect to sales in
those countries where the products being sold fall within a
Valid Claim under an issued patent included in joint Invention
Patents for such country and (2) shall not be obligated to pay
an amount greater than the [*] royalties irrespective of the
number of issued patents included in joint Invention Patents
that cover such product.
(d) Royalties on Products not Manufactured by or for Focal.
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(i) Initial Products. In the event that Ethicon assumes the
responsibility for the manufacture of an Initial Product
pursuant to Section 7(1), then Ethicon shall pay to Focal on a
country by country basis in the Territory the following
royalties:
(A) a royalty of [*] of Net Sales of an Initial Product in a
country, if the making, using or selling of such Initial
Product by Ethicon, its Affiliates or sublicensees, in
such country, (1) is covered by a Valid Claim of an
issued patent included in Patents, (2) is covered by a
Valid Claim of a patent application included in Patents;
provided, however, that if a patent based on such
application does not issue within [*] of the First
Commercial Sale of such Initial Product in such country,
then, commencing with the [*] Anniversary of such First
Commercial Sale, Ethicon shall pay to Focal the
royalties specified in Section 6(d)(i)(B) on the sale of
such Initial Product until such time, if ever, that a
patent based on such application issues, in which case
the royalty payable by Ethicon on the sale of such
Initial Product shall revert to the level specified in
this Section 6(d)(i)(A), or (3) would be covered by a
Valid Claim of an issued patent or patent application
included in Patents but for a joint decision by the
parties (other than where such decision was made on the
basis that the seeking of such a patent would not be
successful due to previously existing patents or prior
art) to not obtain or maintain a patent with respect to
such Initial Product in such country (collectively, the
"Requirements for Full Royalty").
(B) a royalty of [*] of Net Sales of an Initial Product in a
country, if the making, using or selling of such Initial
Product in such country does not meet any of the
Requirements for Full Royalty.
(ii) Improved Products. In the event that Ethicon assumes the
responsibility for the manufacture of an Improved Product
pursuant to Section 7(l), then Ethicon shall pay to Focal on a
country by country basis in the Territory royalties on the
sales of such Improved Product at rates that are substantially
equivalent to those set forth in Section 6(d)(i).
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(iii) New Products. In the event that Ethicon assumes the
responsibility for the manufacture of a New Product pursuant
to Section 7(l), then Ethicon shall pay to Focal on a country
by country basis in the Territory royalties on the sales of
such New Product at rates to be established in the New Product
Program.
(e) Duration of Royally Payments.
(i) With respect to each Product manufactured by or on behalf of
Ethicon (other than by Focal), the royalties payable to Focal
under Section 6(d) shall be paid for (A) a period of (1) [*]
years after the First Commercial Sale of such Product
(irrespective of who manufactures such Product) in the E.U.
with respect to sales in the E.U., or (2) [*] years after
the First Commercial Sale in Japan with respect to sales in
apart, or (3) in countries outside of Japan or the E.U., [*]
years after the First Commercial Sale in the E.U. or in Japan,
whichever is later, or (B) for as long as [*] whichever of (A)
or (B) is longer. In no event shall more than one royalty be
paid to Focal for the sales of any Product.
(ii) After payment of the royalties specified in Section 6(d) for
the periods of time specified in this Section 6(e) with
respect to a Product, the license rights of Ethicon granted
pursuant to Section 3(a) shall be fully paid up with respect
to such Product but not any other Product, subject, however,
to the provisions of Section 8(e).
(f) Royalty Payment Mechanics.
(i) All royalties payable pursuant to this Agreement shall be
subject to the provisions of this Section 6(f).
(ii) Royalties will be payable in United States Dollars calculated
at a rate of exchange of the currency of the country from
which the royalties are payable as shall be determined in
accordance with U.S. generally accepted accounting principles.
If the transfer or the conversion into United States Dollars
in any such instance is not lawful or possible, payment of the
royalties shall be made
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by the deposit to the account of the appropriate party or its
nominee in any commercial bank or trust company of its choice
located in that country, such deposit to be made in the
currency of the country where the sales were made on which the
royalty was based. Prompt notice of any such deposit shall be
given to the appropriate party.
(iii) If the applicable royalty rate exceeds the permissible rate
established in a given country for royalty payments in that
country or royalty remission from that country, as the case
may be, the rate of royalty payable by the party paying the
royalty shall not exceed the established permissible rate and
the party obligated to pay royalty under this Agreement shall
pay the difference between the royalty due and the royalty at
the established permissible rate, unless said payments made
outside the country are illegal.
(iv) Any tax required to be withheld by the party paying the
royalty or any Affiliate or sublicensee under the laws of any
foreign country for the account of the party owed the royalty
under this Agreement shall be promptly paid by the party
paying the royalty or said Affiliate or sublicensee for and on
behalf of the party owed the royalty to the appropriate
governmental authority, and the party paying the royalty or
its Affiliate or sublicensee shall furnish the party owed with
proof of payment of such tax together with official or other
appropriate evidence issued by the appropriate governmental
authority sufficient to enable the party owed the royalty to
document a claim for income tax credit in respect to any sum
so withheld. Any such tax required to be withheld shall be an
expense of and borne solely by the party owed the royalty.
(v) The party paying the royalty shall keep accurate books and
records of all payments due to the party owed the royalty.
Said books of account shall be kept at the party paying the
royalty's principal place of business or the principal place
of business of an appropriate Affiliate or sublicensee to
which this Agreement relates.
(vi) The party owed the royalty shall have the right to nominate an
independent accountant acceptable to and approved by the party
paying the royalty (which approval shall not be unreasonably
withheld) who shall have access to the records of
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the party paying the royalty during reasonable business hours
for the purpose of verifying, at the party owed the royalty's
expense (except as provided below), the royalty payable as
provided for in this Agreement for the two (2) preceding
years, but this right may not be exercised more than once in
any year. The party owed the royalty shall solicit or receive
only information relating to the accuracy of the royalty
report and the royalty payments made. The party paying the
royalty shall be entitled to withhold approval of an
accountant which the party owed the royalty nominates unless
the accountant agrees to sign a confidentiality agreement with
the party paying the royalty which shall obligate such
accountant to hold the information he receives from the party
paying the royalty in confidence, except for information
necessary for disclosure to the party owed the royalty
necessary to establish the accuracy of the royalty reports.
Any underpayment of royalty shall be paid within thirty (30)
days after the delivery of a detailed written accountants
report to the party paying the royalty. Any overpayment of
royalty shall be credited to the next royalty payment due from
the party paying the royalty. If no further royalty payments
will be due then a refund will be made within thirty (30) days
of the audit. In the event any such audit reveals a shortfall
in paid royalties by an amount of five percent (5%) or more,
then the costs of the accountant employed in order to perform
such audit shall be reimbursed by the party owing the royalty.
(vii) In the event that a party owes a royalty, such party shall
deliver to the party owed the royalty written reports of Net
Sales during the preceding calendar quarter, on or before the
ninetieth (90th) day following the end of each calendar
quarter. In the event that a party owes a royalty for sales
made by its Affiliate or its sublicensee, such party shall
deliver to the party owed the royalty written reports of Net
Sales for such Affiliate or sublicensee during the preceding
calendar quarter, on or before the ninetieth (90th) day
following the end of each calendar quarter. Such reports shall
include a calculation of the earned royalty due and shall be
accompanied by the monies due.
(viii) In the event that a party is late in making payment of any
royalty obligation, interest shall accrue at the Prime Rate
from the date such payment was due.
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SECTION 7
SUPPLY AGREEMENT
(a) Exclusive Supply of Products; Specifications.
(i) Focal shall have the right and shall manufacture the Products
exclusively on behalf of Ethicon for resale by Ethicon in the
Territory during the term of this Agreement, or until such time as
Ethicon shall take over all or part of the manufacturing pursuant to
this Agreement. Except as specifically provided by the provisions of
this Agreement, Ethicon shall exclusively acquire the Products from
Focal during the term of this Agreement.
(ii) The Initial Product preliminary specifications, from which the
detailed final specifications for each Product shall be derived, are
set out on [*]. No less than [*] days prior to the placement of
the first order for each Initial Product, Ethicon and Focal shall
mutually agree upon the final specifications ("Specifications") for
such Initial Product. Such Specifications shall become a part of
this Agreement and be attached as [*] hereof.
(iii) Specifications for each Product that is not an Initial Product shall
be mutually agreed upon by Ethicon and Focal no less than [*]
days prior to the placement of the first order for each such
Product. Such Specifications shall become part of this Agreement and
be attached as [*] hereof.
(iv) All Products supplied to Ethicon hereunder shall be supplied in a
finished and sterile form, as may be specified. Products shall be
supplied in packaging which is suitable for delivery to the ultimate
end-user of the Products. The packaging and sterilization
requirements shall be specified in the Specifications.
(b) Production Facilities and Capabilities
(i) Within ninety (90) days after the execution and delivery of this
Agreement, Focal shall submit to Ethicon [*]
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manufacturing capability plan (the "Manufacturing Plan") for
completing implementation of procedures and facilities for producing
the Products which satisfy both the volume, specifications and other
supply requirements of this Section 7. The Manufacturing Plan shall
include commercially appropriate plans (including scheduled
availability thereof) which provide for alternative manufacturing
facilities (the "Secondary Facilities") in the event Focal's primary
manufacturing facility is incapable (either by reason of force
majeure or otherwise) of supplying the Products as anticipated under
this Agreement. Ethicon shall promptly review the Manufacturing Plan
and discuss with Focal changes, if any, required to meet the supply
obligations set forth in this Section 7.
(ii) Ethicon shall have the right, upon reasonable advance notice and
during regular business hours, to inspect and audit the facilities
(including the Secondary Facilities) to be used or being used by
Focal for the manufacture of the Products to assure compliance by
Focal with (A) the requirements of the Manufacturing Plan, (B) the
CE Mark procedures, (C) FDA Good Manufacturing Practices, (D) the
Ethicon manufacturing standards (the "Ethicon Standards") (as set
out in [*]), (E) all federal, state, local and comparable
foreign rules and regulations directly applicable to the manufacture
of products and manufacturing facilities, and (F) the requirements
of this Section 7 and Section 8(a)(i) (collectively, the
"Manufacturing Standards"). With respect to each Initial Product,
such inspections and audits may be conducted by Ethicon once during
the six (6) month period immediately preceding the anticipated First
Commercial Sale of each such Initial Product and no more than once
quarterly after the First Commercial Sale of such Initial Product.
Such inspections and audits shall be conducted in a manner so as to
minimize disruption of Focal's business operations. If any of such
inspections and audits reveal that the manufacturing facilities are
not adequate to meet the requirements of the Manufacturing
Standards, then Ethicon shall promptly provide Focal with written
notice of such fact, which notice shall contain in reasonable detail
the deficiencies found in the manufacturing facilities and, if
practicable, those steps Focal should undertake in order to remedy
such deficiencies (an "Audit Report"). Focal shall use its best
efforts to remedy any such deficiencies within ninety (90) days of
its receipt of an Audit Report. In the event that, within such
ninety (90) day period, Focal fails to remedy any such
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deficiencies that could reasonably result in the failure by Focal to
supply a Product in accordance with the requirements of this Section
7 and Section 8(a)(i) (an "Unremedied Facilities Deficiency"), then
Ethicon shall have the right to assume the responsibility for the
manufacture of such Product pursuant to the provisions of Section
7(1)(ii)(A). Notwithstanding the foregoing, Ethicon's right to
assume the responsibility for the manufacture of a Product pursuant
to the provisions of Section 7(1)(ii)(A) shall not be triggered by
Focal's failure to comply with any requirements set forth in new
general Ethicon manufacturing standards that are not included in the
Ethicon Standards that are set forth in [*] as of the effective
date of this Agreement for that period of time generally
permitted other third party manufacturers of Ethicon to comply
with such new requirements.
(c) Purchase Prices
(i) Products not Intended for Commercial Use.
(A) Initial Products. Focal shall provide to Ethicon reasonable
quantities of an Initial Product that is not intended for
Commercial Use at a cost equal to Focal's Direct Cost to
supply such Initial Product; provided, however, that Ethicon
shall not pay Focal less than [*] per unit or per unit or more
than [*] per unit for such Initial Product.
(B) Improved Products. Focal shall provide to Ethicon reasonable
quantities of an Improved Product that is not intended for
Commercial Use at a cost equal to Focal's Direct Cost to
supply such Product; provided, however, that Ethicon shall not
pay to Focal less than $P per unit or more than $Q per unit
for such Improved Product, where P and Q shall be determined
through a good faith negotiation between the parties.
(C) New Products. Focal shall provide to Ethicon reasonable
quantities of a New Product that is not intended for
Commercial Use at a cost to be established in the New Product
Program.
(ii) Products Intended for Commercial Use.
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(A) Initial Products.
1. The Purchase Price for Initial Products intended for
Commercial Use purchased prior to that date which is the
second anniversary of the First Commercial Sale of the first
Initial Product in any country in the E.U. shall equal [*] of
the Net Selling Price of such Initial Product; provided,
however, that if Focal's Direct Cost of supplying such Initial
Product to Ethicon is greater than [*] of the Net Selling
Price of such Initial Product, then the Purchase Price shall
equal [*]. Notwithstanding the foregoing, and any provision
in this Agreement pursuant to which the Purchase Price is
subject to a reduction, in no event shall the Purchase Price
be less than [*] per unit of such Initial Product.
2. The Purchase Price for Initial Products intended for
Commercial Use purchased on or after that date which is the
[*] of the First Commercial Sale of the first Initial Product
in any country in the E.U. shall be (a) the applicable
percentage of the Net Selling Price of such Initial Product
set forth in [*], if (1) but for the fact that Focal is
supplying such Initial Product, Ethicon would be obligated to
pay a royalty to Focal on the sale of such Initial Product in
the Territory pursuant to Section 6(d) and (2) the making,
using or selling of such Initial Product in a country in the
Territory meets any of the Requirements for Full Royalty, or
(b) the applicable percentage of the Net Selling Price of such
Initial Product set forth in [*], if (1) but for
the fact that Focal is supplying such Initial Product, Ethicon
would be obligated to pay a royalty to Focal on the sale of
such Initial Product in the Territory pursuant to
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Section 6(d) and (2) the making, using or selling of such
Initial Product does not meet any of the Requirements for Full
Royalty or (c) [*] of the Net Selling Price of such Initial
Product, if Ethicon would not be obligated to pay a royalty to
Focal on the sale of such Initial Product in the Territory
pursuant to Section 6(d) if Focal was not supplying such
Initial Product. Notwithstanding the foregoing, and any
provision in this Agreement pursuant to which the Purchase
Price is subject to a reduction, in no event shall the
Purchase Price be less than [*] per unit of such Initial
Product.
(B) Improved Products. The Purchase Price for each Improved
Product intended for Commercial Use shall be calculated using
percentages of the Net Selling Price of such Improved Product
that are substantially equivalent to those set forth in [*].
(C) New Products. The Purchase Price for each New Product intended
for Commercial Use shall be established in the New Product
Program.
(D) Delivery System. The parties acknowledge and agree that
Ethicon shall have the right to purchase Delivery Systems
directly from a third party manufacturer and/or to provide
such Delivery Systems itself, but only to the extent that the
manufacture, use or sale of such Delivery System is not
covered by a Valid Claim of a Patent. In the event Ethicon so
elects to obtain or provide a Delivery System, the parties
shall negotiate in good faith an equitable adjustment to the
Purchase Price to take into account any modification in the
costs incurred by Focal as a result thereof.
(E) Calculation of Purchase Price.
1. The net selling price ("the "Net Selling Price") for an
Initial Product shall be calculated by dividing the
aggregate Net Sales for such Initial Product (based upon
the Products shipped by Ethicon, its Affiliates or
licensees to customers during such previous
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calendar quarter), divided by the number of units of
such Initial Product so shipped by Ethicon, its
Affiliates or licensees, exclusive of units of such
Product that are not intended for Commercial Use.
2. Calculation of the Purchase Price shall be made based
upon the forecasts provided pursuant to Section 7(h).
Ethicon shall provide to Focal no later than the
ninetieth (90th) day after the end of each calendar
quarter Ethicon's calculation of the actual Net Selling
Price for each Product for such quarter. If such
calculation indicates that the aggregate Net Selling
Price of a Product exceeded the forecasted aggregate Net
Selling Price during such calendar quarter, then Ethicon
shall submit the underpaid amount to Focal when it
provides such calculation to Focal. If such calculation
indicates that the aggregate Net Selling Price of a
Product was less than the forecasted aggregate Net
Selling Price during such calendar quarter, then Focal
shall issue a check to Ethicon within ten (10) business
days of receipt of such calculation of the overpaid
amount or, at Focal's option, Focal may credit such
amount against purchases under this Agreement.
3. The Purchase Price for Products will be payable in
United States Dollars calculated at a rate of exchange
of the currency of the country in which the Products are
sold, as shall be determined in accordance with U.S.
generally accepted accounting principles. If the
transfer or the conversion into United States Dollars in
any such instance is not lawful or possible, payment of
the Purchase Price shall be made by deposit to the
account of the appropriate party or its nominee in any
commercial bank or trust company of its choice located
in that country, such deposit to be made in the currency
of the country where the sales were made on which the
Purchase Price was based. Prompt notice of any such
deposit shall be given to the appropriate party.
4. In the event that, as a result of significant currency
fluctuations, the financial return to either Ethicon or
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Focal is significantly different than had been
anticipated by the parties, either party may request
that the parties discuss in good faith revisions to the
financial terms of this Agreement intended to address
the situation, provided that neither party shall be
obligated to agree to any such revisions.
(d) Shipment and Purchase Orders.
(i) All shipments of Products shall be F.O.B. to a single Ethicon
designated facility located in NAFTA unless otherwise agreed by the
parties, and shall be accompanied by a packing slip which describes
the Products and states the purchase order number. To the extent of
any conflict or inconsistency between this Agreement and any
purchase order, purchase order release, confirmation, acceptance or
any similar document, the terms of this Agreement shall govern.
(ii) Ethicon shall, by the first business day of each calendar month,
provide purchase orders to Focal for Ethicon's Product requirements
for that calendar month which is two (2) months after the date such
purchase order is provided. Ethicon shall at all times be obliged to
purchase the quantity of the Products requested in such purchase
orders. Focal shall not be obligated to supply in any month a number
of units of a Product that is greater than [*] of the number of
units of such Product specified in the Applicable Forecast (as
defined below), and Ethicon shall be obligated to issue purchase
orders to Focal and to purchase at least [*] of the number of units
of such Product specified in the Applicable Forecast. As used
herein, the term "Applicable Forecast" means the forecast relating
to a specific month provided by Ethicon pursuant to Section 7(h)
four months prior to such month. For example, if the forecast
provided on January 1 specified [*] units of a particular Product
for shipment in the following May (which January forecast is the
Applicable Forecast in May), then Focal is not obligated to supply
more than [*] units of such Product in May, and Ethicon shall be
obligated to issue purchase orders and purchase at least [*] units
of such Product in May.
(iii) Ethicon will make payment upon any ordered Products within thirty
(30) days of receipt of the relevant shipment of such
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Products. Payments made past the due date shall accrue interest at
the Prime Rate from the date such payment was due.
(e) Minimum Purchases.
(i) Following the [*] of the First Commercial Sale in any country within
the E.U. of an Initial Product following receipt of E.U. Regulatory
Approval, Ethicon agrees to purchase from Focal the following
minimum unit quantities of Product per year for the term of this
Agreement:
(A) [*] of Product, if only one Initial Product has received
Regulatory Approval in the Territory and such Regulatory
Approval is for a single indication, or
(B) [*] of Product, if one Initial Product has received Regulatory
Approval in the Territory for more than one indication, or if
more than one Initial Product has received Regulatory Approval
in the Territory.
(ii) Ethicon shall not be considered as having failed to meet the
purchase minimums (A) in the event such failure is a result of
Focal's failure to supply a Product under this Agreement, (B) in the
event of a recall or government initiated action with respect to a
Product or (C) in the event that Ethicon fails to meet the purchase
minimum as set forth in this Section 7(e) for an Initial Product in
a given year but pays Focal during such year an amount equal to the
product of the Purchase Price for such Initial Product multiplied by
(M-A), where M is the minimum unit quantity of such Initial Product
that Ethicon is obligated to purchase from Focal during such year
and A is the number of units of such Initial Product that Ethicon
actually purchased from Focal during such year.
(iii) In the event that Ethicon does not meet the applicable annual
purchase minimums set forth in this Section in any calendar year
commencing after the [*] anniversary referred to in subsection (i)
above, then Focal's sole and exclusive remedy shall be [*] (it being
specifically understood that such failure to meet the
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annual purchase minimums shall not be considered to be an Event of
Default under this Agreement).
(f) Packaging.
(i) Packaging and labelling requirements for the Products shall be part
of the Specifications for each particular Product. In addition, from
time to time, Ethicon may submit changes to such packaging and
labelling specifications should Ethicon determine such changes are
necessary or desirable; provided that Focal shall only be obligated
to incur the expenses necessary to provide a single version of the
packaging and/or labelling materials for a Product, unless otherwise
agreed by the parties, but shall be obligated to provide additional
versions of the packaging and/or labelling materials [*]. Any
packaging and labelling requirements must be commercially reasonable
in light of Ethicon's then-existing packaging practices.
(ii) Focal acknowledges that Ethicon is the exclusive owner of and has
all rights to the trademarks, copyrights, plans, ideas, names,
slogans, artwork and all other intellectual property that appear on
or are otherwise used by Ethicon in connection with the marketing of
Products. Ethicon acknowledges that such ownership rights do not
extend to Focal's proprietary formulae or other proprietary
information. All trademarks to be used by Ethicon and/or its
Affiliates in connection with the Products shall be chosen by
Ethicon and/or its Affiliates in their sole discretion.
(iii) Ethicon shall have the option, but not the obligation, to use the
names "FocalSeal" and/or "Focal" in connection with the marketing,
distribution, promotion, advertising and sale of any Product,
provided that if Ethicon uses "FocalSeal" and/or "Focal" as a
trademark on a Product not manufactured by Focal, then, as a
condition to such use, the parties shall agree upon customary
quality control provisions in accordance with applicable trademark
laws. Any such use shall be without charge or cost to Ethicon, and
shall be subject to such reasonable written guidelines as to such
usage as Focal may elect to provide.
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(g) Product Defects and Warranties.
(i) Unless otherwise agreed in writing in any specific instance,
delivery of any Products by Focal to Ethicon shall constitute a
certification by Focal that the Products conform to the
Specifications and were manufactured in accordance with the
Manufacturing Standards. After delivery of a shipment of any
Products to Ethicon, Ethicon shall have thirty (30) days to examine
the Products to determine if they conform to the Specifications and,
on the basis of such examination, to accept or reject such shipment.
Any claims for failure to so conform ("Claims") shall be made by
Ethicon in writing to Focal during such thirty (30) day period,
indicating the nonconforming characteristics of the Products.
(ii) If Focal agrees with such Claim, then within thirty (30) days after
the submission of a Claim by Ethicon, Focal shall, at Ethicon's
option, provide Ethicon (i) with a credit against future billings
equal to the full amount paid by Ethicon for such Products or (ii)
replacement Products, if available. Focal shall pay for all shipping
costs of returning or destroying Products that are the subject of
such accepted Claims. Focal shall bear the risk of loss for such
Products, beginning at such time as they are taken at Ethicon's
premises for return delivery.
(iii) If Focal does not agree with such Claim, then the parties agree to
submit the Products in question to an independent party which has
the capability of testing the Products to determine whether or not
they comply with the Specifications. In the event the parties cannot
agree upon such independent party, or in the event it is not
possible to acquire the services of such an independent party, then
such dispute shall be resolved pursuant to Section 9(m).
(h) Forecasts. During the term of this Agreement, Ethicon shall provide to
Focal no later than the first day of each month a non-binding good faith
estimate by month of Ethicon's requirements for the Products for the
twelve (12) month period which commences one calendar month after the date
on which each forecast is due. In addition, Ethicon shall provide an
initial guidance forecast ("Initial Forecast") no later than six (6)
months prior to the estimated date of First Commercial Sale of a Product.
Such forecast shall be
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updated no later than three (3) months prior to such estimated date.
(i) Short-Shipments. Ethicon shall notify Focal of any short-shipment claims
within thirty (30) days of receipt of a shipment of Products.
(j) Adverse Events; FDA Audits.
(i) The parties recognize that the holder of all regulatory filings and
registrations may be required to submit information and file reports
to various governmental agencies on Products under clinical
investigation, Products proposed for marketing, or marketed
Products. Consequently, each party agrees to provide to the other
notification as soon as practicable, but in any event within seven
(7) days of the initial receipt of a report of any adverse
experience with a Product that is serious. Serious adverse
experiences mean any experience that suggests a significant hazard,
contraindication, side effect or precaution, or any experience that
is fatal or life threatening, is permanently disabling or requires
or prolongs inpatient hospitalization.
(ii) Focal shall promptly provide to Ethicon copies of any FDA or
Regulatory Agency inspection reports related to Focal's facilities
or to the manufacture of Products that it receives from such
agencies.
(iii) Ethicon shall promptly provide to Focal copies of any medical device
reviews filed with nominated E.U. competent authorities.
(iv) Focal shall promptly notify Ethicon of any FDA inspections of its
facilities related to the manufacture of Products.
(k) Recalls.
(i) In the event any governmental agency having applicable jurisdiction
shall order any corrective action with respect to a Product supplied
hereunder (including any recall of any product containing a
Product), customer notice, restriction, change, market action or any
Product change, and the cause of such corrective action is due to a
breach by Focal of any of its
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warranties, representations, obligations or covenants contained
herein, then Focal shall be liable, and shall reimburse Ethicon for
the reasonable costs of such action, including the cost of any
Product affected by such action whether or not such particular
Product shall be established to be in breach of any warranty by
Focal hereunder; provided, however, that Ethicon shall be obligated
to use reasonable efforts that are consistent with Ethicon's normal
business practice to minimize the cost of any such action.
(ii) In the event that Ethicon determines to undertake any recall of any
Product supplied hereunder (including any recall of any product
containing a Product), customer notice, restriction, change,
corrective action or market action or any Product change, and the
cause of such corrective action is due to a breach by Focal of any
of its warranties, representations, obligations or covenants
contained herein, then Focal shall be liable, and shall reimburse
Ethicon for the reasonable costs of such action, including the cost
of any Product affected by such action whether or not such
particular Product shall be established to be in breach of any
warranty by Focal hereunder; provided, however, that Ethicon shall
be obligated to use reasonable efforts that are consistent with
Ethicon's normal business practice to minimize the cost of any such
action.
(l) Ethicon Manufacturing.
(i) Transfer of Manufacturing Rights. Upon the occurrence of a
Triggering Event, Ethicon shall have the right to assume the
responsibility for the manufacture of the applicable Product(s). In
the event that Ethicon exercises its right to manufacture such
Product(s) pursuant to this Section 7(1), (A) Ethicon shall have a
royalty-bearing (in accordance with the terms of Section 6(d))
license, under Patents, Know-How and Manufacturing Technology for
the sole purpose of making and having made such Product(s) in the
Field throughout the Territory, (B) Ethicon shall have the right to
use and cross-reference Focal's Regulatory Filings with respect to
such Product(s) and (C) Focal shall provide, at Ethicon's cost, such
reasonable assistance and other information as shall be necessary in
order for Ethicon to manufacture or have manufactured such
Product(s).
(ii) Triggering Events.
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(A) Failure by Focal to Supply. As used in this Agreement, the term
"Triggering Event" means (1) an Unremedied Facilities Deficiency or
(2) that an Event of Default caused by Focal (which Event of Default
has not been cured within thirty (30) days after receipt of notice
thereof, subject to the proviso below) results in the failure by
Focal to supply Product(s) to Ethicon in accordance with the supply
obligations set forth in Section 7 and Section 8(a)(i) (provided
that if such Event of Default occurs within the first twelve (12)
months following the First Commercial Sale of the first Product and
Focal's failure to supply Products does not exceed by more than [*]
the quantity of the Product Focal is obligated to supply, Focal
shall have an additional sixty (60) days in which to diligently
attempt to remedy such Event of Default). Upon the occurrence of a
Triggering Event, Ethicon shall have the right to assume
responsibility for the manufacture of the applicable Product(s)
during the term of this Agreement. In the event that Ethicon assumes
the responsibility for the manufacture of such Product(s) pursuant
to this Section 7(1)(ii)(A), then (1) the provisions of Section 7
shall no longer be applicable to such Product(s), (2) Ethicon shall
pay Focal a royalty on the sale of such Product(s) in accordance
with the terms of Section 6(d); provided, however, that the rate
used to calculate the royalty on the sale of any Initial Product
shall be reduced to [*] and (3) Ethicon shall be entitled to deduct
from royalties payable to Focal pursuant to Section 6(d) [*].
(B) [*]
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[*]
(C) Change in Control. Upon a Change in Control, Ethicon shall have the
right to assume responsibility for the manufacture of any and all
Products during the term of this Agreement. In the event that
Ethicon exercises its right to manufacture a Product(s) pursuant to
this Section 7(1)(ii)(C), then (1) the provisions of Section 7 shall
no longer be applicable to such Product(s), (2) Ethicon shall pay
Focal a royalty on the sale of such Product(s) at the applicable
rate set forth in Section 6(d) and (3) Ethicon shall not be entitled
to deduct from the royalties payable to Focal pursuant to Section
6(d) any costs which Ethicon incurs in assuming such manufacturing
responsibility.
(D) Force Majeure. In the event that an Event of Force Majeure results
in an interruption in the supply of Product(s) by Focal to Ethicon
that continues unabated for a period of sixty (60) days or longer,
then Ethicon shall have the right to assume responsibility for the
manufacture of such Product(s), but only for so long as such Event
of Force Majeure prevents Focal from supplying such Product(s) to
Ethicon in accordance with the terms of this Agreement and subject
always to the last sentence of this paragraph. In the event that
Ethicon assumes the responsibility for the interim manufacture of
such Product(s) pursuant to this Section 7(l)(ii)(D), then (1) the
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provisions of Section 7 shall not be applicable to such Product(s)
during the period of time when Ethicon is responsible for such
manufacture, (2) Ethicon shall pay Focal a royalty on the sale of
such Product(s) at the applicable rate set forth in section 6(d) and
(3) Ethicon shall be entitled to deduct [*] of the direct costs
which Ethicon incurs in assuming such manufacturing responsibility
(it being understood that direct costs are intended to include the
costs of acquisition of facilities or equipment necessary for such
manufacture but are not intended to include the acquisition of raw
materials or normal and customary labor costs involved in such
manufacturing) (a) from royalties payable to Focal pursuant to
Section 6(d), or (b) in the event that Focal has resumed the
manufacture of Product(s) under this Section 7(1)(ii)(D), from that
portion of the Purchase Price equal to the royalty that would be
payable to Focal pursuant to Section 6(d) if Focal were not
supplying such Product(s), provided, however, that in no event shall
such royalty or such portion of the Purchase Price be reduced in any
quarter by more than [*] provided further that any portion of a
deduction that is not available for the quarter due to the foregoing
limitation shall be carried forward and deducted from payments
otherwise due hereunder for subsequent quarters. Notwithstanding the
foregoing, Focal's right to resume the manufacture of Product(s)
under this Section 7(1)(ii)(D) shall always be subject to the terms
and conditions of any agreement between Ethicon and a third party
with respect to the interim manufacture of Product(s) entered into
during the period when Ethicon was responsible for such manufacture,
it being acknowledged that the terms and conditions which Ethicon
agrees to shall be determined in Ethicon's sole discretion, provided
that Ethicon, in negotiating such terms and conditions, shall
consider in good faith the expected length of the interruption in
Focal's ability to supply Product(s) as a result of the Event of
Force Majeure.
(E) Manufacture by Ethicon by Agreement Upon mutual agreement by the
parties, Ethicon shall have the right to assume responsibility for
the manufacture of any and all Products. In the event that Ethicon
exercises its right to manufacture Product(s) pursuant to this
Section 7(l)(ii)(E),
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then (1) the provisions of Section 7 shall no longer be applicable
to such Product(s), (2) Ethicon shall pay Focal a royalty on the
sale of such Product(s) at the applicable rate set forth in Section
6(d), and (3) Ethicon shall not be entitled to deduct from the
royalties payable to Focal pursuant to Section 6(d), any costs which
Ethicon incurs in assuming such manufacturing responsibility.
(iii) Manufacturing Technology Escrow. The parties shall enter into an
escrow agreement within sixty (60) days after the date of this
Agreement (to be attached to this Agreement as [*]) with a
mutually acceptable escrow agent. Focal shall deposit the
Manufacturing Technology (such material to be updated no less than
annually and upon any material change therein) with respect to a
Product in an escrow account with such escrow agent within the
thirty (30) day period immediately preceding the anticipated
Regulatory Approval of such Product in the Territory. All fees of
the escrow agent associated with such escrow shall be shared equally
by the parties. Such Manufacturing Technology shall be released to
Ethicon only upon the occurrence of a Triggering Event. In the event
the escrow agreement is terminated, the parties shall enter into a
new escrow agreement with another mutually agreeable escrow agent.
(m) Light System. The parties acknowledge and agree that Ethicon shall have
the right to purchase light Systems directly from a third party
manufacturer. In the event that Ethicon elects to purchase Light Systems
from Focal, such purchases shall be on the following terms:
(i) Purchase Price. The purchase price for each Light System purchased
from Focal shall be equal to [*]. In the event that suppliers of a
Light System require advance deposits with purchase orders for such
Light System, Ethicon shall arrange for timely payment of such
deposits either directly or through Focal, at Ethicon's option.
(ii) Shipment and Purchase Orders. Given that the estimated time from the
date of Focal's purchase order for a Light System to
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receipt of such Light System at Focal is [*], Ethicon shall order
each Light System as far in advance as possible, but no earlier than
[*] days from the required delivery date. a addition, Ethicon shall
estimate the number of Light Systems it requires for use during the
initial twelve (12) months from first commercial sale of such Light
Systems in the Territory, and place orders for such quantities no
less than [*] days prior to the anticipated first commercial sale.
(iii) Warranties. Focal warrants that the Light System shall be free from
defects in workmanship or material for a period of one (1) year from
the date of receipt of such Light Systems by Focal. Focal's warranty
for light bulbs contained in the Light System shall be limited to
six (6) months from date received by Focal. If any Light System does
not conform to the above warranty, Focal shall be obligated to
repair or replace such Light System at its own expense, and ship
such repaired or replacement Light System back to either Ethicon or
the applicable customer at its own expense. All defective Light
Systems returned to Ethicon by customers which are covered by the
foregoing warranty shall be shipped to Focal at Focal's expense for
such repair or replacement.
(iv) Servicing. Focal shall provide directly or through a third party,
after-warranty servicing of the Light Systems. All service costs
provided by Focal or its designated service representative shall be
billed to the customer by Ethicon and Ethicon shall reimburse Focal
for all such service costs within thirty (30) days after the receipt
of payment by the customer for such servicing.
SECTION 8
GENERALLY APPLICABLE TERMS
(a) Representations and Warranties.
(i) Focal represents and warrants to Ethicon that:
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(A) each Product supplied by Focal pursuant to this Agreement
shall be (i) manufactured in accordance with the
Specifications, the Manufacturing Standards and applicable
Regulatory Approvals for such Product, and (ii) free from
defects in materials, design or workmanship;
(B) each Product sold to Ethicon by Focal pursuant to this
Agreement shall be free and clear of all liens, claims and
encumbrances of any nature;
(C) to Focal's knowledge, as of the effective date of this
Agreement, the manufacture, use or sale of the Initial
Products does not infringe any valid, issued patents or
copyrights, or involve misappropriation of any trade secrets
or proprietary rights of any person;
(D) to Focal's knowledge, as of the effective date of this
Agreement, with respect to the Products, there are no pending
or threatened suits, claims, or actions of any type whatsoever
asserted against Focal;
(E) as of the effective date of this Agreement, (i) the UT
Agreement is in full force and effect; (ii) to Focal's best
knowledge, the UT Agreement is not subject to any challenge,
claim, breach, default or other similar action or threat
thereof, (iii) Focal, and to Focal's best knowledge, UT, is in
compliance in all material respects with the UT Agreement, and
(iv) Focal has not received any communication related to the
UT Agreement which may materially impact Focal's rights
thereunder or Ethicon's rights under this Agreement;
(F) all presently filed Patents having claims covering or related
to the manufacture, sale or distribution of the Initial
Products are listed in [*];
(G) all necessary corporate and other authorizations, consents and
approvals which are necessary or required for the entering
into of this Agreement have been duly obtained; and
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(H) the entering into of this Agreement by Focal will not (i)
violate any provision of U.S., state or local law, statute,
rule or regulation or any ruling, writ, injunction, order,
judgment or decree of any court, administrative agency or
other governmental body or (ii) conflict with or result in any
breach of any of the terms, conditions or provisions of, or
constitute a default (or give rise to any right of
termination, cancellation or acceleration) under, or result in
the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Focal,
under its organizational documents, as amended to date, or any
material note, indenture, mortgage, lease, agreement
(including, but not limited to, the UT Agreement), contract,
purchase order or other instrument, document or agreement to
which Focal is a party or by which it or any of its properties
or assets is bound or affected.
(ii) Ethicon represents and warrants to Focal that:
(A) all necessary corporate and other authorizations, consents and
approvals which are necessary or required for the entering
into of this Agreement have been duly obtained; and
(B) the entering into of this Agreement by Ethicon will not (i)
violate any provision of U.S., state or local law, statute,
rule or regulation or any ruling, writ, injunction, order,
judgment or decree of any court, administrative agency or
other governmental body or (ii) conflict with or result in any
breach of any of the terms, conditions or provisions of, or
constitute a default (or give raise to any right of
termination, cancellation or acceleration) under, or result in
the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Ethicon
under its organizational documents, as amended to date, or any
material note, indenture, mortgage, lease, agreement,
contract, purchase order or other instrument, document or
agreement in which Ethicon is a party or by which it or any of
its properties or assets is bound or affected.
(iii) Disclaimer. THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS
AGREEMENT ARE IN LIEU OF ALL
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OTHER REPRESENTATIONS AND WARRANTIES. FOCAL AND ETHICON DISCLAIM ALL
OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, WITH RESPECT TO
PRODUCTS, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL EITHER FOCAL OR
ETHICON BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL CONSEQUENTIAL OR
PUNITIVE DAMAGES ARISING OUT OF THIS AGREEMENT BASED ON CONTRACT,
TORT OR ANY OTHER LEGAL THEORY.
(b) Indemnification. In order to distribute among themselves the
responsibility for claims arising out of this Agreement, and except
as otherwise specifically provided for herein, the parties agree as
follows:
(i) Focal agrees to defend and indemnify and hold Ethicon harmless
against any and all claims, suits, proceedings, expenses,
recoveries and damages, including court costs and reasonable
attorneys fees and expenses, arising out of, based on, or
caused by, the breach by Focal of any representation or
warranty contained in this Agreement, in each case except to
the extent that such arise from or are aggravated by acts of
or failure to act by Ethicon. Ethicon will promptly notify
Focal of any such claim or demand which comes to its
attention.
(ii) Ethicon agrees to defend and indemnify and hold Focal harmless
against any and all claims, suits, proceedings, expenses,
recoveries, and damages including court costs and reasonable
attorneys fees and expenses, in connection with any of the
Products sold by Ethicon or its Affiliates arising out of,
based on, or caused by (A) statements, whether written or
oral, made or alleged to be made by Ethicon or its Affiliates
on the packaging or labelling of any of the Products, or in
the advertising, publicity, promotion, or sale of any of the
Products, (B) the manufacture, storage, sale, shipment,
promotion or distribution of the Products by Ethicon or its
Affiliates, or (C) the breach by Ethicon of any representation
or warranty contained in this Agreement, in each case except
to the extent that such arise from or are aggravated by acts
of or failure to act by Focal. Focal will promptly notify
Ethicon of any such claim or demand which comes to its
attention.
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(c) Other Responsibilities of Focal. During the term of this Agreement,
Focal shall:
(i) Refer to Ethicon all customers' inquiries and correspondence
which it receives relating to the sale of the Products in the
Territory, as well as all correspondence or communications it
receives with respect to any malfunction or failure of any
Product;
(ii) Make available to Ethicon such information and knowledge in
Focal's possession concerning the Products, their qualities
and uses, as will aid Ethicon in improving the sales of
Products;
(iii) Adhere to all law, rules and regulations applicable to the
manufacture and supply of the Products under this Agreement.
(d) Insurance. Focal agrees to procure and maintain in full force and
effect during the term of this Agreement valid and collectible
insurance Policies in connection with the supply of Products
pursuant to this Agreement, which policies shall provide for the
type of insurance and amount of coverage described in [*],
Upon Ethicon's request, Focal shall provide to Ethicon a certificate
of coverage or other written evidence reasonably satisfactory to
Ethicon of such insurance coverage.
(e) Term.
(i) This Agreement shall remain in effect for a period of ten
(10) years from the date of this Agreement and may be renewed
thereafter for successive additional periods of one (1) year
each by Ethicon upon at least ninety (90) days' notice prior
to the expiration of the applicable period; provided, however,
that, unless terminated earlier by Ethicon in accordance with
the terms of this Agreement, solely for purposes of that part
of the Territory covered by the E.U., the exclusivity of the
Patent and Know-How licenses granted pursuant to Section
3(a)(i) shall remain exclusive only for (A) ten (10) years
from the date of First Commercial Sale in the E.U. of any
Product manufactured by or on behalf of Ethicon with respect
to Know-How and (B) for the life of any Existing Patents
issued in the applicable E.U. country with respect to such
Existing Patent.
* Confidential treatment has been requested for marked portion
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(ii) In addition to the foregoing, Ethicon may terminate this
Agreement upon written notice to Focal on or after the third
anniversary of this Agreement upon no less than 12 month's
prior written notice to Focal.
(iii) Focal expressly acknowledges that the termination provisions
contained in this Section 8(e) are reasonable, considering the
intended nature and scope of this Agreement, and considering
the investments and undertakings required on the part of
Ethicon in connection herewith.
(f) Events of Default. The occurrence of any one or more of the
following acts, events or occurrences shall constitute an ""Event of
Default" under this Agreement.
(i) either party becomes the subject of a Bankruptcy Event; or
(ii) either party breaches any material provision of this Agreement
and fails to remedy such default within thirty (30) days after
receipt of notice thereof; provided, however, and subject to
Section 7(1)(ii)(A)(2), that in the event of such a breach
which cannot be remedied within such thirty (30) day period,
so long as the breaching party is diligently attempting to
remedy such breach, an Event of Default shall not have
occurred until three (3) months after notice of such breach
(unless such breach is cured during such period).
(g) Certain Rights After an Event of Default. In addition to those
rights which may be available at law or equity, the following
additional rights shall be available upon the occurrence of an Event
of Default under this Agreement or in the event that Focal
terminates this Agreement pursuant to Section 7(e)(iii):
(i) If the Event of Default is caused by Ethicon, Focal may
terminate this Agreement upon written notice thereof to
Ethicon. Upon termination of this Agreement by Focal upon the
occurrence of an Event of Default or pursuant to Section
7(e)(iii), Ethicon shall have one hundred eighty (180) days in
which to sell out its stock of any Products it possesses or
has committed to purchase under this Agreement, unless Focal
has
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<PAGE>
informed Ethicon in such termination notice that it desires to
purchase such stock. In the event Focal provides such notice,
Focal shall repurchase such stock (except for stock which is
required by Ethicon in order to fill purchase orders received
prior to the termination of the Agreement) at Ethicon's landed
cost (the Purchase Price, plus all shipping, handling, customs
and other costs incurred by Ethicon to have such Product reach
Ethicon's facilities). In addition, upon any such termination
Focal shall have the right to cross-reference any Regulatory
Approval held in the name of Ethicon.
(ii) If the Event of Default is caused by Focal, Ethicon may, in
its discretion, either (i) terminate this Agreement in its
entirety or (ii) if the Event of Default arises out of a
breach by Focal of the supply obligations with respect to a
Product set forth in Section 7, assume the responsibility for
the manufacture of such Product pursuant to Section
7(1)(ii)(A).
SECTION 9
MISCELLANEOUS
(a) Confidentiality; Press Releases.
(i) Ethicon and Focal will be exchanging information relating to
the Products at the inception of and from time to time during
the term of this Agreement. Any such information which is
considered by the disclosing party to be confidential will be
identified in writing as confidential information or, if
disclosed orally or in another non-written manner, shall be
confirmed in writing as being confidential promptly after the
disclosure thereof. The party receiving such information will
maintain the information in confidence using the same standard
of care it uses to maintain its own information in confidence.
Such obligation of confidentiality shall not apply to
information which (i) is known to the receiving party prior to
the disclosure, (ii) is publicly known as of the date of the
disclosure, (iii) becomes publicly known after the date of
disclosure through no fault of the receiving party, (iv) is
received from a third party who has no obligation of
confidentiality to the disclosing party or (v) is developed
independently by the receiving party. Such
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<PAGE>
obligation of confidentiality shall continue for a period of
seven (7) years from the date of disclosure of the
confidential information.
(ii) Notwithstanding the foregoing Section 9(a)(i), Ethicon shall
be permitted to disclose to its wholesalers and other direct
customers such confidential information relating to the
Products as Ethicon shall reasonably determine to be necessary
in order to effectively market and distribute the Products,
provided that such entities undertake the same confidentiality
obligation as Ethicon has with respect to Focal's confidential
information.
(iii) Neither party will originate any publicity, news release, or
other public announcement, written or oral, whether to the
public press or otherwise, relating to any amendment hereto or
to performance hereunder or the existence of an arrangement
between the parties, without the prior written approval of the
other party, such approval not to be unreasonably withheld.
(iv) Neither party shall use the name of the other for advertising
or promotional claims without the prior written consent of the
other party.
(b) Survival. Those provisions of this Agreement dealing with rights and
obligations upon and/or after termination of this Agreement shall
survive termination of this Agreement to the extent necessary to
give effect to such provisions.
(c) Penalties. If either party terminates this Agreement in accordance
with the terms herein, the terminating party shall owe no penalty or
indemnity to the terminated party on account of such termination.
(d) Independent Contractor. Focal is an independent contractor and shall
have no authority to obligate Ethicon in any respect nor hold itself
out as having any such authority. All personnel of Focal shall be
solely employees of Focal and shall not represent themselves as
employees of Ethicon.
(e) Binding Effect; Benefits; Assignment.
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<PAGE>
(i) This Agreement shall enure to the benefit of and be binding
upon the parties hereto and their respective permitted
successors and assigns. Nothing contained herein shall give to
any other person any benefit or any legal or equitable right,
remedy or claim.
(ii) Anything contained herein to the contrary notwithstanding,
this Agreement shall not be assignable by Focal, without the
prior written consent of Ethicon, except that with respect to
the assignment of this Agreement to an Affiliate of Focal,
such consent will not be unreasonably withheld.
(iii) Ethicon shall be permitted to assign all or part of this
Agreement (i) to any Affiliate of Ethicon with an emphasis on
intraoperative wound closure upon written notice to Focal,
(ii) upon the sale of all or substantially all of the assets
or business of Ethicon, to the successor of such assets or
business upon written notice to Focal, and (iii) to such other
Affiliate of Ethicon or third party as Ethicon shall
determine, such assignment to be subject to Focal's consent,
such consent not to be unreasonably withheld. In the case of
all such assignments, such assignment shall be subject to the
assignee agreeing in writing to assume the benefits and
obligations of this Agreement.
(f) Entire Agreement, Amendments. This Agreement and the other writings
referred to herein or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with respect
to its subject matter. This Agreement may be amended only by a
written instrument duly executed by the parties hereto. To the
extent of any conflict or inconsistency between this Agreement and
any purchase order, purchase order release, confirmation, acceptance
or any similar document, the terms of this Agreement shall govern.
(g) Remedies. Unless otherwise expressly provided, all remedies
hereunder (including, but not limited to, those remedies provided
for in Section 8(g) hereof), are cumulative, are in addition to any
other remedies provided for by law and may, to the extent permitted
by law, be exercised concurrently or separately, and the exercise of
any one remedy shall not be deemed to be an election of such
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<PAGE>
remedy or to preclude the exercise of any other remedy.
(h) Force Majeure.
(i) The obligations of Focal and Ethicon hereunder shall be
subject to any delays or non-performance caused by acts of
God, earthquakes, fires, floods, explosion, sabotage, riot,
accidents; orders of, or failure to issue all necessary
permits or licenses by, regulatory, governmental, or military
authorities; strikes, lockouts or labor trouble; perils of the
sea; or any other similar cause beyond the reasonable control
of either party (an "Event of Force Majeure"), and each party
shall be under no liability to the other for anything which
would constitute a breach of this Agreement arising by reason
of such matters. If either party is unable to perform one of
its obligations under this Agreement as a result of an Event
of Force Majeure, it shall so notify the other party in
writing as soon as reasonably practicable, but in no event
later than ten (10) days following the date by which such
obligation was to have been fulfilled (a "Force Majeure
Notice"). The party which is not performing its obligation
under this Agreement as a result of an Event of Force Majeure
shall use diligent efforts to resume compliance with this
Agreement as soon as possible. Should the Event of Force
Majeure continue unabated for a period of thirty (30) days or
more, the parties shall enter into good faith discussions with
a view to alleviating its affects or to agreeing upon such
alternative arrangements as may be fair and reasonable having
regard to the circumstances prevailing at that time.
(ii) In the event that such alternative arrangements cannot be
agreed upon with thirty (30) days after occurrence of the
Event of Force Majeure, and in the event such Event of Force
Majeure does not result in an interruption of supply to
Ethicon or its Affiliates of the Products in accordance with
the terms of this Agreement, then the non-performing party
shall continue to diligently attempt to alleviate such Event
of Force Majeure until it is removed or eliminated.
(i) Notices. All notices, claims, certificates, requests, demands and
other communications hereunder shall be in writing and shall be
delivered personally or sent by facsimile transmission, air courier,
or registered or certified
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<PAGE>
mail, return receipt requested, addressed as follows:
if to Focal to:
Focal, Inc.
Four Maguire Road
Lexington, Massachusetts 02173
Attention: President
Fax: 617-280-7802
with a copy to:
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Attention: Steven D. Singer, Esq.
Fax: 617-526-5000; and
if to Ethicon to:
Ethicon, Inc.
Route 22
Somerset, New Jersey 08876
Attention: Vice President, Growth Technologies
and New Business Development
Fax: 1-908-218-3492
with a copy to:
Office of General Counsel
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933 U.S.A.
Fax: 1-908-524-2788;
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<PAGE>
or to such other address as the party to whom notice is to be given
may have furnished to the other parties in writing in accordance
herewith. Any such communication shall be deemed to have been
delivered (i) when delivered, if delivered personally, (ii) when
sent (with confirmation received), if sent by facsimile transmission
on a business day, (iii) on the first business day after dispatch
(with confirmation received), if sent by facsimile transmission on a
day other than a business day, (iv) on the third business day after
dispatch, if sent by air courier, and (v) on the seventh business
day after mailing, if sent by mail.
(j) Waivers. It is further understood and agreed that no failure or
delay by either party hereto in exercising any right, power or
privilege under this Agreement shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or
further exercise of any right, power or privilege hereunder.
(k) Counterparts. This Agreement may be executed in any number of
counterparts, and execution by each of the parties of any one of
such counterparts will constitute due execution of this Agreement.
Each such counterpart hereof shall be deemed to be an original
instrument, and all such counterparts together shall constitute but
one agreement.
(l) Headings. The article and section headings contained in this
Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
(m) Governing Law; Dispute Resolution.
(i) Excepting only actions and claims relating to actions
commenced by a third party against Focal or Ethicon
(including, without limitation, actions for injuries caused by
a Product, or in respect to a patent infringement claim), any
controversy or claim arising out of or relating to this
Agreement, or the parties' decision to enter into this
Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the arbitration rules of the
American Arbitration Association, and judgment upon the award
rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
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<PAGE>
(ii) The arbitration shall be held before a panel of three (3)
arbitrators, one each being selected by Focal and Ethicon, and
the third being selected by such two arbitrators. Arbitration
shall be in the Borough of Manhattan, New York City, New York,
and the arbitrators shall apply the substantive law of the
State of New Jersey.
(iii) It shall be the duty of the arbitrators to set dates for
preparation and hearing of any dispute and to expedite the
resolution of such dispute. The arbitrators shall permit and
facilitate discovery, taking into account the needs of the
parties and the desirability of making discovery expeditious
and cost-effective. The arbitrators will set a discovery
schedule with which the parties will comply and attend
depositions if requested by either party. The arbitrators will
entertain such presentation of sworn testimony or evidence,
written briefs and/or oral argument as the parties may wish to
present; however, no testimony or exhibits will be admissible
unless the adverse party was afforded an opportunity to
examine such witness and to inspect and copy such exhibits
during the pre-hearing discovery phase. The arbitrators shall
among his other powers and authorities, have the power and
authority to award interim or preliminary relief.
(iv) The arbitrators shall not award either party punitive damages
and the parties shall be deemed to have waived any right to
such damages. A qualified court reporter will record and
transcribe the proceedings. The decision of the arbitrators
will be in writing and judgment upon the award by the
arbitrators may be entered into any court having jurisdiction
thereof. Prompt handling and disposal of the issue is
important. Accordingly, the arbitrators are instructed to
assume adequate managerial initiative and control over
discovery and other aspects of the proceeding to schedule
discovery and other activities for substantially continuous
work, thereby expediting the arbitration as much as is deemed
reasonable to him, but in all events to effect a final award
within 365 days of the arbitrators' selection or appointment
and within 20 days of the close of evidence.
(v) The proceedings shall be confidential and the arbitrators
shall issue appropriate protective orders to safeguard both
parties'
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<PAGE>
confidential information. The fees of the arbitrators shall be
paid by the losing party which shall be designated by the
arbitrators. If the arbitrators are unable to designate a
losing party, they shall so state and the fees shall be split
equally between the parties.
(n) Severability. In the event that any provision of this Agreement
would be held in any jurisdiction to be invalid, prohibited or
unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more
narrowly drawn so as not to be invalid, prohibited or unenforceable
in such jurisdiction, it shall, as to such jurisdiction, be so
narrowly drawn, without invalidating the remaining provisions of
this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
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<PAGE>
IN WITNESS WHEREOF, duly authorized representatives of the parties hereto
have duly executed this Agreement as of the date first above written.
ETHICON, INC. FOCAL, INC.
By: /s/ Patrick J. O'Neill 1/3/97 By: /s/ David M. Clapper 1/2/97
---------------------- --------------------
Name: Patrick J. O'Neill Name: David M. Clapper
Title: Vice President, Title: President and CEO
Growth Technologies and
New Business Development
ORIGINAL
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<PAGE>
EXHIBIT 10.14
AGREEMENT FOR CONSULTING SERVICES
This Agreement is made by and between Pegas Pharmaceuticals, Inc., a
Delaware corporation (the "Company"), and Robert Langer (the "Consultant") as
of November 15, 1991.
1. Services. The Consultant shall provide to the Company the services
set forth in Exhibit A in accordance with the terms and conditions contained in
this Agreement.
2. Term. Unless terminated in accordance with the provisions of
paragraph 7 hereof, this Agreement shall remain in force, and the services
provided by the Consultant to the Company shall be performed, until June 30,
1995.
3. Payment for Service Rendered. For providing the consulting services
as defined herein, the Company shall pay the Consultant the amount set forth in
paragraph 4 of Exhibit A. The Company shall reimburse the Consultant for all
approved expenses including travel.
4. Nature of Relationship. The Consultant is an independent contractor
and will not act as an agent nor shall he be deemed an employee of the Company
for the purposes of any employee benefit programs, income tax withholding, FICA
taxes, unemployment benefits or otherwise. The Consultant shall not enter into
any agreement or incur any obligations on the Company's behalf, or commit the
Company in any manner without the Company's prior consent.
5. Inventions, Patents and Technology. The Consultant shall promptly and
fully disclose and assign and transfer to the Company any and all inventions,
improvements, discoveries, developments, original works of authorship, trade
secrets, or other intellectual property ("Proprietary Information") which relate
to the business of the Company and which are conceived, developed or reduced to
practice by the Consultant during the performance of the consulting services
performed for the Company hereunder. If the Consultant conceives, develops or
reduces to practice during the performance of the consulting services hereunder
Proprietary Information which does not relate to the business of the Company,
Consultant shall give the Company written notice describing such Proprietary
Information in general terms and the Company shall have thirty (30) days from
receipt of such notice to notify the Consultant if it desires rights to utilize
such Proprietary Information in which event the Company and the Consultant shall
in good faith negotiate terms and conditions for the Company to obtain such
rights. The Consultant shall treat all Proprietary Information as the
confidential information of the Company. Except as otherwise provided, the
Company shall be the sole owner of any and all Proprietary Information,
including all patents that may result therefrom, and Consultant shall have no
right to use the Proprietary Information for any purpose whatsoever other than
to perform services for the Company hereunder. Consultant shall execute any and
all documentation requested by the Company in connection with the foregoing.
6. Confidentiality. The Consultant agrees that he shall not use (except
for the Company's benefit) or divulge to anyone either during the term of this
Agreement or for five (5) years thereafter any of the Company's trade secrets or
other confidential or proprietary data or information of any
<PAGE>
kind whatsoever ("Company Information") acquired by the Consultant in
carrying out the terms of this Agreement. The Consultant further agrees that
upon completion or termination of this Agreement, he will turn over to the
Company, or make such disposition thereof as may be directed or approved by
the Company, any notebook, data, information or other material acquired or
compiled by the Consultant in carrying out the terms of the Agreement.
Notwithstanding the foregoing, the Consultant shall be free to disclose any
results, information, discoveries, inventions or data which has been acquired
by Consultant outside of this Agreement. Consultant further agrees that he
will not disseminate and/or publish any research results, information,
discoveries, inventions or data conceived or developed in the course of any
work sponsored by the Company at any medical institution or any institution
of higher learning. Consultant shall not divulge Company Information to any
person unless such person shall have executed a confidentiality agreement
with the Company.
7. Termination. Without limiting any rights which either party may have
by reason of any default by the other party, either party reserves the right to
terminate this Agreement at its convenience by written notice given sixty (60)
days prior to the date of such termination. Such termination shall be effective
in the manner and upon the date specified in said notice. The provisions of
Paragraph 6 above shall survive any termination or expiration of this Agreement.
8. Consultant's Covenants. Consultant hereby covenants and agrees that,
during the term of this Agreement, except for his primary employment described
in Section 9, Consultant shall not become employed by or perform consulting
services for any person or entity that is or, as a result of such services,
would become, a competitor in the Company's field of business or otherwise would
create a conflict of interest for Consultant.
9. Primary Employer. The Company and the Consultant recognize that the
Consultant's primary duty is to his current primary employer, and that such
primary employer's policy guidelines and the Consultant's obligations to such
primary employer shall govern in the event a conflict arises with this
Agreement. If Consultant should leave his current primary employer and accept
employment with a similar institution, the guidelines of that institution shall
govern.
10. Miscellaneous.
(a) No failure on the part of either party to exercise, and no delay
in exercising, any right or remedy hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right or remedy hereunder
preclude any other or further exercise thereof or the exercise of any other
right or remedy granted hereby or by any related document or by law.
(b) This Agreement shall be deemed to be a contract made under the
law of the State of California and for all purposes it, plus any related or
supplemental documents and notices shall be construed in accordance with and be
governed by the law of such state.
(c) This Agreement may not be and shall not be deemed or construed to
have been modified, amended, rescinded, cancelled or waived in whole or in part,
except by written instruments signed by the parties hereto.
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<PAGE>
(d) This Agreement, including the exhibits attached hereto and made a
part hereof, constitutes and expresses the entire agreement and understanding
between the parties. All previous discussions, promises, representations and
understandings between the parties relative to this Agreement, if any, have been
merged into this document.
(e) The Consultant may not subcontract any part or all of the
services to be provided without the prior written consent of the Company;
however, the Consultant may, at his own expense, use assistants to accomplish
the services required by this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
CONSULTANT:
/s/ Robert Langer
----------------------------------------
(Signature)
Robert Langer
----------------------------------------
(Print or Type Name)
(address)
77 Lombard Street
----------------------------------------
Newton, MA 02158
----------------------------------------
SS# ###-##-####
------------------------------------
PEGAS PHARMACEUTICALS, INC.
By: /s/ Stephen C. Rowe
-------------------------------------
Title: V.P. Business Development
-------------------------------------
<PAGE>
AGREEMENT FOR CONSULTING SERVICES
EXHIBIT A
1. Description of consulting services: See Attachment #1.
2. Anticipated Number of Days per Month: up to 2 (up to 24 days per
year as required by Company)
3. The Consultant shall report to the Company's CEO, who is currently
Mark Levin.
4. Cash Payment for services: $24,000 per year (payable in monthly
installments)
Consultant shall have the right to purchase 440,000 shares of
Common Stock for cash at a price of $.01 per share, vesting over four
(4) years.
<PAGE>
ATTACHMENT #1
1. SAB Member
2. Description of Consulting Services:
(a) SAB Membership/Company Activities
- Attend monthly SAB meetings.
(b) Attend outside meetings
- Corporate development meetings.
- Fund raising meetings (i.e. venture capital).
(c) Recruiting
- Interview candidates.
- Referencing on candidates.
<PAGE>
EXHIBIT 10.15
AGREEMENT FOR CONSULTING SERVICES
This Agreement is made by and between Pegas Pharmaceuticals, Inc., a
Delaware corporation, (the "Company") and Marvin J. Slepian, M.D. (the
"Consultant") as of August 7th, 1992.
1. Services. The Consultant shall provide to the Company the services
set forth in Exhibit A in accordance with the terms and conditions contained in
this Agreement.
2. Term. Unless terminated in accordance with the provisions of
Paragraph 7 hereinbelow, this Agreement shall remain in force, and the services
provided by the Consultant to the Company shall be performed, until July 31,
1996.
3. Consideration for Services Rendered. In exchange for Consultant's
providing the services as described herein, the Company shall pay the Consultant
the amount set forth in paragraph 4 of Exhibit A. In addition, as set forth in
paragraph 4 of Exhibit A, Consultant shall have the right to purchase shares of
the Company's Common Stock pursuant to a Stock Purchase Agreement of even date
herewith. In addition, the Company shall reimburse the Consultant for all
expenses approved in writing by the Company including travel.
4. Nature of Relationship. The Consultant is an independent contractor
and will not act as an agent nor shall he be deemed an employee of the Company
for any purposes, including without limitation any employee benefit programs,
income tax withholding, FICA taxes, unemployment benefits or otherwise. The
Consultant shall not enter into any agreement or incur any obligations on the
Company's behalf, or commit the Company in any manner whatsoever, without the
Company's prior written consent.
5. Inventions, Patents and Technology. The Consultant shall promptly and
fully disclose and assign and transfer to the Company any and all inventions,
improvements, discoveries, developments, original works of authorship, trade
secrets, or other intellectual property which relate directly to the business of
the Company and which are conceived, developed or reduced to practice by the
Consultant during the performance of the services performed for the Company
hereunder ("Proprietary Information"). Subject to Section 4.5 of the certain
Exclusive License Agreement entered into by and between the Company, Endoluminal
Therapeutics, Inc. ("ETI"), and Consultant dated August 7th, 1992 ("License
Agreement"), if the Consultant conceives, develops or reduces to practice during
the term of this Agreement information which Consultant is not obligated to
assign to Company under the preceding sentence, Consultant shall promptly give
the Company written notice describing such information in general terms.
Consultant agrees to negotiate in good faith exclusively with the Company for
rights in any such information for a period of ninety (90)days before offering
rights in any such information to any third party. In the event that Consultant
and the Company have not agreed upon the terms and conditions for rights in such
information within ninety (90) days after initiating negotiations, Consultant
shall be free to initiate negotiations and enter into an agreement with a third
party relating to rights in such information without further obligation to the
Company,
<PAGE>
provided that Consultant shall not enter into an agreement with such third party
under terms and conditions substantially more favorable to Consultant than the
terms and conditions last presented to the Company unless such more favorable
terms and conditions are presented to the Company and, within thirty (30) days
after receipt by the Company, the Company does not accept such more favorable
terms and conditions in writing. Proprietary Information shall be considered
Company Information, as defined in Paragraph 6 hereinbelow, and treated
accordingly by the parties. The Company shall be the sole owner of all right,
title and interest in and to any and all Proprietary Information, including all
patents that may result therefrom. Consultant shall execute any and all
documentation requested by the company in connection with the foregoing.
6. Confidentiality. The Consultant agrees that he shall not use (except
for the Company's benefit) or divulge to anyone, either during the term of this
Agreement or for five (5) years thereafter, any of the Company's trade secrets
or other confidential or proprietary data or information of any kind whatsoever
("Company Information") acquired by the Consultant in carrying out the terms of
this Agreement. The Consultant further agrees that upon completion or
termination of this Agreement, he will turn over to the Company, or make such
disposition thereof as may be directed or approved by the Company, any notebook,
data, information or other material acquired or compiled by the Consultant in
carrying out the terms of this Agreement. Notwithstanding the foregoing, the
Consultant shall be free to disclose any results, information, discoveries,
inventions or data which has been acquired by Consultant outside of this
Agreement, except as otherwise agreed in writing between Company and Consultant.
The Consultant further agrees that he will not disseminate and/or publish any
research results, information, discoveries, inventions or data conceived or
developed in the course of any work sponsored by the Company at any medical
institution or any institution of higher learning, without the written approval
of the Company. Consultant shall not divulge Company Information to any person
unless approved in writing by the Company. Nothing herein will limit or alter
the rights and obligations of Consultant and ETI under the License Agreement,
and in the event of any conflict between the terms of this Agreement and the
terms of the License Agreement, the terms of the License Agreement will control.
7. Termination. Without limiting any rights which either party may have
by reason of any default by the other party, either party reserves the right to
terminate this Agreement at its convenience by written notice given sixty (60)
days prior to the date of such termination. Such termination shall be effective
in the manner and upon the date specified in said notice. The provisions of
Paragraph 6 hereinabove shall survive any termination or expiration of this
Agreement.
8. Consultant's Covenants. Consultant hereby covenants and agrees that,
during the term of this Agreement, except for his obligations to his primary
employment described in Paragraph 9 hereinbelow, Consultant shall not become
employed by or perform consulting services for any person or entity that is or,
as a result of such services, would become a competitor in the Company's field
of business without the Company's prior written consent, which will not be
unreasonably withheld. Consultant agrees that, during the term of this
Agreement, he will inform the Company immediately if he becomes aware of an
actual or potential conflict of interest due to any changes in the business
interests of the Company or due to any changes in the business interests of
other companies for which
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<PAGE>
Consultant serves as consultant, advisor or otherwise which cause any of such
companies to become competitors in the Company's field of business.
9. Primary Employer. The Company and the Consultant recognize that the
Consultant's primary duty is to his current primary employer, and that such
primary employer's policy guidelines and the Consultant's obligations to such
primary employer shall govern in the event a conflict arises with this Agreement
or his obligations, hereunder. If Consultant should leave his current primary
employer and accepts employment with a similar institution, the guidelines of
that institution shall govern.
10. Miscellaneous.
(a) No failure on the part of either party to exercise, and no delay
in exercising, any right or remedy hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right or remedy hereunder
preclude any other or further exercise thereof or the exercise of any other
right or remedy granted hereby or by any other document or by law.
(b) This Agreement shall be deemed to be a contract made under the
law of the State of California and for all purposes this Agreement, plus any
related or supplemental documents and notices required hereby, shall be
interpreted and construed in accordance with and be governed by the law of such
state without regard to rules of conflicts of laws.
(c) This Agreement may not be and shall not be deemed or construed to
have been modified, amended, rescinded, cancelled or waived, in whole or in
part, except by written instruments signed by the parties hereto.
(d) This Agreement, including Exhibit A attached hereto and made a
part hereof, constitutes and expresses the entire agreement and understanding
between the parties as to the matters agreed to herein. All previous
discussions, promises, representations and understandings between the parties
relative to this Agreement, if any, are hereby merged into this document.
(e) The Consultant may not subcontract any part or all of the
services to be provided without the prior written consent of the Company;
however, the Consultant may, at his own expense, use assistants to accomplish
the services required by this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
CONSULTANT:
/s/ Marvin J. Slepian
---------------------------------------------
Marvin J. Slepian, M.D.
1201 East Placito Del Cervato
Tucson, AZ 85718
Social Sec. No. ###-##-####
-----------------------------
PEGAS PHARMACEUTICAL, INC.
By: /s/ Stephen C. Rowe
-----------------------------------------
Title: Vice President, Corporate Development
--------------------------------------
<PAGE>
AGREEMENT FOR CONSULTING SERVICES
EXHIBIT A
1. Description of consulting services: See Attachment #1.
2. Anticipated Number of Days per Month (none of which to be included
within Consultant's tour of duty with the Department of Veteran's
Affairs): one (up to 12 days per year as required by Company).
3. The Consultant shall report to the Company's Chief Executive Officer.
As the effective date of this Agreement the Company's Chief Executive
Officer is Mark Levin.
4. Consideration for services.
Cash Payment: $20,000 per year (payable in monthly installments
on the last day of each calendar month), none of which to be paid for
time included in Consultant's tour of duty with the Department of
Veteran's Affairs.
Common Stock: Consultant shall have the right to purchase shares
of the Company's Common Stock pursuant to a Stock Purchase Agreement
of even date herewith.
<PAGE>
ATTACHMENT #1
Description of Consulting Services
1. Sscientific Advisor: Cardiology
- Attend cardiology advisory meetings monthly at times and places
reasonably acceptable to Consultant in light of his commitments
to his primary employer.
- Play a key role in the company's cardiology product development
team which will consist of in house scientists, engineers and
management; and outside leading invasive cardiology advisors.
- Be available for review of company's research plans and research
in Dr. Slepian's laboratories at reasonable times.
- Facilitate transfer of technology of endoluminal paving to the
Company.
- Be available to consult for the company in the area of physician
and patient needs in the field of invasive cardiology.
2. Attend outside meetings as requested by the Company at times and
places reasonably acceptable to Consultant in light of his commitments
to his primary employer.
- Corporate development meetings.
- Fund raising meetings (i.e. venture capital and other).
- FDA/regulatory.
3. Recruiting
- Play an important role in recommending key employees and
scientific advisors to aid the Company's efforts in cardiology.
- As requested by the Company, interview key candidates.
- As requested by the Company, check references on key candidates.
<PAGE>
EXHIBIT 10.16
AGREEMENT FOR CONSULTING SERVICES AND SABBATICAL EMPLOYMENT
This Agreement is made by and between Pegas Pharmaceuticals, Inc., a
Delaware corporation (the "Company"), and Jeffrey A. Hubbell ("Hubbell") as
of , 1992.
------------
1. Consulting Services and Sabbatical Employment. During the
Consulting Term (as defined below), Hubbell shall provide to the Company the
consulting services set forth in Exhibit A in accordance with the terms and
conditions contained in this Agreement. During the Employment Term (as
defined below), Hubbell shall be a full-time employee of the Company and
shall have the title "Visiting Senior Scientist."
2. Term. Unless terminated in accordance with the provisions of
paragraph 8 hereof, the Consulting Term of this Agreement shall commence on
the date hereof, shall terminate on the first day of the Employment Term,
shall resume on the last day of the Employment Term and shall terminate on
the date which is four years from the date hereof. Unless terminated in
accordance with the provisions of paragraph 8 hereof, the Employment Term of
this Agreement shall commence on June 1, 1992 (or such later date as the
Company's facility is available) and shall continue for a period of 12 months.
3. Payment for Service Rendered. For providing the consulting services
as defined herein, the Company shall pay Hubbell the amounts set forth below:
(a) Consulting Term. During the Consulting Term, the Company will
pay Hubbell a consulting fee at the rate of $18,000 per year,
payable in equal monthly installments.
(b) Employment Term. During the Employment Term, the Company will
pay Hubbell a salary of $77,000 per annum (such amount including
a University of Texas grant contribution of approximately
$11,520) plus a consulting fee at the rate of $18,000 per annum,
payable in equal monthly installments and less applicable
withholding and other payroll deductions. In addition, during
the Employment Period (but not the Consulting Period), Hubbell
will be entitled to the following benefits:
(i) The Company will pay Hubbell's reasonable moving expenses,
to be approved in advance by the Company, for relocating
from the Austin, Texas area to the Boston, Massachusetts
area or the San Francisco, California Bay Area (the area
in which the Company's facility is located shall be
referred to as the "Company Facility Area").
(ii) In the event that Hubbell's per month cost of renting a
home (comparable to Hubbell's current home) in the Company
Facility Area is in excess of the per month rent Hubbell
is able to obtain for his current home, the Company will
<PAGE>
reimburse Hubbell for such difference up to a maximum of
$1,000.00 per month (or such other amount as may be agreed
upon between the Company and Hubbell). Such reimbursement
shall be less applicable withholding and other payroll
deductions.
(iii) The Company will enroll Hubbell and his dependents in the
Company's health insurance plan or, at the Company's
option, pay for continuation of Hubbell's current health
benefits during the Employment Period.
(iv) The Company will pay the following overhead items: (1) up
to one round-trip flight per month for Hubbell from the
Company Facility Area to Austin, Texas at the discount
airfare available to the University of Texas (estimated at
$500 per round trip for a total of approximately $6,000),
(2) up to one Federal Express box per week (less one
personal visit per month) (estimated at $35 per box for 40
weeks for a total of approximately $1,400), (3) costs of
sending personal facsimile transmissions of up to $600.
Payments for these items will be made quarterly to the
departmental gift fund of the University of Texas Chemical
Engineering Department.
During both the Consulting Term and the Employment Term, the Company shall
reimburse Hubbell for all approved Company expenses including travel.
4. Stock Purchase. Hubbell shall have the right to purchase 86,200
shares of Common Stock for cash at a price of $.01 per share. Unless
terminated in accordance with the provisions of paragraph 8 hereof, 68,000 of
such shares shall vest during the four year period commencing on the date
first written above and continuing until the four year anniversary of such
date, and 18,200 of such shares shall vest during the Employment Term. These
shares shall be issued pursuant to a Stock Purchase Agreement of even date
herewith.
5. Nature of Relationship. During the Consulting Term, Hubbell shall
be deemed an independent contractor and will not act as an agent nor shall he
be deemed an employee of the Company for the purposes of any employee benefit
programs, income tax withholding, FICA taxes, unemployment benefits or
otherwise. Hubbell shall not enter into any agreement or incur any
obligations on the Company's behalf, or commit the Company in any manner
without the Company's prior consent. During the Employment Term, Hubbell
shall be considered an employee of the Company.
6. Inventions, Patents and Technology. Hubbell shall promptly and
fully disclose and assign and transfer to the Company any and all inventions,
improvements, discoveries, developments, original works of authorship, trade
secrets, or other intellectual property ("Proprietary Information") which
relate to the business of the Company and which are conceived, developed or
reduced to practice by Hubbell during the Consulting Term or the Employment
Term hereunder. If Hubbell conceives, develops or reduces to practice during
the performance of the consulting or employment services hereunder
Proprietary Information which does not relate to the business of the Company,
2
<PAGE>
Hubbell shall give the Company written notice describing such Proprietary
Information in general terms and the Company shall have thirty (30) days from
receipt of such notice to notify Hubbell if it desires rights to utilize such
Proprietary Information in which event the Company and Hubbell shall in good
faith negotiate terms and conditions for the Company to obtain such rights.
Hubbell shall treat all Proprietary Information as the confidential
information of the Company. Except as otherwise provided, the Company shall
be the sole owner of any and all Proprietary Information, including all
patents that may result therefrom, and Hubbell shall have no right to use the
Proprietary Information for any purpose whatsoever other than to perform
services for the Company hereunder. Hubbell shall execute any and all
documentation requested by the Company in connection with the foregoing.
7. Confidentiality. Hubbell agrees that he shall not use (except for
the Company's benefit) or divulge to anyone either during the term of this
Agreement or for five (5) years thereafter any of the Company's trade secrets
or other confidential or proprietary data or information of any kind
whatsoever ("Company Information") acquired by Hubbell in carrying out the
terms of this Agreement. Hubbell further agrees that upon completion or
termination of this Agreement, he will turn over to the Company, or make such
disposition thereof as may be directed or approved by the Company, any
notebook, data, information or other material acquired or compiled by Hubbell
in carrying out the terms of the Agreement. Notwithstanding the foregoing,
Hubbell shall be free to disclose any results, information, discoveries,
inventions or data which has been acquired by Hubbell outside of this
Agreement. Hubbell further agrees that he will not disseminate and/or
publish any research results, information, discoveries, inventions or data
conceived or developed in the course of any work sponsored by the Company at
any medical institution or any institution of higher learning. Hubbell shall
not divulge Company Information to any person unless such person shall have
executed a confidentiality agreement with the Company.
8. Termination. Without limiting any rights which either party may
have by reason of any default by the other party, either party reserves the
right to terminate this Agreement for any reason or for no reason during
either the Employment Term or the Consulting Term at its convenience by
written notice to the other party given sixty (60) days prior to the date of
such termination. Such termination shall be effective in the manner and upon
the date specified in said notice. The provisions of Paragraphs 6 and 7
above shall survive any termination or expiration of this Agreement.
9. Hubbell's Covenants. Hubbell hereby covenants and agrees that,
during the Consulting Term, except for his primary employment described in
Section 10, Hubbell shall not become employed by or perform consulting
services in a field which is known by Hubbell to be in the Company's field of
business for any person or entity that is or, as a result of such services,
would become, a competitor in the Company's field of business or otherwise
would create a conflict of interest for Hubbell. Hubbell agrees that during
the Employment Term he shall devote his full working time and attention to
the performance of his duties for the Company and shall not be actively
engaged or concerned with any other duties or pursuits which interfere with
the performance of his duties hereunder, provided that he shall be entitled
to spend approximately 16% of his working time on University of Texas related
matters and on other consulting activities (provided such other consulting
activities do not interfere with the performance of his duties hereunder).
Hubbell agrees that, during the Consulting Term and the Employment Term, he
will inform the Company immediately
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<PAGE>
if he finds himself in an actual or potential conflict due to any change in
the business interests of the Company or due to any changes in the business
interests of other companies for which Hubbell serves as consultant, advisor
or otherwise.
10. Primary Employer. The Company and Hubbell recognize that Hubbell's
primary duty is to his current primary employer, and that such primary
employer's policy guidelines and Hubbell's obligations to such primary
employer shall govern in the event a conflict arises with this Agreement. If
Hubbell should leave his current primary employer and accepts employment with
a similar institution, the guidelines of that institution shall govern.
Hubbell agrees that while he is employed with the Company during his
sabbatical from the University of Texas, the Company shall be considered his
primary employer.
11. Miscellaneous.
(a) No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or further exercise thereof or the exercise of
any other right or remedy granted hereby or by any related document or by law.
(b) This Agreement shall be deemed to be a contract made under the
law of the State of California and for all purposes it, plus any related or
supplemental documents and notices, shall be construed in accordance with and
be governed by the law of such state.
(c) This Agreement may not be and shall not be deemed or construed
to have been modified, amended, rescinded, cancelled or waived in whole or in
part, except by written instruments signed by the parties hereto.
(d) This Agreement, including the exhibits attached hereto and made
a part hereof, constitutes and expresses the entire agreement and
understanding between the parties. All previous discussions, promises,
representations and understandings between the parties relative to this
Agreement, if any, have been merged into this document.
(e) Hubbell may not subcontract any part or all of the services to
be provided without the prior written consent of the Company; however,
Hubbell may, at his own expense, use assistants to accomplish the services
required by this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
CONSULTANT:
/s/ Jeffrey A. Hubbell
-----------------------------------
Jeffrey A. Hubbell
Dept. of Chemical Engineering
University of Texas
Austin, TX 78712-1062
SS# ###-##-####
--------------------------------
PEGAS PHARMACEUTICALS, INC.
By: Stephen C. Rowe
-------------------------------
Title: VP Corporate Development
-----------------------------
5
<PAGE>
AGREEMENT FOR CONSULTING SERVICES
EXHIBIT A
1. Description of consulting services:
(a) Scientific Advisor: Biomaterials
- Attend advisory meetings monthly (or at frequency to be
determined by Company) reviewing research plans on
adhesions, femoral plugs, less invasive surgical products,
restenosis and/or other projects the Company develops.
- Play a key role in the Company's biomaterial product
development team which will consist of in house scientists,
engineers and management; and outside leading
academic/clinical advisors in the relevant disease states.
- Be available for review of Company's research plans and
research in Dr. Hubbell's laboratories.
- Facilitate transfer of technology of photocrosslinked and
other PEG containing polymers to the company.
- Be available to consult for the Company in the area of new
developments in biomaterials and their application to the
Company's business.
(b) Attend outside meetings as requested by the Company
- Corporate development meetings.
- Scientific (review) meetings with academic/clinical
researchers/other.
- Fund raising meetings (i.e. venture capital and other).
- FDA/regulatory.
1
<PAGE>
(c) Recruiting
- Play an important role in recommending key employees and
scientific advisors to aid the company's efforts in
biomaterials, product development, and clinical development.
- As requested by the Company, interview key candidates.
- As requested by the Company, check references on key
candidates.
2
<PAGE>
EXHIBIT 10.18
FOCAL, INC.
RESTRICTED STOCK PURCHASE AGREEMENT
1992 INCENTIVE STOCK PLAN
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser, FIELD(name), named in the Notice of Grant, (the
"Purchaser") is an Employee of the Company, and the Purchaser's continued
participation is considered by the Company to be important for the Company's
continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for the Purchaser to participate in the
affairs of the Company, the Company will permit the Purchaser to exercise the
Purchaser's currently outstanding vested and unvested Options granted pursuant
to the Plan subject to the terms and conditions of the Plan, which are
incorporated herein by reference, and pursuant to this Restricted Stock Purchase
Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and the
Purchaser hereby agrees to purchase FIELD(1) shares of the Company's Common
Stock subject to vested and unvested Options (the "Shares"), at an
aggregate purchase price of $FIELD(2).
2. Payment of Purchase Price. The purchase price for the Shares may be paid
by delivery to the Company at the time of execution of this Agreement of cash, a
check, or secured promissory note.
3. Repurchase Option.
(a) In the event the Purchaser ceases to be an Employee for any or no
reason (including death or disability) before all of the Shares are released
from the Company's Repurchase Option (see Section 4), the Company shall, upon
the date of such termination (as reasonably fixed and determined by the Company)
have an irrevocable, exclusive option (the "Repurchase Option") for a period of
ninety (90) days from such date to repurchase up to that number of shares which
constitute the Unreleased Shares (as defined in Section 4) at the original
purchase price per share (the "Repurchase Price"). The Repurchase Option shall
be exercised by the Company by delivering written notice to the Purchaser or the
Purchaser's executor (with a copy to the Escrow Holder) AND, at the Company's
option, (i) by delivering to the Purchaser or the Purchaser's executor a check
in the amount of the aggregate Repurchase Price, or (ii) by cancelling an amount
of the Purchaser's indebtedness to the Company equal to the aggregate Repurchase
Price, or (iii) by a combination of (i) and (ii) so that the combined payment
and cancellation of indebtedness equals the aggregate
<PAGE>
Repurchase Price. Upon delivery of such notice and the payment of the
aggregate Repurchase Price, the Company shall become the legal and beneficial
owner of the Shares being repurchased and all rights and interests therein or
relating thereto, and the Company shall have the right to retain and transfer
to its own name the number of Shares being repurchased by the Company.
(b) Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees,
officers, directors or shareholders of the Company or other persons or
organizations to exercise all or a part of the Company's purchase rights
under this Agreement and purchase all or a part of such Shares.
4. Release of Shares From Repurchase Option.
(a) The Shares shall be released from the Company's Repurchase Option at
the same times and in the same amounts as such Shares would have become vested
and exercisable under the provisions of the Option Agreement(s) between the
Purchaser and the Company relating to such Shares, provided that the Purchaser
does not cease to be an Employee prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the Repurchase
Option are referred to herein as "Unreleased Shares."
5. Restriction on Transfer. Except for the escrow described in Section 6 or
the transfer of the Shares to the Company or its assignees contemplated by this
Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. Escrow of Shares.
(a) To ensure the availability for delivery of the Purchaser's Unreleased
Shares upon repurchase by the Company pursuant to the Repurchase Option, the
Purchaser shall, upon execution of this Agreement, deliver and deposit with the
Secretary of the Company, as escrow holder (the "Escrow Holder") the share
certificates representing the Unreleased Shares, together with the stock
assignment duly endorsed in blank, attached hereto as Exhibit A-1. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to this Section 6, until such time as the Company's Repurchase Option
expires and any promissory note delivered as consideration for the Shares has
been paid in full. As a further condition to the Company's obligations under
this Agreement, the Company may require the spouse of Purchaser, if any, to
execute and deliver to the Company the Consent of Spouse attached hereto as
Exhibit A-2.
(b) In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Repurchase Option,
the Company shall give to Purchaser and the Escrow Holder a written notice
specifying the number of shares of stock to
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<PAGE>
be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably
authorize and direct the Escrow Holder to close the transaction contemplated by
such notice in accordance with the terms of said notice.
(c) At the closing, the Escrow Holder is directed (i) to date the stock
assignments necessary for the transfer in question, (ii) to fill in the number
of shares being transferred, and (iii) to deliver same, together with the
certificate evidencing the shares of stock to be transferred, to the Company or
its assignee, against the simultaneous delivery to the Purchaser of the purchase
price (by cash, check, or cancellation of indebtedness) for the number of shares
of stock being purchased pursuant to the exercise of the Company's Repurchase
Option.
(d) Purchaser irrevocably authorizes the Company to deposit with the
Escrow Holder any certificates evidencing shares of stock to be held by the
Escrow Holder hereunder and any additions and substitutions to said shares as
defined in the Agreement. Purchaser does hereby irrevocably constitute and
appoint the Escrow Holder as Purchaser's attorney-in-fact and agent for the term
of this escrow to execute with respect to such securities all documents
necessary or appropriate to make such securities negotiable and to complete any
transaction herein contemplated.
(e) Upon written request of the Purchaser, but no more than twice per
calendar year, unless the Company's Repurchase Option has been exercised, the
Escrow Holder shall deliver to Purchaser a certificate or certificates
representing so many Shares of stock as are not then subject to the Company's
Repurchase Option, provided that Purchaser pays, either prior to or concurrent
with such delivery, the principal of and accrued interest on any promissory note
used by Purchaser to purchase such Shares. Within 90 days after Purchaser
ceases to be an Employee, the Escrow Holder shall deliver to Purchaser a
certificate or certificates representing the aggregate number of shares held or
issued pursuant to the Agreement and not purchased by the Company or its
assignees pursuant to exercise of the Company's Repurchase Option, provided that
Purchaser pays, either prior to or concurrent with such delivery, the principal
of and accrued interest on any promissory note used by Purchaser to purchase
such Shares.
(f) The Escrow Holder shall not be liable for any act it may do or omit to
do with respect to holding the Unreleased Shares in escrow while acting in good
faith and in the exercise of its judgment.
(g) Subject to the terms hereof, the Purchaser shall have all the rights
of a shareholder with respect to the Shares while they are held in escrow,
including without limitation, the right to vote the Shares and to receive any
cash dividends declared thereon. If, from time to time during the term of the
Repurchase Option, there is (i) any stock dividend, stock split or other change
in the Shares, or (ii) any merger or sale of all or substantially all of the
assets or other acquisition of the Company, any and all new, substituted or
additional securities to which the Purchaser is entitled by reason of the
Purchaser's ownership of the Shares shall be immediately subject to this escrow,
deposited with the Escrow Holder and included thereafter as "Shares" for
purposes of this Agreement and the Repurchase Option.
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<PAGE>
7. Legends. The share certificate evidencing the Shares, if any, issued
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS
ON FILE WITH THE SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares and the
purchase price of the Shares in this Agreement shall be appropriately adjusted
to reflect any stock split, stock dividend or other change in the Shares which
may be made by the Company after the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's own tax
advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser
is relying solely on such advisors and not on any statements or representations
of the Company or any of its agents. The Purchaser understands that the
Purchaser (and not the Company) shall be responsible for the Purchaser's own tax
liability that may arise as a result of the transactions contemplated by this
Agreement. The Purchaser understands that Section 83 of the Internal Revenue
Code of 1986, as amended (the "Code"), taxes as ordinary income the difference
between the purchase price for the Shares and the Fair Market Value of the
Shares as of the date any restrictions on the Shares lapse. In this context,
"restriction" includes the right of the Company to buy back the Shares pursuant
to the Repurchase Option. The Purchaser understands that the Purchaser may
elect to be taxed at the time the Shares are purchased rather than when and as
the Repurchase Option expires by filing an election under Section 83(b) of the
Code with the IRS within 30 days from the date of purchase. The form for making
this election is attached as Exhibit A-3 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER
SECTION 83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS
REPRESENTATIVES TO MAKE THIS FILING ON THE PURCHASER'S BEHALF.
10. General Provisions.
(a) This Agreement shall be governed by the internal substantive laws,
but not the choice of law rules of the Commonwealth of Massachusetts. This
Agreement, subject to the terms and conditions of the Plan and the Notice of
Grant, represents the entire agreement between the parties with respect to
the purchase of the Shares by the Purchaser. In the event of a conflict
between the terms and conditions of the Plan and the terms and conditions of
this Agreement, the terms and
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<PAGE>
conditions of the Plan shall prevail. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this
Agreement.
(b) Any notice, demand or request required or permitted to be given by
either the Company or the Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed
to the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other
in writing.
Any notice to the Escrow Holder shall be sent to the Company's address
with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be transferable
to any one or more persons or entities, and all covenants and agreements
hereunder shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of the Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
(d) Either party's failure to enforce any provision of this Agreement
shall not in any way be construed as a waiver of any such provision, nor prevent
that party from thereafter enforcing any other provision of this Agreement. The
rights granted both parties hereunder are cumulative and shall not constitute a
waiver of either party's right to assert any other legal remedy available to it.
(e) The Purchaser agrees upon request to execute any further documents or
instruments necessary or desirable to carry out the purposes or intent of this
Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT
TO STOCK OPTION AGREEMENTS BETWEEN THE UNDERSIGNED AND THE COMPANY IS EARNED
ONLY BY CONTINUING SERVICE AS AN EMPLOYEE AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER
FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH IN STOCK OPTION
AGREEMENTS BETWEEN THE COMPANY AND THE UNDERSIGNED DO NOT CONSTITUTE AN EXPRESS
OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE FOR THE VESTING
PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S
RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S RELATIONSHIP AS AN
EMPLOYEE AT ANY TIME.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands
-5-
<PAGE>
all provisions of this Agreement. Purchaser agrees to accept as binding,
conclusive and final all decisions or interpretations of the Administrator upon
any questions arising under the Plan or this Agreement. Purchaser further
agrees to notify the Company upon any change in the residence indicated in the
Notice of Grant.
DATED: January 20, 1997
PURCHASER: FOCAL, INC.
- ------------------------------ ----------------------------------
Signature By
- ------------------------------ ----------------------------------
Print Name Title
-6-
<PAGE>
EXHIBIT A-1
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, , hereby sell, assign and
--------------------------
transfer unto ( ) shares of
--------------------------------------- ----------
the Common Stock of Focal, Inc. standing in my name of the books of said
corporation represented by Certificate No. herewith and do hereby
-----
irrevocably constitute and appoint to transfer the
------------------------
said stock on the books of the within named corporation with full power of
substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement (the "Agreement") between FIELD(name) and the
undersigned dated , 19 .
-------------- --
Dated: January 20, 1997
Signature:
------------------------------
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT A-2
CONSENT OF SPOUSE
I, , spouse of FIELD(name), have read and approve the
--------------------
foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the right to purchase
shares of Focal, Inc., as set forth in the Agreement, I hereby appoint my spouse
as my attorney-in-fact in respect to the exercise of any rights under the
Agreement and agree to be bound by the provisions of the Agreement insofar as I
may have any rights in said Agreement or any shares issued pursuant thereto
under the community property laws or similar laws relating to marital property
in effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: , 19
--------------- --
- ---------------------------------------
Signature of Spouse
<PAGE>
EXHIBIT A-3
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: FIELD(a) shares (the "Shares") of the Common Stock of Focal, Inc.
(the "Company").
3. The date on which the property was transferred is: , 19 .
--------------- --
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon certain
events. This right lapses with regard to a portion of the Shares based on
the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is:
$ FIELD(b).
6. The amount (if any) paid for such property is:
$ FIELD(c).
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: , 19
------------------- ---- ---------------------------------------
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: , 19
------------------- ---- ---------------------------------------
Spouse of Taxpayer
<PAGE>
NOTE
$FIELD(2) Lexington, Massachusetts
January 20, 1997
FOR VALUE RECEIVED, FIELD(name) promises to pay to Focal, Inc., a
Delaware corporation (the "Company"), or order, the principal sum of $FIELD(2)
, together with interest on the unpaid principal hereof from the date hereof
at the rate of six percent (6.0%) per annum, compounded annually.
Principal and interest shall be due and payable on December 31, 2000.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of a Restricted Stock Purchase
Agreement of even date herewith. This Note is secured in part by a pledge of
the Company's Common Stock under the terms of a Security Agreement of even
date herewith and is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this
Note in the event of default.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by
the undersigned.
------------------------------
FIELD(name)
<PAGE>
SECURITY AGREEMENT
This Security Agreement is made as of , 19 between Focal,
---------- ---
Inc., a Delaware corporation ("Pledgee"), and FIELD(name) ("Pledgor").
Recitals
Pursuant to Pledgor's election to purchase Shares under the Option
Agreements held by Purchaser under the Company's 1992 Incentive Stock Plan
(the "Option(s)"), between Pledgor and Pledgee, and Pledgor's election under
the terms of the Option to pay for such shares with his promissory note (the
"Note"), Pledgor has purchased FIELD(1) shares of Pledgee's Common Stock (the
"Shares") at a price of $FIELD(2) per share, for a total purchase price of
$FIELD(2).
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of the
transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the Massachusetts Uniform Commercial Code, hereby pledges all of
such Shares (herein sometimes referred to as the "Collateral") represented by
certificate number , duly endorsed in blank or with executed stock
------
powers, and herewith delivers said certificate to the Secretary of Pledgee
("Pledgeholder"), who shall hold said certificate subject to the terms and
conditions of this Security Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the
Pledgeholder as security for the repayment of the Note, and any extensions or
renewals thereof, to be executed by Pledgor pursuant to the terms of the
Option, and the Pledgeholder shall not encumber or dispose of such Shares
except in accordance with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter into
this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the principal sum of the
Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
(b) Encumbrances. The Shares are free of all other encumbrances,
defenses and liens, and Pledgor will not further encumber the Shares without
the prior written consent of Pledgee.
(c) Margin Regulations. In the event that Pledgee's Common Stock is now
or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207
of Title 12 of the Code of Federal Regulations
<PAGE>
("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any
amendments to the Note or providing any additional collateral as may be
necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the
terms of the Note, Pledgor shall have the right to vote all of the Shares
pledged hereunder.
4. Stock Adjustments. In the event that during the term of the pledge any
stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and
additional shares or other securities issued by reason of any such change
shall be delivered to and held by the Pledgee under the terms of this
Security Agreement in the same manner as the Shares originally pledged
hereunder. In the event of substitution of such securities, Pledgor, Pledgee
and Pledgeholder shall cooperate and execute such documents as are reasonable
so as to provide for the substitution of such Collateral and, upon such
substitution, references to "Shares" in this Security Agreement shall include
the substituted shares of capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this pledge,
subscription Options or other rights or options shall be issued in connection
with the pledged Shares, such rights, Options and options shall be the
property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then
held by Pledgeholder shall be immediately delivered to Pledgeholder, to be
held under the terms of this Security Agreement in the same manner as the
Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent for
a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 30 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the
Massachusetts Uniform Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder hereunder upon payments of the principal
of the Note. The number of the pledged Shares which shall be released shall
be that number of full Shares which bears the same proportion to the initial
number of Shares pledged hereunder as the payment of principal bears to the
initial full principal amount of the Note.
-2-
<PAGE>
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment of
all indebtedness secured hereby, at which time the remaining pledged stock
shall be promptly delivered to Pledgor, subject to the provisions for prior
release of a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency proceeding
is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due
and payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross negligence,
Pledgeholder shall not be liable to any party for any of his acts, or
omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that the
enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the terms
of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used
herein shall be deemed to include, for all purposes, the respective
designees, successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and governed
under the internal substantive laws, but not the choice of law rules, of the
Commonwealth of Massachusetts.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"PLEDGOR"
------------------------------
Signature
------------------------------
Print Name
Address: ------------------------------
------------------------------
"PLEDGEE" FOCAL, INC.
------------------------------
Signature
------------------------------
Print Name
------------------------------
Title
"PLEDGEHOLDER" ------------------------------
Secretary of
Focal, Inc.
-4-
<PAGE>
EXHIBIT 10.19
PROMISSORY NOTE
$20,000.00 March 29, 1995
1. Principal and Interest. FOR VALUE RECEIVED, the undersigned
borrower ("Borrower") promises to pay to Focal, Inc., a Delaware corporation
(the "Company"), or order, at its principal offices the principal amount of
$20,000.00 with interest thereon on the rate of six percent (6.0%) per annum,
compounded annually from the date hereof, on the unpaid balance of the
principal sum. Principal and interest shall be due and payable on the
earlier of (i) the Target Amount Achievement Date (as defined below) or (ii)
July 1, 1998 (the "Maturity Date").
In the event that the undersigned's employment with the Company is
terminated either voluntarily or involuntarily prior to the Maturity Date,
then the principal of and accrued unpaid interest on this Note shall be due
and payable in full upon such termination of employment.
Interest accruing on the principal amount of the Note from the date
hereof until the Maturity Date shall be added to the principal amount of the
Note. Payments, if any, received between the date hereof and the Maturity
Date shall be considered to be repayments of the principal amount of the
Note. All principal and interest is payable in lawful money of the United
States of America. THE PRIVILEGE IS RESERVED TO PREPAY ANY PORTION OF THE
NOTE AT ANY TIME WITHOUT PENALTY.
2. Cancellation of Note Based on Stock Value. Notwithstanding the
foregoing, in the event that at any time on or prior to July 1, 1998, the
Fair Market Value of Freely Tradeable Vested Common Stock of the Company (i)
held by the Borrower or (ii) issuable to the Borrower upon exercise of stock
options does not equal or exceed or has not equalled or exceeded the Target
Amount, then the principal amount of this Note shall on the Maturity Date be
cancelled and Borrower shall have no further obligation to repay any such
principal amount hereof. In such event, accrued interest shall be due and
payable on July 1, 1998. For purposes hereof, the term "Fair Market Value"
shall have the meaning set forth in Section 3 below; the term "Freely
Tradeable Vested Common Stock" shall mean Common Stock that is (i) saleable
in the United States public equity markets under Securities and Exchange
Commission Rules 144 or 701 or pursuant to an S-8 Registration Statement,
(ii) is not subject to an underwriter lock-up or similar agreement
restricting or prohibiting resale right and (iii) is not subject to a right
of repurchase in favor of the Company or to employment or service-based
vesting conditions that are set forth in a stock option or stock purchase
agreement and have not been fulfilled; and the term Target Amount shall mean
$250,000. The Target Amount Achievement Date shall mean the date on which
the Fair Market Value of Freely Tradeable Vested Common Stock of the Company
held by the Borrower or issuable to the Borrower upon exercise of stock
options first equals or exceeds the Target Amount.
3. Security. This Note is secured by a pledge of all issued and
outstanding Common Stock of the Company now held by Borrower or hereafter
issued to Borrower upon exercise of stock options (collectively, the "Pledged
Securities"). The Borrower shall, upon request of the Company,
<PAGE>
deliver to the Secretary of the Company as escrow agent ("Escrow Holder") all
certificates or instruments representing the Pledged Securities. In the
event of default in payment when due of any indebtedness under the Note, the
Company may elect then, or at any time thereafter, to exercise all rights
available to a secured party under the Massachusetts Uniform Commercial Code,
including the right to sell the Pledged Securities at a private or public
sale or repurchase the Pledged Securities. The parties agree that the
repurchasing of the Pledged Securities by the Company, or by any person to
whom the Company may have assigned its rights hereunder, is commercially
reasonable if made at the Fair Market Value (as defined below) of the Pledged
Securities. "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(a) If the Pledged Securities are listed on any established stock
exchange or a national market system, including without limitation
the Nasdaq National Market, the New York Stock Exchange or the
American Stock Exchange, their Fair Market Value shall be the
closing sales price for such securities as quoted on such exchange
or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal;
(b) If the Pledged Securities are regularly quoted by on the Nasdaq
Small-Cap Market, another over-the-counter market or by a recognized
securities dealer but closing sale prices are not reported, the Fair
Market Value of a such securities shall be the mean between the high
bid and low asked prices for such securities on the date of
determination, as reported in The Wall Street Journal; or
(c) In the absence of an established market for the Pledged Securities,
the Fair Market Value thereof shall be determined in good faith by
the Board of Directors of the Company.
The proceeds of any sale or repurchase shall be applied in the following
order:
1. To pay all reasonable expenses of the Company in enforcing this Note,
including reasonable attorney's fees.
2. In satisfaction of the remaining indebtedness under the Note.
3. To the Borrower, any remaining proceeds.
Upon full payment by the Borrower of all amounts due on the Note, the
Escrow Holder shall deliver to the Borrower the instrument(s) or
certificate(s) representing the Pledged Securities in the Escrow Holder's
possession belonging to the Borrower and the executed original of the Note
marked "canceled" by the Company, and the Escrow Holder shall be discharged
of all further obligations hereunder.
-2-
<PAGE>
Except for the above-referenced pledge, none of the Pledged Securities or
any beneficial interest therein shall be transferred, encumbered or otherwise
disposed of in any way until the payment in full of the Note, other than by
will or the laws of descent and distribution; provided, however, that the
Company may, upon request of the Borrower but at the sole discretion of the
Company, consent to the release from escrow of some or all of the Pledged
Securities to the Borrower for the purpose of allowing the Borrower to sell
Pledged Securities for the purpose of repaying any part of the principal
amount of this Note and/or any part of the accrued interest thereon.
The Borrower agrees to execute such instruments and other documents and
to take such other actions as the Company shall request for the purpose of
carrying out the purposes of this Section 3.
4. Miscellaneous. Should any action or proceeding be commenced to
collect this Note or any portion of this Note, such sum as the court may deem
reasonable shall be added hereto as attorneys' fees. The Borrower waives
presentment for payment, protest, notice of protest, and notice of
non-payment of this Note. This Note shall be governed by and construed
according to the laws of the Commonwealth of Massachusetts, without regard to
the conflicts of law provisions thereof.
/s/ Ronald Rudowsky
------------------------------
(Signature of Borrower)
Ronald Rudowsky
------------------------------
(Print Name of Borrower)
Agreed to and accepted as of the date set forth above:
FOCAL, INC.
By: /s/ W. Bradford Smith
-----------------------------
Name: W. Bradford Smith
---------------------------
Title: Chief Financial Officer
--------------------------
-3-
<PAGE>
EXHIBIT 10.20
PROMISSORY NOTE
$120,000.00 February 28, 1997
1. Principal and Interest. FOR VALUE RECEIVED, the undersigned
borrower ("Borrower") promises to pay to Focal, Inc., a Delaware corporation
(the "Company"), or order, at its principal offices the principal amount of
$120,000.00 with interest thereon at the respective interest rates set forth
below, compounded annually from each advance date set forth below, on the
unpaid balance of the principal sum. Principal and interest shall be due and
payable on the earlier of (i) the Target Amount Achievement Date (as defined
below) or (ii) December 31, 1999 (the "Maturity Date").
Advance Date Amount Interest Rate
--------------- ---------- -------------
August 31, 1993 $30,000.00 5.0%
January 31, 1995 $30,000.00 5.0%
May 31, 1996 $30,000.00 7.0%
February 28, 1997 $30,000.00 7.0%
In the event that the undersigned's employment with the Company is
terminated either voluntarily by the undersigned or for Justifiable Cause by
the Company prior to the Maturity Date, then the principal of and accrued
unpaid interest on this Note shall be due and payable in full upon such
termination of employment. For purposes hereof, "Justifiable Cause" shall
mean (i) the commission of a felony or other crime involving moral turpitude,
(ii) the commission of an act involving dishonesty or larcenous intent in the
course of the undersigned's employment with the Company or (iii) the refusal
of the undersigned to carry out a direct request of the board of directors
given in good faith in the exercise of the board's reasonable business
judgment.
Interest accruing on the principal amount of the Note from the date
hereof until the Maturity Date shall be added to the principal amount of the
Note. Payments, if any, received between the date hereof and the Maturity
Date shall be considered to be repayments of the principal amount of the
Note. All principal and interest is payable in lawful money of the United
States of America. THE PRIVILEGE IS RESERVED TO PREPAY ANY PORTION OF THE
NOTE AT ANY TIME WITHOUT PENALTY.
2. Cancellation of Note Based on Stock Value. Notwithstanding the
foregoing, in the event that at any time on or prior to December 31, 1999,
the Fair Market Value of Freely Tradeable Vested Common Stock of the Company
(i) held by the Borrower or (ii) issuable to the Borrower upon exercise of
stock options does not equal or exceed or has not equalled or exceeded the
Target Amount, then the principal amount of this Note shall, on the Maturity
Date be cancelled and Borrower shall have no further obligation to repay any
such principal amount hereof. In such event, accrued interest shall be
payable on or prior to March 31, 2000. For purposes hereof, the term "Fair
Market Value" shall have the meaning set forth in Section 3 below; the term
"Freely Tradeable
<PAGE>
Vested Common Stock" shall mean Common Stock that is (i) saleable in the
United States public equity markets under Securities and Exchange Commission
Rules 144 or 701 or pursuant to an S-8 Registration Statement, (ii) is not
subject to an underwriter lock-up or similar agreement restricting or
prohibiting resale right and (iii) is not subject to a right of repurchase in
favor of the Company or to employment or service-based vesting conditions
that are set forth in a stock option or stock purchase agreement and have not
been fulfilled; and the term Target Amount shall mean $1,000,000. The Target
Amount Achievement Date shall mean the date on which the Fair Market Value of
Freely Tradeable Vested Common Stock of the Company held by the Borrower or
issuable to the Borrower upon exercise of stock options first equals or
exceeds the Target Amount.
3. Security. This Note is secured by a pledge of all issued and
outstanding Common Stock of the Company now held by Borrower or hereafter
issued to Borrower upon exercise of stock options (collectively, the "Pledged
Securities"). The Borrower shall, upon request of the Company, deliver to
the Secretary of the Company as escrow agent ("Escrow Holder") all
certificates or instruments representing the Pledged Securities. In the
event of default in payment when due of any indebtedness under the Note, the
Company may elect then, or at any time thereafter, to exercise all rights
available to a secured party under the Massachusetts Uniform Commercial Code,
including the right to sell the Pledged Securities at a private or public
sale or repurchase the Pledged Securities. The parties agree that the
repurchasing of the Pledged Securities by the Company, or by any person to
whom the Company may have assigned its rights hereunder, is commercially
reasonable if made at the Fair Market Value (as defined below) of the Pledged
Securities. "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(a) If the Pledged Securities are listed on any established stock exchange
or a national market system, including without limitation the Nasdaq
National Market, the New York Stock Exchange or the American Stock
Exchange, their Fair Market Value shall be the closing sales price for
such securities as quoted on such exchange or system for the last
market trading day prior to the time of determination, as reported in
The Wall Street Journal;
(b) If the Pledged Securities are regularly quoted by on the Nasdaq
Small-Cap Market, another over-the-counter market or by a recognized
securities dealer but closing sale prices are not reported, the Fair
Market Value of a such securities shall be the mean between the high
bid and low asked prices for such securities on the date of
determination, as reported in The Wall Street Journal; or
(c) In the absence of an established market for the Pledged Securities,
the Fair Market Value thereof shall be determined in good faith by the
Board of Directors of the Company.
The proceeds of any sale or repurchase shall be applied in the following
order:
-2-
<PAGE>
1. To pay all reasonable expenses of the Company in enforcing this Note,
including reasonable attorney's fees.
2. In satisfaction of the remaining indebtedness under the Note.
3. To the Borrower, any remaining proceeds.
Upon full payment by the Borrower of all amounts due on the Note, the
Escrow Holder shall deliver to the Borrower the instrument(s) or
certificate(s) representing the Pledged Securities in the Escrow Holder's
possession belonging to the Borrower and the executed original of the Note
marked "canceled" by the Company, and the Escrow Holder shall be discharged
of all further obligations hereunder.
Except for the above-referenced pledge, none of the Pledged Securities or
any beneficial interest therein shall be transferred, encumbered or otherwise
disposed of in any way until the payment in full of the Note, other than by
will or the laws of descent and distribution; provided, however, that the
Company may, upon request of the Borrower but at the sole discretion of the
Company, consent to the release from escrow of some or all of the Pledged
Securities to the Borrower for the purpose of allowing the Borrower to sell
Pledged Securities for the purpose of repaying any part of the principal
amount of this Note and/or any part of the accrued interest thereon.
The Borrower agrees to execute such instruments and other documents and
to take such other actions as the Company shall request for the purpose of
carrying out the purposes of this Section 3.
4. Miscellaneous. Should any action or proceeding be commenced to
collect this Note or any portion of this Note, such sum as the court may deem
reasonable shall be added hereto as attorneys' fees. The Borrower waives
presentment for payment, protest, notice of protest, and notice of
non-payment of this Note. This Note shall be governed by and construed
according to the laws of the Commonwealth of Massachusetts, without regard to
the conflicts of law provisions thereof.
/s/ Arthur Coury
-----------------------------------
(Signature of Borrower)
Arthur Coury
-----------------------------------
(Print Name of Borrower)
-3-
<PAGE>
Agreed to and accepted as of the date set forth above:
FOCAL, INC.
By: /s/ W. Bradford Smith
-----------------------------
Name: W. Bradford Smith
---------------------------
Title: Chief Financial Officer
--------------------------
-4-
<PAGE>
EXHIBIT 10.21
RIGHTS AGREEMENT
Agreement, dated as of [ ], 1997, between Focal, Inc. a
---------------
Delaware corporation, and Norwest Bank Minnesota, N.A.
On [ ], 1997 (the "Rights Dividend Declaration Date"), the Board of
--------
Directors of the Company authorized and declared a dividend of one Preferred
Share Purchase Right (a "Right") for each Common Share (as hereinafter defined)
of the Company outstanding as of the Close of Business (as hereinafter defined)
on [ ], 1997 (the "Record Date"), each Right representing the right to
---------
purchase one one-thousandth of a share of Series A Participating Preferred Stock
(as such number may be adjusted pursuant to the provisions of this Agreement),
having the rights, preferences and privileges set forth in the form of
Certificate of Designations of Rights, Preferences and Privileges of Series A
Participating Preferred Stock attached hereto as Exhibit A, upon the terms and
subject to the conditions herein set forth, and further authorized and directed
the issuance of one Right (as such number may be adjusted pursuant to the
provisions of this Agreement) with respect to each Common Share that shall
become outstanding between the Record Date and the earlier of the Distribution
Date and the Expiration Date (as such terms are hereinafter defined), and in
certain circumstances after the Distribution Date.
NOW, THEREFORE, in consideration of the promises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of [15]% or more of the Common Shares then outstanding, but
shall not include the Company, any Subsidiary of the Company or any employee
benefit plan of the Company or of any Subsidiary of the Company, or any entity
holding Common Shares for or pursuant to the terms of any such plan.
Notwithstanding the foregoing, no Person shall be deemed to be an Acquiring
Person as the result of an acquisition of Common Shares by the Company which, by
reducing the number of shares outstanding, increases the proportionate number of
shares beneficially owned by such Person to [15]% or more of the Common Shares
of the Company then outstanding; provided, however, that if a Person shall
become the Beneficial Owner of [15]% or more of the Common Shares of the Company
then outstanding by reason of share purchases by the Company and shall, after
such share purchases by the Company, become the Beneficial Owner of any
additional Common Shares of the Company (other than pursuant to a dividend or
distribution paid or made by the Company on the outstanding Common Shares in
Common Shares or pursuant to a split or subdivision of the outstanding Common
Shares), then such Person shall be deemed to be an Acquiring Person unless upon
becoming the Beneficial Owner of such additional Common Shares of the Company
such Person does not beneficially own [15]% or more of the Common Shares of the
Company then outstanding. Notwithstanding the foregoing, (i) if a majority of
the Continuing Directors then in office
<PAGE>
determines in good faith that a Person who would otherwise be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this paragraph (a),
has become such inadvertently (including, without limitation, because (A) such
Person was unaware that it beneficially owned a percentage of the Common Shares
that would otherwise cause such Person to be an "Acquiring Person," as defined
pursuant to the foregoing provisions of this paragraph (a), or (B) such Person
was aware of the extent of the Common Shares it beneficially owned but had no
actual knowledge of the consequences of such beneficial ownership under this
Agreement) and without any intention of changing or influencing control of the
Company, and if such Person divested or divests as promptly as practicable a
sufficient number of Common Shares so that such Person would no longer be an
"Acquiring Person," as defined pursuant to the foregoing provisions of this
paragraph (a), then such Person shall not be deemed to be or to have become an
"Acquiring Person" for any purposes of this Agreement; and (ii) if, as of the
date hereof, any Person is the Beneficial Owner of [15]% or more of the Common
Shares outstanding, such Person shall not be or become an "Acquiring Person," as
defined pursuant to the foregoing provisions of this paragraph (a), unless and
until such time as such Person shall become the Beneficial Owner of additional
Common Shares (other than pursuant to a dividend or distribution paid or made by
the Company on the outstanding Common Shares in Common Shares or pursuant to a
split or subdivision of the outstanding Common Shares), unless, upon becoming
the Beneficial Owner of such additional Common Shares, such Person is not then
the Beneficial Owner of [15]% or more of the Common Shares then outstanding.
(b) "Adjustment Fraction" shall have the meaning set forth in
Section 11(a)(i) hereof.
(c) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date of this Agreement.
(d) A Person shall be deemed the "Beneficial Owner" of and shall
be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly, for purposes of
Section 13(d) of the Exchange Act and Rule 13d-3 thereunder (or any comparable
or successor law or regulation);
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion rights, exchange
rights, rights (other than the Rights), warrants or options, or otherwise;
provided, however, that a Person shall not be deemed pursuant to this
Section 1(d)(ii)(A) to be the Beneficial Owner of, or to beneficially own,
(1) securities tendered pursuant to a tender or exchange offer made by or on
behalf of such Person or any of such Person's Affiliates or Associates until
such tendered securities are accepted for purchase or exchange, or
(2) securities which a Person or any of such Person's Affiliates or Associates
may be deemed to have the right to acquire
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<PAGE>
pursuant to any merger or other acquisition agreement between the Company and
such Person (or one or more of its Affiliates or Associates) if such agreement
has been approved by the Board of Directors of the Company prior to there being
an Acquiring Person; or (B) the right to vote pursuant to any agreement,
arrangement or understanding; provided, however, that a Person shall not be
deemed the Beneficial Owner of, or to beneficially own, any security under this
Section 1(d)(ii)(B) if the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy or consent given to such
Person in response to a public proxy or consent solicitation made pursuant to,
and in accordance with, the applicable rules and regulations of the Exchange Act
and (2) is not also then reportable on Schedule 13D under the Exchange Act (or
any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly,
by any other Person (or any Affiliate or Associate thereof) with which such
Person or any of such Person's Affiliates or Associates has any agreement,
arrangement or understanding, whether or not in writing (other than customary
agreements with and between underwriters and selling group members with respect
to a bona fide public offering of securities) for the purpose of acquiring,
holding, voting (except to the extent contemplated by the proviso to
Section 1(d)(ii)(B)) or disposing of any securities of the Company; provided,
however, that in no case shall an officer or director of the Company be deemed
(x) the Beneficial Owner of any securities beneficially owned by another officer
or director of the Company solely by reason of actions undertaken by such
persons in their capacity as officers or directors of the Company or (y) the
Beneficial Owner of securities held of record by the trustee of any employee
benefit plan of the Company or any Subsidiary of the Company for the benefit of
any employee of the Company or any Subsidiary of the Company, other than the
officer or director, by reason of any influence that such officer or director
may have over the voting of the securities held in the plan.
(e) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in New York are authorized or
obligated by law or executive order to close.
(f) "Close of Business" on any given date shall mean 5:00 P.M.,
New York time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., New York time, on the next succeeding
Business Day.
(g) "Common Shares" when used with reference to the Company
shall mean the shares of Common Stock of the Company, $.001 par value. Common
Shares when used with reference to any Person other than the Company shall mean
the capital stock (or equity interest) with the greatest voting power of such
other Person or, if such other Person is a Subsidiary of another Person, the
Person or Persons which ultimately control such first-mentioned Person.
(h) "Common Stock Equivalents" shall have the meaning set forth
in Section 11(a)(iii) hereof.
(i) "Company" shall mean Focal, Inc. a Delaware corporation,
subject to the terms of Section 13(a)(iii)(C) hereof.
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<PAGE>
(j) "Continuing Director" shall mean (i) any member of the Board
of Directors of the Company who, while a member of the Board, is not an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a
representative of an Acquiring Person or of any such Affiliate or Associate, and
who was a member of the Board prior to there being an Acquiring Person, and
(ii) any Person who subsequently becomes a member of the Board and who, while a
member of the Board, is not an Acquiring Person, or an Affiliate or Associate of
an Acquiring Person, or a representative of an Acquiring Person or of any such
Affiliate or Associate, if such Person's nomination for election or election to
the Board is recommended or approved by a majority of the Continuing Directors.
(k) "Current Per Share Market Price" of any security (a
"Security" for purposes of this definition), for all computations other than
those made pursuant to Section 11(a)(iii) hereof, shall mean the average of the
daily closing prices per share of such Security for the thirty (30) consecutive
Trading Days immediately prior to such date, and for purposes of computations
made pursuant to Section 11(a)(iii) hereof, the Current Per Share Market Price
of any Security on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the ten (10) consecutive Trading
Days immediately prior to such date; provided, however, that in the event that
the Current Per Share Market Price of the Security is determined during a period
following the announcement by the issuer of such Security of (i) a dividend or
distribution on such Security payable in shares of such Security or securities
convertible into such shares or (ii) any subdivision, combination or
reclassification of such Security, and prior to the expiration of the applicable
thirty (30) Trading Day or ten (10) Trading Day period, after the ex-dividend
date for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the Current Per
Share Market Price shall be appropriately adjusted to reflect the current market
price per share equivalent of such Security. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, the last sale price or, if such last sale price is not reported, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by Nasdaq or such other system then in use, or, if on any such date the
Security is not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Security selected by the Board of Directors of the Company. If on any such
date no market maker is making a market in the Security, the fair value of such
shares on such date as determined in good faith by the Board of Directors of the
Company shall be used. If the Preferred Shares are not publicly traded, the
Current Per Share Market Price of the Preferred Shares shall be conclusively
deemed to be the Current Per Share Market Price of the Common Shares as
determined pursuant to this Section 1(k), as appropriately adjusted to reflect
any stock split, stock dividend or similar transaction occurring after the date
hereof, multiplied by 1000. If the Security is not publicly held or so listed
or traded, Current Per Share Market Price shall mean the fair value per share as
determined in good faith by the Board of
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<PAGE>
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all purposes.
(l) "Current Value" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(m) "Distribution Date" shall mean the earlier of (i) the Close
of Business on the tenth day (or such later date as may be determined by action
of a majority of Continuing Directors then in office) after the Shares
Acquisition Date (or, if the tenth day after the Shares Acquisition Date occurs
before the Record Date, the Close of Business on the Record Date) or (ii) the
Close of Business on the tenth Business Day (or such later date as may be
determined by action of a majority of Continuing Directors then in office) after
the date that a tender or exchange offer by any Person (other than the Company,
any Subsidiary of the Company, any employee benefit plan of the Company or of
any Subsidiary of the Company, or any Person or entity organized, appointed or
established by the Company for or pursuant to the terms of any such plan) is
first published or sent or given within the meaning of Rule 14d-2(a) of the
General Rules and Regulations under the Exchange Act, if, assuming the
successful consummation thereof, such Person would be an Acquiring Person.
(n) "Equivalent Shares" shall mean Preferred Shares and any
other class or series of capital stock of the Company which is entitled to the
same rights, privileges and preferences as the Preferred Shares.
(o) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(p) "Exchange Ratio" shall have the meaning set forth in
Section 24(a) hereof.
(q) "Exercise Price" shall have the meaning set forth
in Section 4(a) hereof.
(r) "Expiration Date" shall mean the earliest to occur of:
(i) the Close of Business on the Final Expiration Date, (ii) the Redemption
Date, (iii) consummation of any transaction contemplated by Section 13(f)
hereof, or (iv) the time at which the Board of Directors orders the exchange of
the Rights as provided in Section 24 hereof.
(s) "Final Expiration Date" shall mean [TEN YEARS FROM ADOPTION
DATE].
(t) "Nasdaq" shall mean the National Association of Securities
Dealers, Inc. Automated Quotations System.
(u) "Permitted Offer" shall mean a tender offer for all
outstanding Common Shares made in the manner prescribed by Section 14(d) of the
Exchange Act and the rules and regulations promulgated thereunder; provided,
however, that such tender offer occurs at a time when Continuing Directors are
in office and a majority of the Continuing Directors then in office has
determined that the offer is both fair and otherwise in the best interests of
the Company and its stockholders (taking into account all factors that such
Continuing Directors deem relevant).
-5-
<PAGE>
(v) "Person" shall mean any individual, firm, corporation or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
(w) "Post-Event Transferee" shall have the meaning set forth in
Section 7(e) hereof.
(x) "Preferred Shares" shall mean shares of Series A
Participating Preferred Stock, $.001 par value, of the Company.
(y) "Pre-Event Transferee" shall have the meaning set forth in
Section 7(e) hereof.
(z) "Principal Party" shall have the meaning set forth in
Section 13(b) hereof.
(aa) "Record Date" shall have the meaning set forth in the
recitals at the beginning of this Agreement.
(bb) "Redemption Date"shall have the meaning set forth in
Section 23(a) hereof.
(cc) "Redemption Price" shall have the meaning set forth in
Section 23(a) hereof.
(dd) "Rights Agent" shall mean Norwest Bank of Minnesota, N.A. or
its successor or replacement as provided in Sections 19 and 21 hereof.
(ee) "Rights Certificate" shall mean a certificate substantially
in the form attached hereto as Exhibit B.
(ff) "Rights Dividend Declaration Date" shall have the meaning
set forth in the recitals at the beginning of this Agreement.
(gg) "Section 11(a)(ii) Trigger Date" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(hh) "Section 13 Event" shall mean any event described in
clause (i), (ii) or (iii) of Section 13(a) hereof.
(ii) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(jj) "Shares Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) under the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such; provided that, if such Person is determined not to have become an
Acquiring Person pursuant to Section 1(a) hereof, then no Shares Acquisition
Date shall be deemed to have occurred.
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<PAGE>
(kk) "Spread" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(ll) "Subsidiary" of any Person shall mean any corporation or
other entity of which an amount of voting securities sufficient to elect a
majority of the directors or Persons having similar authority of such
corporation or other entity is beneficially owned, directly or indirectly, by
such Person, or any corporation or other entity otherwise controlled by such
Person.
(mm) "Substitution Period" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(nn) "Summary of Rights" shall mean a summary of this Agreement
substantially in the form attached hereto as Exhibit C.
(oo) "Total Exercise Price" shall have the meaning set forth in
Section 4(a) hereof.
(pp) "Trading Day" shall mean a day on which the principal
national securities exchange on which a referenced security is listed or
admitted to trading is open for the transaction of business or, if a referenced
security is not listed or admitted to trading on any national securities
exchange, a Business Day.
(qq) A "Triggering Event" shall be deemed to have occurred upon
any Person, becoming an Acquiring Person.
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall prior to the Distribution Date
also be the holders of the Common Shares) in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable.
Section 3. Issuance of Rights Certificates.
(a) Until the Distribution Date, (i) the Rights will be
evidenced (subject to the provisions of Sections 3(b) and 3(c) hereof) by the
certificates for Common Shares registered in the names of the holders thereof
(which certificates shall also be deemed to be Rights Certificates) and not by
separate Rights Certificates and (ii) the right to receive Rights Certificates
will be transferable only in connection with the transfer of Common Shares.
Until the earlier of the Distribution Date or the Expiration Date, the surrender
for transfer of certificates for Common Shares shall also constitute the
surrender for transfer of the Rights associated with the Common Shares
represented thereby. As soon as practicable after the Distribution Date, the
Company will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent (and the Rights Agent will, if requested,
send) by first-class, postage-prepaid mail, to each record holder of Common
Shares as of the Close of Business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Rights Certificate evidencing
one Right for each Common Share so held, subject to adjustment as
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<PAGE>
provided herein. In the event that an adjustment in the number of Rights per
Common Share has been made pursuant to Section 11 hereof, then at the time of
distribution of the Rights Certificates, the Company shall make the necessary
and appropriate rounding adjustments (in accordance with Section 14(a) hereof)
so that Rights Certificates representing only whole numbers of Rights are
distributed and cash is paid in lieu of any fractional Rights. As of the
Distribution Date, the Rights will be evidenced solely by such Rights
Certificates and may be transferred by the transfer of the Rights Certificates
as permitted hereby, separately and apart from any transfer of Common Shares,
and the holders of such Rights Certificates as listed in the records of the
Company or any transfer agent or registrar for the Rights shall be the record
holders thereof.
(b) On the Record Date or as soon as practicable thereafter, the
Company will send a copy of the Summary of Rights by first-class,
postage-prepaid mail, to each record holder of Common Shares as of the Close of
Business on the Record Date, at the address of such holder shown on the records
of the Company's transfer agent and registrar. With respect to certificates for
Common Shares outstanding as of the Record Date, until the Distribution Date,
the Rights will be evidenced by such certificates registered in the names of the
holders thereof together with the Summary of Rights. Until the Distribution
Date (or, if earlier, the Expiration Date), the surrender for transfer of any
certificate for Common Shares outstanding on the Record Date, with or without a
copy of the Summary of Rights, shall also constitute the transfer of the Rights
associated with the Common Shares represented thereby.
(c) Unless the Board of Directors by resolution adopted at or
before the time of the issuance of any Common Shares specifies to the contrary,
Rights shall be issued in respect of all Common Shares that are issued after the
Record Date but prior to the earlier of the Distribution Date or the Expiration
Date or, in certain circumstances provided in Section 22 hereof, after the
Distribution Date. Certificates representing such Common Shares shall also be
deemed to be certificates for Rights, and shall bear the following legend:
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO
CERTAIN RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN FOCAL, INC.
AND NORWEST BANK OF MINNESOTA, N.A., AS THE RIGHTS AGENT, DATED AS OF
[ ], 1997, (THE "RIGHTS AGREEMENT"), THE TERMS OF WHICH ARE
---------
HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE
AT THE PRINCIPAL EXECUTIVE OFFICES OF FOCAL, INC. UNDER CERTAIN
CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL
BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED
BY THIS CERTIFICATE. FOCAL, INC. WILL MAIL TO THE HOLDER OF THIS
CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER
RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES
SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY
PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR
ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT),
WHETHER CURRENTLY HELD BY
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<PAGE>
OR ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, MAY BECOME NULL
AND VOID.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Shares represented by such certificates shall be
evidenced by such certificates alone, and the surrender for transfer of any such
certificate shall also constitute the transfer of the Rights associated with the
Common Shares represented thereby.
(d) In the event that the Company purchases or acquires any
Common Shares after the Record Date but prior to the Distribution Date, any
Rights associated with such Common Shares shall be deemed canceled and retired
so that the Company shall not be entitled to exercise any Rights associated with
the Common Shares which are no longer outstanding.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to
purchase Common Shares and of assignment to be printed on the reverse thereof)
shall be substantially in the form of Exhibit B hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange or a national market system, on which
the Rights may from time to time be listed or included, or to conform to usage.
Subject to the provisions of Section 11 and Section 22 hereof, the Rights
Certificates, whenever distributed, shall be dated as of the Record Date (or in
the case of Rights issued with respect to Common Shares issued by the Company
after the Record Date, as of the date of issuance of such Common Shares) and on
their face shall entitle the holders thereof to purchase such number of
one-thousandths of a Preferred Share as shall be set forth therein at the price
set forth therein (such exercise price per one one-thousandth of a Preferred
Share being hereinafter referred to as the "Exercise Price" and the aggregate
Exercise Price of all Preferred Shares issuable upon exercise of one Right being
hereinafter referred to as the "Total Exercise Price"), but the number and type
of securities purchasable upon the exercise of each Right and the Exercise Price
shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by: (i) an
Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes such or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
such and receives such Rights pursuant to either (A) a transfer (whether or not
for consideration) from the Acquiring Person to holders of equity interests in
such Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which a majority of the Continuing Directors then in
office has determined is part of a plan, arrangement or understanding which has
as a
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<PAGE>
primary purpose or effect avoidance of Section 7(e) hereof, and any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain (to the extent feasible) the following legend:
THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON
OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE
DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID
IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS
AGREEMENT.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its Chief Executive Officer, its Chief
Financial Officer, its President or any Vice President, either manually or by
facsimile signature, and by the Secretary or an Assistant Secretary of the
Company, either manually or by facsimile signature, and shall have affixed
thereto the Company's seal (if any) or a facsimile thereof. The Rights
Certificates shall be manually countersigned by the Rights Agent and shall not
be valid for any purpose unless countersigned. In case any officer of the
Company who shall have signed any of the Rights Certificates shall cease to be
such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Rights Certificates, nevertheless,
may be countersigned by the Rights Agent and issued and delivered by the Company
with the same force and effect as though the person who signed such Rights
Certificates on behalf of the Company had not ceased to be such officer of the
Company; and any Rights Certificate may be signed on behalf of the Company by
any person who, at the actual date of the execution of such Rights Certificate,
shall be a proper officer of the Company to sign such Rights Certificate,
although at the date of the execution of this Rights Agreement any such person
was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep
or cause to be kept, at its office designated for such purposes, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced on its face by each of the Rights
Certificates and the date of each of the Rights Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Sections 7(e), 14 and 24
hereof, at any time after the Close of Business on the Distribution Date, and at
or prior to the Close of Business on the Expiration Date, any Rights Certificate
or Rights Certificates may be transferred, split up, combined or exchanged for
another Rights Certificate or Rights Certificates, entitling the registered
holder to purchase a like number of one-thousandths of a Preferred Share (or,
following a Triggering Event, other securities, cash
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<PAGE>
or other assets, as the case may be) as the Rights Certificate or Rights
Certificates surrendered then entitled such holder to purchase. Any registered
holder desiring to transfer, split up, combine or exchange any Rights
Certificate or Rights Certificates shall make such request in writing delivered
to the Rights Agent, and shall surrender the Rights Certificate or Rights
Certificates to be transferred, split up, combined or exchanged at the office of
the Rights Agent designated for such purpose. Neither the Rights Agent nor the
Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate until the registered holder
shall have completed and signed the certificate contained in the form of
assignment on the reverse side of such Rights Certificate and shall have
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request. Thereupon the Rights Agent shall, subject to
Sections 7(e), 14 and 24 hereof, countersign and deliver to the person entitled
thereto a Rights Certificate or Rights Certificates, as the case may be, as so
requested. The Company may require payment of a sum sufficient to cover any tax
or governmental charge that may be imposed in connection with any transfer,
split up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Rights Certificate if mutilated, the Company will make and deliver a new
Rights Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Rights Certificate so lost, stolen, destroyed
or mutilated.
Section 7. Exercise of Rights; Exercise Price; Expiration Date of
Rights.
(a) Subject to Sections 7(e), 23(b) and 24(b) hereof, the
registered holder of any Rights Certificate may exercise the Rights evidenced
thereby (except as otherwise provided herein) in whole or in part at any time
after the Distribution Date and prior to the Close of Business on the Expiration
Date by surrender of the Rights Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights Agent at the
office of the Rights Agent designated for such purpose, together with payment of
the Exercise Price for each one-thousandth of a Preferred Share (or, following a
Triggering Event, other securities, cash or other assets as the case may be) as
to which the Rights are exercised.
(b) The Exercise Price for each one-thousandth of a Preferred
Share issuable pursuant to the exercise of a Right shall initially be [One
Hundred Fifty Dollars ($150.00)], shall be subject to adjustment from time to
time as provided in Sections 11 and 13 hereof and shall be payable in lawful
money of the United States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Exercise Price for the number of one-thousandths
of a Preferred Share (or, following a Triggering Event, other securities, cash
or other
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assets as the case may be) to be purchased and an amount equal to any applicable
transfer tax required to be paid by the holder of such Rights Certificate in
accordance with Section 9(e) hereof, the Rights Agent shall, subject to
Section 20(k) hereof, thereupon promptly (i) (A) requisition from any transfer
agent of the Preferred Shares (or make available, if the Rights Agent is the
transfer agent for the Preferred Shares) a certificate or certificates for the
number of one-thousandths of a Preferred Share (or, following a Triggering
Event, other securities, cash or other assets as the case may be) to be
purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests or (B) if the Company shall have elected to
deposit the total number of one-thousandths of a Preferred Share (or, following
a Triggering Event, other securities, cash or other assets as the case may be)
issuable upon exercise of the Rights hereunder with a depositary agent,
requisition from the depositary agent depositary receipts representing such
number of one-thousandths of a Preferred Share (or, following a Triggering
Event, other securities, cash or other assets as the case may be) as are to be
purchased (in which case certificates for the Preferred Shares (or, following a
Triggering Event, other securities, cash or other assets as the case may be)
represented by such receipts shall be deposited by the transfer agent with the
depositary agent) and the Company hereby directs the depositary agent to comply
with such request, (ii) when appropriate, requisition from the Company the
amount of cash to be paid in lieu of issuance of fractional shares in accordance
with Section 14 hereof, (iii) after receipt of such certificates or depositary
receipts, cause the same to be delivered to or upon the order of the registered
holder of such Rights Certificate, registered in such name or names as may be
designated by such holder and (iv) when appropriate, after receipt thereof,
deliver such cash to or upon the order of the registered holder of such Rights
Certificate. The payment of the Exercise Price (as such amount may be reduced
(including to zero) pursuant to Section 11(a)(iii) hereof) and an amount equal
to any applicable transfer tax required to be paid by the holder of such Rights
Certificate in accordance with Section 9(e) hereof, may be made in cash or by
certified bank check, cashier's check or bank draft payable to the order of the
Company. In the event that the Company is obligated to issue securities of the
Company other than Preferred Shares, pay cash and/or distribute other property
pursuant to Section 11(a) hereof, the Company will make all arrangements
necessary so that such other securities, cash and/or other property are
available for distribution by the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Rights
Certificate or to his or her duly authorized assigns, subject to the provisions
of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary,
from and after the first occurrence of a Triggering Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such (a "Post-Event Transferee"), (iii) a transferee of an Acquiring
Person (or of any such Associate or Affiliate) who becomes a transferee prior to
or concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights
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or (B) a transfer which a majority of the Continuing Directors then in office
has determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect the avoidance of this Section 7(e) (a "Pre-Event
Transferee") or (iv) any subsequent transferee receiving transferred Rights from
a Post-Event Transferee or a Pre-Event Transferee, either directly or through
one or more intermediate transferees, shall become null and void without any
further action and no holder of such Rights shall have any rights whatsoever
with respect to such Rights, whether under any provision of this Agreement or
otherwise. The Company shall use all reasonable efforts to ensure that the
provisions of this Section 7(e) and Section 4(b) hereof are complied with, but
shall have no liability to any holder of Rights Certificates or to any other
Person as a result of its failure to make any determinations with respect to an
Acquiring Person or any of such Acquiring Person's Affiliates, Associates or
transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall, in
addition to having complied with the requirements of Section 7(a), have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Rights Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Rights Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Preferred Shares.
(a) The Company covenants and agrees that it will use its best
efforts to cause to be reserved and kept available out of its authorized and
unissued Preferred Shares not reserved for another purpose (and, following the
occurrence of a Triggering Event, out of its authorized and unissued Common
Shares and/or other securities), the number of Preferred Shares (and, following
the occurrence of the Triggering Event, Common Shares and/or other securities)
that will be sufficient to permit the exercise in full of all outstanding
Rights.
(b) If the Company shall hereafter list any of its Preferred
Shares on a national securities exchange, then so long as the Preferred Shares
(and, following the occurrence of a Triggering
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Event, Common Shares and/or other securities) issuable and deliverable upon
exercise of the Rights may be listed on such exchange, the Company shall use its
best efforts to cause, from and after such time as the Rights become exercisable
(but only to the extent that it is reasonably likely that the Rights will be
exercised), all shares reserved for such issuance to be listed on such exchange
upon official notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file, as soon
as practicable following the earliest date after the first occurrence of a
Triggering Event in which the consideration to be delivered by the Company upon
exercise of the Rights is described in Section 11(a)(ii) or Section 11(a)(iii)
hereof, or as soon as is required by law following the Distribution Date, as the
case may be, a registration statement under the Securities Act with respect to
the securities purchasable upon exercise of the Rights on an appropriate form,
(ii) cause such registration statement to become effective as soon as
practicable after such filing and (iii) cause such registration statement to
remain effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the earlier of (A) the date as of which the Rights are no
longer exercisable for such securities and (B) the date of expiration of the
Rights. The Company may temporarily suspend, for a period not to exceed ninety
(90) days after the date set forth in clause (i) of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating, and notify
the Rights Agent, that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement and notification to the Rights Agent
at such time as the suspension is no longer in effect. The Company will also
take such action as may be appropriate under, or to ensure compliance with, the
securities or "blue sky" laws of the various states in connection with the
exercisability of the Rights. Notwithstanding any provision of this Agreement
to the contrary, the Rights shall not be exercisable in any jurisdiction, unless
the requisite qualification in such jurisdiction shall have been obtained, or an
exemption therefrom shall be available, and until a registration statement has
been declared effective.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all Preferred Shares (or other
securities of the Company) delivered upon exercise of Rights shall, at the time
of delivery of the certificates for such securities (subject to payment of the
Exercise Price), be duly and validly authorized and issued and fully paid and
nonassessable shares.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the original issuance or delivery of the
Rights Certificates or of any Preferred Shares (or other securities of the
Company) upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
or delivery of Rights Certificates to a person other than, or the issuance or
delivery of certificates or depositary receipts for the Preferred Shares (or
other securities of the Company) in a name other than that of, the registered
holder of the Rights Certificate evidencing Rights surrendered for exercise or
to issue or to deliver any certificates or depositary receipts for Preferred
Shares (or other securities of the Company) upon the exercise of any Rights
until any such tax shall have been paid (any such tax being payable by the
holder of such Rights
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Certificate at the time of surrender) or until it has been established to the
Company's satisfaction that no such tax is due.
Section 10. Record Date. Each Person in whose name any certificate for
a number of one-thousandths of a Preferred Share (or other securities of the
Company) is issued upon the exercise of Rights shall for all purposes be deemed
to have become the holder of record of Preferred Shares (or other securities of
the Company) represented thereby on, and such certificate shall be dated, the
date upon which the Rights Certificate evidencing such Rights was duly
surrendered and payment of the Total Exercise Price with respect to which the
Rights have been exercised (and any applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is a date upon
which the transfer books of the Company are closed, such Person shall be deemed
to have become the record holder of such shares on, and such certificate shall
be dated, the next succeeding Business Day on which the transfer books of the
Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Rights Certificate shall not be entitled to any rights of a holder
of Preferred Shares (or other securities of the Company) for which the Rights
shall be exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions or to exercise any preemptive rights,
and shall not be entitled to receive any notice of any proceedings of the
Company, except as provided herein.
Section 11. Adjustment of Exercise Price, Number of Shares or Number of
Rights. The Exercise Price, the number and kind of shares or other property
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a) (i) Anything in this Agreement to the contrary
notwithstanding, in the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares (by reverse stock split or otherwise) into a
smaller number of Preferred Shares, or (D) issue any shares of its capital stock
in a reclassification of the Preferred Shares (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), then, in each such event,
except as otherwise provided in this Section 11 and Section 7(e) hereof: (1) the
Exercise Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that the Exercise Price thereafter shall equal the result obtained
by dividing the Exercise Price in effect immediately prior to such time by a
fraction (the "Adjustment Fraction"), the numerator of which shall be the total
number of Preferred Shares (or shares of capital stock issued in such
reclassification of the Preferred Shares) outstanding immediately following such
time and the denominator of which shall be the total number of Preferred Shares
outstanding immediately prior to such time; provided, however, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company issuable
upon exercise of such Right; and (2) the number of one-thousandths of a
Preferred Share (or share of such other capital stock) issuable upon the
exercise of each Right shall equal the number of one-thousandths of a Preferred
Share (or share of such other capital stock) as was issuable upon exercise of a
Right immediately prior to the occurrence of the event described in clauses
(A)-(D) of this Section 11(a)(i), multiplied by the Adjustment Fraction;
provided, however, that, no such adjustment shall be made pursuant to this
Section
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11(a)(i) to the extent that there shall have simultaneously occurred an event
described in clause (A), (B), (C) or (D) of Section 11(n) with a proportionate
adjustment being made thereunder. Each Common Share that shall become
outstanding after an adjustment has been made pursuant to this Section 11(a)(i)
shall have associated with it the number of Rights, exercisable at the Exercise
Price and for the number of one-thousandths of a Preferred Share (or shares of
such other capital stock) as one Common Share has associated with it immediately
following the adjustment made pursuant to this Section 11(a)(i).
(ii) Subject to Section 24 of this Agreement, in the event a
Triggering Event shall have occurred, then promptly following such Triggering
Event each holder of a Right, except as provided in Section 7(e) hereof, shall
thereafter have the right to receive for each Right, upon exercise thereof in
accordance with the terms of this Agreement and payment of the Exercise Price in
effect immediately prior to the occurrence of the Triggering Event, in lieu of a
number of one-thousandths of a Preferred Share, such number of Common Shares
of the Company as shall equal the result obtained by multiplying the Exercise
Price in effect immediately prior to the occurrence of the Triggering Event by
the number of one-thousandths of a Preferred Share for which a Right was
exercisable (or would have been exercisable if the Distribution Date had
occurred) immediately prior to the first occurrence of a Triggering Event, and
dividing that product by 50% of the Current Per Share Market Price for Common
Shares on the date of occurrence of the Triggering Event; provided, however,
that the Exercise Price and the number of Common Shares of the Company so
receivable upon exercise of a Right shall be subject to further adjustment as
appropriate in accordance with Section 11(e) hereof to reflect any events
occurring in respect of the Common Shares of the Company after the occurrence of
the Triggering Event. Notwithstanding the foregoing provisions of this
Section 11(a)(ii), the right to buy Common Shares of the Company pursuant to
Section 11(a)(ii) hereof shall not arise as a result of any Person becoming an
Acquiring Person through an acquisition of Common Shares pursuant to a Permitted
Offer.
(iii) In lieu of issuing Common Shares in accordance with
Section 11(a)(ii) hereof, the Company may, if a majority of the Continuing
Directors then in office determines that such action is necessary or appropriate
and not contrary to the interest of holders of Rights and, in the event that the
number of Common Shares which are authorized by the Company's Certificate of
Incorporation but not outstanding or reserved for issuance for purposes other
than upon exercise of the Rights are not sufficient to permit the exercise in
full of the Rights, or if any necessary regulatory approval for such issuance
has not been obtained by the Company, the Company shall: (A) determine the
excess of (1) the value of the Common Shares issuable upon the exercise of a
Right (the "Current Value") over (2) the Exercise Price (such excess, the
"Spread") and (B) with respect to each Right, make adequate provision to
substitute for such Common Shares, upon exercise of the Rights, (1) cash, (2) a
reduction in the Exercise Price, (3) other equity securities of the Company
(including, without limitation, shares or units of shares of any series of
preferred stock which a majority of the Continuing Directors then in office has
deemed to have the same value as Common Shares (such shares or units of shares
of preferred stock are herein called "Common Stock Equivalents")), except to the
extent that the Company has not obtained any necessary stockholder or regulatory
approval for such issuance, (4) debt securities of the Company, except to the
extent that the Company has not obtained any necessary stockholder or regulatory
approval for such issuance, (5) other assets or (6) any combination of the
foregoing, having an aggregate value equal to the Current Value, where such
aggregate value has been determined by a majority of the
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Continuing Directors then in office based upon the advice of a nationally
recognized investment banking firm selected by a majority of the Continuing
Directors then in office; provided, however, if the Company shall not have made
adequate provision to deliver value pursuant to clause (B) above within thirty
(30) days following the later of (x) the first occurrence of a Triggering Event
and (y) the date on which the Company's right of redemption pursuant to
Section 23(a) expires (the later of (x) and (y) being referred to herein as the
"Section 11(a)(ii) Trigger Date"), then the Company shall be obligated to
deliver, upon the surrender for exercise of a Right and without requiring
payment of the Exercise Price, Common Shares (to the extent available), except
to the extent that the Company has not obtained any necessary stockholder or
regulatory approval for such issuance, and then, if necessary, cash, which
shares and/or cash have an aggregate value equal to the Spread. If a majority
of the Continuing Directors then in office shall determine in good faith that it
is likely that sufficient additional Common Shares could be authorized for
issuance upon exercise in full of the Rights or that any necessary regulatory
approval for such issuance will be obtained, the thirty (30) day period set
forth above may be extended to the extent necessary, but not more than ninety
(90) days after the Section 11(a)(ii) Trigger Date, in order that the Company
may seek stockholder approval for the authorization of such additional shares or
take action to obtain such regulatory approval (such period, as it may be
extended, the "Substitution Period"). To the extent that the Company determines
that some action need be taken pursuant to the first and/or second sentences of
this Section 11(a)(iii), the Company (x) shall provide, subject to Section 7(e)
hereof, that such action shall apply uniformly to all outstanding Rights and
(y) may suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek any authorization of additional shares, to
take any action to obtain any required regulatory approval and/or to decide the
appropriate form of distribution to be made pursuant to such first sentence and
to determine the value thereof. In the event of any such suspension, the
Company shall issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended, as well as a public announcement at such
time as the suspension is no longer in effect. For purposes of this
Section 11(a)(iii), the value of the Common Shares shall be the Current Per
Share Market Price of the Common Shares on the Section 11(a)(ii) Trigger Date
and the value of any Common Stock Equivalent shall be deemed to have the same
value as the Common Shares on such date.
(b) In case the Company shall, at any time after the date of
this Agreement, fix a record date for the issuance of rights, options or
warrants to all holders of Preferred Shares entitling such holders (for a period
expiring within forty-five (45) calendar days after such record date) to
subscribe for or purchase Preferred Shares or Equivalent Shares or securities
convertible into Preferred Shares or Equivalent Shares at a price per share (or
having a conversion price per share, if a security convertible into Preferred
Shares or Equivalent Shares) less than the then Current Per Share Market Price
of the Preferred Shares or Equivalent Shares on such record date, then, in each
such case, the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of
Preferred Shares and Equivalent Shares (if any) outstanding on such record date,
plus the number of Preferred Shares or Equivalent Shares, as the case may be,
which the aggregate offering price of the total number of Preferred Shares or
Equivalent Shares, as the case may be, to be offered or issued (and/or the
aggregate initial conversion price of the convertible securities to be offered
or issued) would purchase at such current market price, and the denominator of
which shall be the number of Preferred Shares and
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Equivalent Shares (if any) outstanding on such record date, plus the number of
additional Preferred Shares or Equivalent Shares, as the case may be, to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible); provided, however, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company issuable
upon exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by a majority of the
Continuing Directors then in office, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights. Preferred Shares and Equivalent Shares owned by
or held for the account of the Company shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed, and in the event that such rights, options
or warrants are not so issued, the Exercise Price shall be adjusted to be the
Exercise Price which would then be in effect if such record date had not been
fixed.
(c) In case the Company shall, at any time after the date of
this Agreement, fix a record date for the making of a distribution to all
holders of the Preferred Shares or of any class or series of Equivalent Shares
(including any such distribution made in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation) of
evidences of indebtedness or assets (other than a regular quarterly cash
dividend, if any, or a dividend payable in Preferred Shares) or subscription
rights, options or warrants (excluding those referred to in Section 11(b)),
then, in each such case, the Exercise Price to be in effect after such record
date shall be determined by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
Current Per Share Market Price of a Preferred Share or an Equivalent Share on
such record date, less the fair market value per Preferred Share or Equivalent
Share (as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent) of the portion of the cash, assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a Preferred
Share or Equivalent Share, as the case may be, and the denominator of which
shall be such Current Per Share Market Price of a Preferred Share or Equivalent
Share on such record date; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. Such adjustments shall be made successively whenever
such a record date is fixed, and in the event that such distribution is not so
made, the Exercise Price shall be adjusted to be the Exercise Price which would
have been in effect if such record date had not been fixed.
(d) Anything herein to the contrary notwithstanding, no
adjustment in the Exercise Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in the Exercise Price; provided,
however, that any adjustments which by reason of this Section 11(d) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made to
the nearest cent or to the nearest ten-thousandth of a Common Share or other
share or one hundred-thousandth of a Preferred Share, as the case may be.
Notwithstanding the first sentence of this Section 11(d), any adjustment
required by this Section 11 shall
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be made no later than the earlier of (i) three (3) years from the date of the
transaction which requires such adjustment or (ii) the Expiration Date.
(e) If as a result of an adjustment made pursuant to
Section 11(a) or 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock other than
Preferred Shares, thereafter the number of such other shares so receivable upon
exercise of any Right and, if required, the Exercise Price thereof, shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Preferred Shares
contained in Sections 11(a), 11(b), 11(c), 11(d), 11(g), 11(h), 11(i), 11(j),
11(k) and 11(l), and the provisions of Sections 7, 9, 10, 13 and 14 with respect
to the Preferred Shares shall apply on like terms to any such other shares.
(f) All Rights originally issued by the Company subsequent to
any adjustment made to the Exercise Price hereunder shall evidence the right to
purchase, at the adjusted Exercise Price, the number of one-thousandths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(g) Unless the Company shall have exercised its election as
provided in Section 11(h), upon each adjustment of the Exercise Price as a
result of the calculations made in Section 11(b) and (c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Exercise Price, that number of Preferred
Shares (calculated to the nearest one hundred-thousandth of a share) obtained by
(i) multiplying (x) the number of Preferred Shares covered by a Right
immediately prior to this adjustment, by (y) the Exercise Price in effect
immediately prior to such adjustment of the Exercise Price, and (ii) dividing
the product so obtained by the Exercise Price in effect immediately after such
adjustment of the Exercise Price.
(h) The Company may elect on or after the date of any adjustment
of the Exercise Price as a result of the calculations made in Section 11(b) or
(c) to adjust the number of Rights, in substitution for any adjustment in the
number of Preferred Shares purchasable upon the exercise of a Right. Each of
the Rights outstanding after such adjustment of the number of Rights shall be
exercisable for the number of one-thousandths of a Preferred Share for which a
Right was exercisable immediately prior to such adjustment. Each Right held of
record prior to such adjustment of the number of Rights shall become that number
of Rights (calculated to the nearest one hundred-thousandth) obtained by
dividing the Exercise Price in effect immediately prior to adjustment of the
Exercise Price by the Exercise Price in effect immediately after adjustment of
the Exercise Price. The Company shall make a public announcement of its
election to adjust the number of Rights, indicating the record date for the
adjustment, and, if known at the time, the amount of the adjustment to be made.
This record date may be the date on which the Exercise Price is adjusted or any
day thereafter, but, if the Rights Certificates have been issued, shall be at
least ten (10) days later than the date of the public announcement. If Rights
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(h), the Company shall, as promptly as practicable,
cause to be distributed to holders of record of Rights Certificates on such
record date Rights Certificates evidencing, subject to Section 14 hereof, the
additional Rights to which such holders shall be entitled as a result of such
adjustment, or, at the
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option of the Company, shall cause to be distributed to such holders of record
in substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Exercise
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(i) Irrespective of any adjustment or change in the Exercise
Price or the number of Preferred Shares issuable upon the exercise of the
Rights, the Rights Certificates theretofore and thereafter issued may continue
to express the Exercise Price per one one-thousandth of a Preferred Share and
the number of one-thousandths of a Preferred Share which were expressed in the
initial Rights Certificates issued hereunder.
(j) Before taking any action that would cause an adjustment
reducing the Exercise Price below the par or stated value, if any, of the number
of one-thousandths of a Preferred Share issuable upon exercise of the Rights,
the Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue as
fully paid and nonassessable shares such number of one-thousandths of a
Preferred Share at such adjusted Exercise Price.
(k) In any case in which this Section 11 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the number of one-thousandths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the number of one-thousandths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis of
the Exercise Price in effect prior to such adjustment; provided, however, that
the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares
(fractional or otherwise) upon the occurrence of the event requiring such
adjustment.
(l) Anything in this Section 11 to the contrary notwithstanding,
prior to the Distribution Date, the Company shall be entitled to make such
reductions in the Exercise Price, in addition to those adjustments expressly
required by this Section 11, as and to the extent that it in its sole discretion
shall determine to be advisable in order that any (i) consolidation or
subdivision of the Preferred or Common Shares, (ii) issuance wholly for cash of
any Preferred or Common Shares at less than the current market price,
(iii) issuance wholly for cash of Preferred or Common Shares or securities which
by their terms are convertible into or exchangeable for Preferred or Common
Shares, (iv) stock dividends or (v) issuance of rights, options or warrants
referred to in this Section 11, hereafter made by the Company to holders of its
Preferred or Common Shares shall not be taxable to such stockholders.
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(m) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Sections 23, 24 or 27
hereof, take (or permit to be taken) any action if at the time such action is
taken it is reasonably foreseeable that such action will diminish substantially
or otherwise eliminate the benefits intended to be afforded by the Rights.
(n) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Common Shares payable in Common
Shares, (B) subdivide the outstanding Common Shares, (C) combine the outstanding
Common Shares (by reverse stock split or otherwise) into a smaller number of
Common Shares, or (D) issue any shares of its capital stock in a
reclassification of the Common Shares (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), then, in each such event, except as otherwise
provided in this Section 11(a) and Section 7(e) hereof: (1) each Common Share
(or shares of capital stock issued in such reclassification of the Common
Shares) outstanding immediately following such time shall have associated with
it the number of Rights as were associated with one Common Share immediately
prior to the occurrence of the event described in clauses (A)-(D) above; (2) the
Exercise Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that the Exercise Price thereafter shall equal the result obtained
by multiplying the Exercise Price in effect immediately prior to such time by a
fraction, the numerator of which shall be the total number of Common Shares
outstanding immediately prior to the event described in clauses (A)-(D) above,
and the denominator of which shall be the total number of Common Shares
outstanding immediately after such event; provided, however, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company issuable
upon exercise of such Right; and (3) the number of one-thousandths of a
Preferred Share (or shares of such other capital stock) issuable upon the
exercise of each Right outstanding after such event shall equal the number of
one-thousandths of a Preferred Share (or shares of such other capital stock) as
were issuable with respect to one Right immediately prior to such event. Each
Common Share that shall become outstanding after an adjustment has been made
pursuant to this Section 11(n) shall have associated with it the number of
Rights, exercisable at the Exercise Price and for the number of one-thousandths
of a Preferred Share (or shares of such other capital stock) as one Common Share
has associated with it immediately following the adjustment made pursuant to
this Section 11(n). If an event occurs which would require an adjustment under
both this Section 11(n) and Section 11(a)(ii) hereof, the adjustment provided
for in this Section 11(n) shall be in addition to, and shall be made prior to,
any adjustment required pursuant to Section 11(a)(ii) hereof.
Section 12. Certificate of Adjusted Exercise Price or Number of Shares.
Whenever an adjustment is made as provided in Sections 11 and 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment
and a brief statement of the faFUSION accounting for such adjustment, (b) file
with the Rights Agent and with each transfer agent for the Preferred Shares a
copy of such certificate and (c) mail a brief summary thereof to each holder of
a Rights Certificate in accordance with Section 26 hereof. Notwithstanding the
foregoing sentence, the failure of the Company to make such certification or
give such notice shall not affect the validity of such adjustment or the force
or effect of the requirement for such adjustment. The Rights Agent shall be
fully protected in relying
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on any such certificate and on any adjustment contained therein and shall not be
deemed to have knowledge of such adjustment unless and until it shall have
received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, following a Triggering Event, directly or
indirectly:
(i) the Company shall consolidate with, or merge with and
into, any other Person (other than a wholly-owned Subsidiary of the Company in a
transaction the principal purpose of which is to change the state of
incorporation of the Company and which complies with Section 11(m) hereof);
(ii) any Person shall consolidate with the Company, or merge
with and into the Company and the Company shall be the continuing or surviving
corporation of such consolidation or merger and, in connection with such merger,
all or part of the Common Shares shall be changed into or exchanged for stock or
other securities of any other person (or the Company); or
(iii) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person or Persons (other than the Company or one or more of its wholly
owned Subsidiaries in one or more transactions, each of which individually (and
together) complies with Section 11(m) hereof),
then, concurrent with and in each such case,
(A) each holder of a Right (except as provided in
Section 7(e) hereof) shall thereafter have the right to receive, upon the
exercise thereof at a price equal to the Total Exercise Price applicable
immediately prior to the occurrence of the Section 13 Event in accordance with
the terms of this Agreement, such number of validly authorized and issued, fully
paid, nonassessable and freely tradeable Common Shares of the Principal Party
(as hereinafter defined), free of any liens, encumbrances, rights of first
refusal or other adverse claims, as shall be equal to the result obtained by
dividing such Total Exercise Price by 50% of the Current Per Share Market Price
of the Common Shares of such Principal Party on the date of consummation of such
Section 13 Event, provided, however, that the Exercise Price and the number of
Common Shares of such Principal Party so receivable upon exercise of a Right
shall be subject to further adjustment as appropriate in accordance with
Section 11(e) hereof;
(B) such Principal Party shall thereafter be liable
for, and shall assume, by virtue of such Section 13 Event, all the obligations
and duties of the Company pursuant to this Agreement;
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(C) the term "Company" shall thereafter be deemed to
refer to such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of a Section 13 Event;
(D) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
Common Shares) in connection with the consummation of any such transaction as
may be necessary to ensure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its Common Shares
thereafter deliverable upon the exercise of the Rights; and
(E) upon the subsequent occurrence of any
consolidation, merger, sale or transfer of assets or other extraordinary
transaction in respect of such Principal Party, each holder of a Right shall
thereupon be entitled to receive, upon exercise of a Right and payment of the
Total Exercise Price as provided in this Section 13(a), such cash, shares,
rights, warrants and other property which such holder would have been entitled
to receive had such holder, at the time of such transaction, owned the Common
Shares of the Principal Party receivable upon the exercise of such Right
pursuant to this Section 13(a), and such Principal Party shall take such steps
(including, but not limited to, reservation of shares of stock) as may be
necessary to permit the subsequent exercise of the Rights in accordance with the
terms hereof for such cash, shares, rights, warrants and other property.
(F) For purposes hereof, the "earning power" of the
Company and its Subsidiaries shall be determined in good faith by the Company's
Board of Directors on the basis of the operating earnings of each business
operated by the Company and its Subsidiaries during the three fiscal years
preceding the date of such determination (or, in the case of any business not
operated by the Company or any Subsidiary during three full fiscal years
preceding such date, during the period such business was operated by the Company
or any Subsidiary).
(b) For purposes of this Agreement, the term "Principal Party"
shall mean:
(i) in the case of any transaction described in clause (i)
or (ii) of Section 13(a) hereof: (A) the Person that is the issuer of the
securities into which the Common Shares are converted in such merger or
consolidation, or, if there is more than one such issuer, the issuer the Common
Shares of which have the greatest aggregate market value of shares outstanding,
or (B) if no securities are so issued, (x) the Person that is the other party to
the merger, if such Person survives said merger, or, if there is more than one
such Person, the Person the Common Shares of which have the greatest aggregate
market value of shares outstanding or (y) if the Person that is the other party
to the merger does not survive the merger, the Person that does survive the
merger (including the Company if it survives) or (z) the Person resulting from
the consolidation; and
(ii) in the case of any transaction described in clause
(iii) of Section13(a) hereof, the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions, or, if more than one Person that is a party to such
transaction or transactions receives the same portion of the assets or earning
power so transferred and
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each such portion would, were it not for the other equal portions, constitute
the greatest portion of the assets or earning power so transferred, or if the
Person receiving the greatest portion of the assets or earning power cannot be
determined, whichever of such Persons is the issuer of Common Shares having the
greatest aggregate market value of shares outstanding;
provided, however, that in any such case described in the foregoing clause
(b)(i) or (b)(ii), if the Common Shares of such Person are not at such time or
have not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect
Subsidiary of another Person the Common Shares of which are and have been so
registered, the term "Principal Party" shall refer to such other Person, or (2)
if such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Shares of which are and have been so registered, the term "Principal
Party" shall refer to whichever of such Persons is the issuer of Common Shares
having the greatest aggregate market value of shares outstanding, or (3) if such
Person is owned, directly or indirectly, by a joint venture formed by two or
more Persons that are not owned, directly or indirectly by the same Person, the
rules set forth in clauses (1) and (2) above shall apply to each of the owners
having an interest in the venture as if the Person owned by the joint venture
was a Subsidiary of both or all of such joint venturers, and the Principal Party
in each such case shall bear the obligations set forth in this Section 13 in the
same ratio as its interest in such Person bears to the total of such interests.
(c) The Company shall not consummate any Section 13 Event unless
the Principal Party shall have a sufficient number of authorized Common Shares
that have not been issued or reserved for issuance to permit the exercise in
full of the Rights in accordance with this Section 13 and unless prior thereto
the Company and such issuer shall have executed and delivered to the Rights
Agent a supplemental agreement confirming that such Principal Party shall, upon
consummation of such Section 13 Event, assume this Agreement in accordance with
Sections 13(a) and 13(b) hereof, that all rights of first refusal or preemptive
rights in respect of the issuance of Common Shares of such Principal Party upon
exercise of outstanding Rights have been waived, that there are no rights,
warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such transaction, would
eliminate or substantially diminish the benefits intended to be afforded by the
Rights and that such transaction shall not result in a default by such Principal
Party under this Agreement, and further providing that, as soon as practicable
after the date of such Section 13 Event, such Principal Party will:
(i) prepare and file a registration statement under the
Securities Act with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, use its best efforts to cause
such registration statement to become effective as soon as practicable after
such filing and use its best efforts to cause such registration statement to
remain effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the Expiration Date, and similarly comply with applicable
state securities laws;
(ii) use its best efforts to list (or continue the listing
of) the Rights and the securities purchasable upon exercise of the Rights on a
national securities exchange or to meet the
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eligibility requirements for quotation on Nasdaq and list (or continue the
listing of) the Rights and the securities purchasable upon exercise of the
Rights on Nasdaq; and
(iii) deliver to holders of the Rights historical financial
statements for such Principal Party which comply in all respects with the
requirements for registration on Form 10 (or any successor form) under the
Exchange Act.
In the event that at any time after the occurrence of a Triggering Event
some or all of the Rights shall not have been exercised at the time of a
transaction described in this Section 13, the Rights which have not theretofore
been exercised shall thereafter be exercisable in the manner described in
Section 13(a) (without taking into account any prior adjustment required by
Section 11(a)(ii)).
(d) In case the "Principal Party" for purposes of Section 13(b)
hereof has provision in any of its authorized securities or in its certificate
of incorporation or by-laws or other instrument governing its corporate affairs,
which provision would have the effect of (i) causing such Principal Party to
issue (other than to holders of Rights pursuant to Section 13 hereof), in
connection with, or as a consequence of, the consummation of a Section 13 Event,
Common Shares or Equivalent Shares of such Principal Party at less than the then
Current Per Share Market Price thereof or securities exercisable for, or
convertible into, Common Shares or Equivalent Shares of such Principal Party at
less than such then Current Per Share Market Price, or (ii) providing for any
special payment, tax or similar provision in connection with the issuance of the
Common Shares of such Principal Party pursuant to the provisions of Section 13
hereof, then, in such event, the Company hereby agrees with each holder of
Rights that it shall not consummate any such transaction unless prior thereto
the Company and such Principal Party shall have executed and delivered to the
Rights Agent a supplemental agreement providing that the provision in question
of such Principal Party shall have been canceled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with or as a consequence of, the consummation of
the proposed transaction.
(e) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, effect or permit to occur any Section 13
Event, if (i) at the time or immediately after such Section 13 Event there are
any rights, warrants or other instruments or securities outstanding or
agreements in effect which would substantially diminish or otherwise eliminate
the benefits intended to be afforded by the Rights, (ii) prior to,
simultaneously with or immediately after such Section 13 Event, the stockholders
of the Person who constitutes, or would constitute, the "Principal Party" for
purposes of Section 13(b) hereof shall have received a distribution of Rights
previously owned by such Person or any of its Affiliates or Associates or (iii)
the form or nature of organization of the Principal Party would preclude or
limit the exercisability of the Rights.
(f) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in clauses (i) and
(ii) of Section 13(a) if: (i) such transaction is consummated with a Person or
Persons who acquired Common Shares pursuant to a Permitted Offer (or a
wholly-owned Subsidiary of any such Person or Persons); (ii) the price per share
of Common Shares offered in such transaction is not less than the price per
share of Common Shares paid to all holders of
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Common Shares whose shares were purchased pursuant to such Permitted Offer; and
(iii) the form of consideration being offered to the remaining holders of Common
Shares pursuant to such transaction is the same form as the form of
consideration paid pursuant to such Permitted Offer. Upon consummation of any
such transaction contemplated by this Section 13(f), all Rights hereunder shall
expire.
(g) The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of
Rights or to distribute Rights Certificates which evidence fractional Rights.
In lieu of such fractional Rights, there shall be paid to the registered holders
of the Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable, as determined pursuant to
the second sentence of Section 1(k) hereof.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions that are integral multiples of one
one-thousandth of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares (other than
fractions that are integral multiples of one one-thousandth of a Preferred
Share). Interests in fractions of Preferred Shares in integral multiples of one
one-thousandth of a Preferred Share may, at the election of the Company, be
evidenced by depositary receipts, pursuant to an appropriate agreement between
the Company and a depositary selected by it; provided, that such agreement shall
provide that the holders of such depositary receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners of
the Preferred Shares represented by such depositary receipts. In lieu of
fractional Preferred Shares that are not integral multiples of one
one-thousandth of a Preferred Share, the Company shall pay to the registered
holders of Rights Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the current market
value of a Preferred Share. For purposes of this Section 14(b), the current
market value of a Preferred Share shall be one thousand times the closing price
of a Common Share (as determined pursuant to the second sentence of Section 1(k)
hereof) for the Trading Day immediately prior to the date of such exercise.
(c) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares upon the exercise or exchange of Rights. In lieu of such fractional
Common Shares, the Company shall pay to the registered holders of Rights
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of a Common
Share. For purposes of this Section 14(c), the current market value of a Common
Share shall be the closing price of a Common Share (as
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determined pursuant to the second sentence of Section 1(k) hereof) for the
Trading Day immediately prior to the date of such exercise.
(d) The holder of a Right by the acceptance of the Right
expressly waives his or her right to receive any fractional Rights or any
fractional shares (other than fractions that are integral multiples of one
one-thousandth of a Preferred Share) upon exercise of a Right.
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Rights Certificate (or, prior
to the Distribution Date, of the Common Shares), without the consent of the
Rights Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his or her own behalf and for
his or her own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his or her right to exercise the Rights evidenced by such Rights Certificate in
the manner provided in such Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of, the obligations of any Person subject to this
Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed; and
(c) subject to Sections 6(a) and 7(f) hereof, the Company and
the Rights Agent may deem and treat the person in whose name the Rights
Certificate (or, prior to the Distribution Date, the associated Common Shares
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Shares certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent shall be affected by any notice to the
contrary.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose to be the holder of the Preferred Shares
or any other securities of the Company which may at any time be issuable
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on the exercise of the Rights represented thereby, nor shall anything contained
herein or in any Rights Certificate be construed to confer upon the holder of
any Rights Certificate, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold consent
to any corporate action, or to receive notice of meetings or other actions
affecting stockholders (except as provided in Section 25 hereof), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Rights Certificate shall have been exercised in accordance
with the provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability or expense, incurred without negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability in the premises. In no event will the Rights Agent be liable for
special, indirect, incidental or consequential loss or damage of any kind
whatsoever, even if the Rights Agent has been advised of the possibility of such
loss or damage.
(b) The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any
Rights Certificate or certificate for the Preferred Shares or Common Shares or
for other securities of the Company, instrument of assignment or transfer, power
of attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement or other paper or document reasonably believed by it to
be genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons, or otherwise upon the advice of
counsel as set forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto; provided, however, that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Rights Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been
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countersigned, any successor Rights Agent may countersign such Rights
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Rights Certificates
shall have the full force provided in the Rights Certificates and in this
Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the written advice or opinion of such
counsel shall be full and complete authorization and protection to the Rights
Agent as to any action taken or omitted by it in good faith and in accordance
with such written advice or opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person and
the determination of Current Per Share Market Price) be proved or established by
the Company prior to taking or suffering any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by any one of the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Chief Financial Officer, the
Secretary or any Assistant Secretary of the Company and delivered to the Rights
Agent; and such certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company
and any other Person only for its own negligence, bad faith or willful
misconduct.
(d) The Rights Agent shall not be liable for or by reason of any
of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
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thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
or any adjustment in the terms of the Rights (including the manner, method or
amount thereof) provided for in Sections 3, 11, 13, 23 or 24, or the
ascertaining of the existence of facts that would require any such change or
adjustment (except with respect to the exercise of Rights evidenced by Rights
Certificates after receipt by the Rights Agent of a certificate furnished
pursuant to Section 12 describing such change or adjustment); nor shall it by
any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Preferred Shares to be issued pursuant to
this Agreement or any Rights Certificate or as to whether any Preferred Shares
will, when issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Chief Financial Officer, the Secretary or any Assistant
Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered by it in good faith in accordance with instructions of
any such officer or for any delay in acting while waiting for those
instructions. Any application by the Rights Agent for written instructions from
the Company may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken or omitted by the Rights Agent under this Rights
Agreement and the date on and/or after which such action shall be taken or such
omission shall be effective. The Rights Agent shall not be liable for any
action taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified in such
application (which date shall not be less than five (5) Business Days after the
date any officer of the Company actually receives such application, unless any
such officer shall have consented in writing to an earlier date) unless, prior
to taking any such action (or the effective date in the case of an omission),
the Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys or agents, and the Rights Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any
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such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of such
funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has either
not been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company and to each
transfer agent of the Preferred Shares and the Common Shares by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent
upon thirty (30) days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Preferred Shares and the Common Shares by registered or certified mail, and to
the holders of the Rights Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of thirty (30) days after giving
notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Rights Certificate (who shall, with such notice, submit his or
her Rights Certificate for inspection by the Company), then the registered
holder of any Rights Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States or
of any state of the United States, in good standing, which is authorized under
such laws to exercise corporate trust or stockholder services powers and is
subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $100 million. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Preferred Shares and the Common Shares, and mail a notice thereof in writing
to the registered holders of the Rights Certificates. Failure to give any
notice provided for in this Section 21, however, or any defect therein, shall
not affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
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Section 22. Issuance of New Rights Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Rights Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Exercise Price and the number or kind or class of shares or other
securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of Common Shares following the Distribution Date and
prior to the redemption or expiration of the Rights, the Company (a) shall, with
respect to Common Shares so issued or sold pursuant to the exercise of stock
options or under any employee plan or arrangement or upon the exercise,
conversion or exchange of other securities of the Company outstanding at the
date hereof or upon the exercise, conversion or exchange of securities
hereinafter issued by the Company and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company, issue Rights
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, however, that (i) no such Rights Certificate
shall be issued and this sentence shall be null and void ab initio if, and to
the extent that, such issuance or this sentence would create a significant risk
of or result in material adverse tax consequences to the Company or the Person
to whom such Rights Certificate would be issued or would create a significant
risk of or result in such options' or employee plans' or arrangements' failing
to qualify for otherwise available special tax treatment and (ii) no such Rights
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.
Section 23. Redemption.
(a) The Company may, at its option and with the approval of the
Board of Directors, at any time prior to the Close of Business on the earlier of
(i) the tenth day following the Shares Acquisition Date (or such later date as
may be determined by action of a majority of Continuing Directors then in office
and publicly announced by the Company) and (ii) the Final Expiration Date,
redeem all but not less than all the then outstanding Rights at a redemption
price of $0.01 per Right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof (such
redemption price being herein referred to as the "Redemption Price") and the
Company may, at its option, pay the Redemption Price either in Common Shares
(based on the Current Per Share Market Price thereof at the time of redemption)
or cash. Such redemption of the Rights by the Company may be made effective at
such time, on such basis and with such conditions as the Board of Directors in
its sole discretion may establish; provided, however, if the Board of Directors
of the Company authorizes redemption of the Rights on or after the time a Person
becomes an Acquiring Person, then there must be Continuing Directors then in
office and such authorization shall require the concurrence of a majority of
such Continuing Directors. The date on which the Board of Directors elects to
make the redemption effective shall be referred to as the "Redemption Date."
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which shall have been
filed with the Rights Agent, and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price.
The Company shall promptly give public notice of any such redemption; provided,
however, that the failure to give or any
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defect in, any such notice shall not affect the validity of such redemption.
Within ten (10) days after the action of the Board of Directors ordering the
redemption of the Rights, the Company shall give notice of such redemption to
the Rights Agent and the holders of the then outstanding Rights by mailing such
notice to all such holders at their last addresses as they appear upon the
registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Common Shares. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of redemption will state the
method by which the payment of the Redemption Price will be made. Neither the
Company nor any of its Affiliates or Associates may redeem, acquire or purchase
for value any Rights at any time in any manner other than that specifically set
forth in this Section 23 or in Section 24 hereof, and other than in connection
with the purchase of Common Shares prior to the Distribution Date.
Section 24. Exchange.
(a) Subject to applicable laws, rules and regulations, and
subject to subsection 24(c) below, the Company may, at its option, by majority
vote of the Board of Directors and a majority vote of the Continuing Directors,
at any time after the occurrence of a Triggering Event, exchange all or part of
the then outstanding and exercisable Rights (which shall not include Rights that
have become void pursuant to the provisions of Section 7(e) hereof) for Common
Shares at an exchange ratio of one Common Share per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being hereinafter referred
to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board of
Directors shall not be empowered to effect such exchange at any time after any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any such Subsidiary, or any entity holding Common
Shares for or pursuant to the terms of any such plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or
more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to subsection 24(a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Common Shares equal to the
number of such Rights held by such holder multiplied by the Exchange Ratio. The
Company shall give public notice of any such exchange; provided, however, that
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange. The Company shall mail a notice of any such exchange to all
of the holders of such Rights at their last addresses as they appear upon the
registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the
exchange of the Common Shares for Rights will be effected and, in the event of
any partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 7(e) hereof)
held by each holder of Rights.
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<PAGE>
(c) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with Section 24(a), the
Company shall either take such action as may be necessary to authorize
additional Common Shares for issuance upon exchange of the Rights or
alternatively, at the option of a majority of the Board of Directors, with
respect to each Right (i) pay cash in an amount equal to the Current Value
(as hereinafter defined), in lieu of issuing Common Shares in exchange
therefor, or (ii) issue debt or equity securities or a combination thereof,
having a value equal to the Current Value, in lieu of issuing Common Shares
in exchange for each such Right, where the value of such securities shall be
determined by a nationally recognized investment banking firm selected by
majority vote of the Board of Directors, or (iii) deliver any combination of
cash, property, Common Shares and/or other securities having a value equal to
the Current Value in exchange for each Right. For purposes of this Section
24(c) only, the Current Value shall mean the product of the Current Per Share
Market Price of Common Shares on the date of the occurrence of the event
described above in subparagraph (a), multiplied by the number of Common
Shares for which the Right otherwise would be exchangeable if there were
sufficient shares available. To the extent that the Company determines that
some action need be taken pursuant to clauses (i), (ii) or (iii) of this
Section 24(c), the Board of Directors may temporarily suspend the
exercisability of the Rights for a period of up to sixty (60) days following
the date on which the event described in Section 24(a) shall have occurred,
in order to seek any authorization of additional Common Shares and/or to
decide the appropriate form of distribution to be made pursuant to the above
provision and to determine the value thereof. In the event of any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended.
(d) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, there shall be paid to the
registered holders of the Rights Certificates with regard to which such
fractional Common Shares would otherwise be issuable, an amount in cash equal to
the same fraction of the current market value of a whole Common Share (as
determined pursuant to the second sentence of Section 1(k) hereof).
(e) The Company may, at its option, by majority vote of the
Board of Directors, at any time before any Person has become an Acquiring
Person, exchange all or part of the then outstanding Rights for rights of
substantially equivalent value, as determined reasonably and with good faith by
the Board of Directors, based upon the advice of one or more nationally
recognized investment banking firms.
(f) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to subsection 24(e) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of rights in exchange therefor as
has been determined by the Board of Directors in accordance with
subsection 24(e) above. The Company shall give public notice of any such
exchange; provided, however, that the failure to give, or any defect in, such
notice shall not affect the validity of such exchange. The Company shall mail a
notice of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the transfer
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<PAGE>
agent for the Common Shares of the Company. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives
the notice. Each such notice of exchange will state the method by which the
exchange of the Rights will be effected.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose to effect or permit to
occur any Triggering Event or Section 13 Event, the Company shall give notice
thereof to each holder of Rights in accordance with Section 26 hereof at least
twenty (20) days prior to occurrence of such Triggering Event or such Section 13
Event.
(b) In case any Triggering Event or Section 13 Event shall
occur, then, in any such case, the Company shall as soon as practicable
thereafter give to each holder of a Rights Certificate, in accordance with
Section 26 hereof, a notice of the occurrence of such event, which shall specify
the event and the consequences of the event to holders of Rights under
Sections 11(a)(ii) and 13 hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Rights Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
FOCAL, INC.
4 Maguire Road
Lexington, Massachusetts 02173
Attention: Chief Financial Officer
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Christopher D. Mitchell
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Company or by the holder
of any Rights Certificate to or on the Rights Agent shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
NORWEST BANK OF MINNESOTA, N.A.
161 North Concord Exchange
South St. Paul, Minnesota 55075-0738
Attention: Ms. Tammy Brusehaver
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<PAGE>
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. Prior to the occurrence of a
Distribution Date, the Company may supplement or amend this Agreement in any
respect without the approval of any holders of Rights and the Rights Agent
shall, if the Company so directs, execute such supplement or amendment. From
and after the occurrence of a Distribution Date, the Company and the Rights
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Rights in order to (i) cure any ambiguity,
(ii) correct or supplement any provision contained herein which may be defective
or inconsistent with any other provisions herein, (iii) shorten or lengthen any
time period hereunder (which shortening or lengthening shall be effective only
if there are Continuing Directors and shall require the concurrence of a
majority of such Continuing Directors) or (iv) to change or supplement the
provisions hereunder in any manner that the Company may deem necessary or
desirable and that shall not adversely affect the interests of the holders of
Rights (other than an Acquiring Person or an Affiliate or Associate of an
Acquiring Person); provided, this Agreement may not be supplemented or amended
to lengthen, pursuant to clause (iii) of this sentence, (A) a time period
relating to when the Rights may be redeemed at such time as the Rights are not
then redeemable or (B) any other time period unless such lengthening is for the
purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights (other than an Acquiring Person or an
Affiliate or Associate of an Acquiring Person). Upon the delivery of a
certificate from an appropriate officer of the Company that states that the
proposed supplement or amendment is in compliance with the terms of this
Section 27, the Rights Agent shall execute such supplement or amendment. Prior
to the Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Shares.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors, etc.
For all purposes of this Agreement, any calculation of the number of Common
Shares outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding Common Shares of
which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations
under the Exchange Act. The Board of Directors of the Company (or, where
specifically provided for herein, the Continuing Directors) shall have the
exclusive power and authority to administer this Agreement and to exercise
all rights and powers specifically granted to the Board, or the Company (or,
where specifically provided for herein, the Continuing Directors), or as may
be necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of
this Agreement and (ii) make all determinations deemed necessary or advisable
for the administration of this Agreement (including a determination to redeem
or not redeem the Rights or to amend the Agreement). All such
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<PAGE>
actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) which
are done or made by the Board (or, where specifically provided for herein, by
the Continuing Directors) in good faith, shall (x) be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights Certificates
and all other parties and (y) not subject the Board or the Continuing Directors
to any liability to the holders of the Rights.
Section 30. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, the Common Shares) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Rights Certificates (and, prior to the Distribution Date, the Common
Shares).
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the Close of Business on the
tenth day following the date of such determination by the Board of Directors.
Section 32. Governing Law. This Agreement and each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
"COMPANY" FOCAL, INC.
By:
-----------------------------------
Name:
-----------------------------------
Title:
----------------------------------
"RIGHTS AGENT" NORWEST BANK OF MINNESOTA, N.A.
By:
-----------------------------------
Name:
-----------------------------------
Title:
----------------------------------
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EXHIBIT A
CERTIFICATE OF DESIGNATIONS OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES A PARTICIPATING PREFERRED STOCK
OF FOCAL, INC.
The undersigned, David M. Clapper and Christopher D. Mitchell do hereby
certify:
1. That they are the duly elected and acting President and Secretary,
respectively, of Focal, Inc. a Delaware corporation (the "Corporation").
2. That pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation of the said Corporation, the said Board of
Directors on [ ], 1997 adopted the following resolution creating a
---------
series of [20,000] shares of Preferred Stock designated as Series A
Participating Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of Directors
of the corporation by the Restated Certificate of Incorporation, the Board of
Directors does hereby provide for the issue of a series of Preferred Stock of
the Corporation and does hereby fix and herein state and express the
designations, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions of such series of Preferred Stock
as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Participating Preferred Stock." The Series A
Participating Preferred Stock shall have a par value of $0.001 per share, and
the number of shares constituting such series shall be [20,000].
Section 2. Proportional Adjustment. In the event the Corporation shall
at any time after the issuance of any share or shares of Series A Participating
Preferred Stock (i) declare any dividend on Common Stock of the Corporation
("Common Stock") payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Corporation shall
simultaneously effect a proportional adjustment to the number of outstanding
shares of Series A Participating Preferred Stock.
Section 3. Dividends and Distributions.
(a) Subject to the prior and superior right of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Participating Preferred Stock with respect to dividends, the holders
of shares of Series A Participating Preferred Stock shall be entitled to receive
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the last day
of January, April, July and October in each year (each such date being referred
to herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series A
<PAGE>
Participating Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to 1,000 times the aggregate per share amount of all cash dividends,
and 1,000 times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Participating Preferred Stock.
(b) The Corporation shall declare a dividend or distribution on the
Series A Participating Preferred Stock as provided in paragraph (a) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(c) Dividends shall begin to accrue on outstanding shares of Series A
Participating Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Participating Preferred
Stock, unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or unless
the date of issue is a Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Series A Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Participating Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of holders of
shares of Series A Participating Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
Section 4. Voting Rights. The holders of shares of Series A
Participating Preferred Stock shall have the following voting rights:
(a) Each share of Series A Participating Preferred Stock shall
entitle the holder thereof to 1,000 votes on all matters submitted to a vote of
the stockholders of the Corporation.
(b) Except as otherwise provided herein or by law, the holders of
shares of Series A Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Corporation.
(c) Except as required by law, holders of Series A Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
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<PAGE>
Section 5. Certain Restrictions.
(a) The Corporation shall not declare any dividend on, make any
distribution on, or redeem or purchase or otherwise acquire for consideration
any shares of Common Stock after the first issuance of a share or fraction of a
share of Series A Participating Preferred Stock unless concurrently therewith it
shall declare a dividend on the Series A Participating Preferred Stock as
required by Section 3 hereof.
(b) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Participating Preferred Stock as provided in Section 3
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Participating
Preferred Stock outstanding shall have been paid in full, the Corporation shall
not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred Stock;
(ii) declare or pay dividends on, make any other
distributions on any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with Series A Participating
Preferred Stock, except dividends paid ratably on the Series A Participating
Preferred Stock and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Participating
Preferred Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such parity stock in exchange for shares of
any stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Participating Preferred
Stock;
(iv) purchase or otherwise acquire for consideration any
shares of Series A Participating Preferred Stock, or any shares of stock ranking
on a parity with the Series A Participating Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(c) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 5, purchase or otherwise acquire such shares at such time and in
such manner.
-3-
<PAGE>
Section 6. Reacquired Shares. Any shares of Series A Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part
of a new series of Preferred Stock to be created by resolution or resolutions
of the Board of Directors, subject to the conditions and restrictions on
issuance set forth herein and, in the Restated Certificate of Incorporation,
as then amended.
Section 7. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, the holders of shares
of Series A Participating Preferred Stock shall be entitled to receive an
aggregate amount per share equal to 1000 times the aggregate amount to be
distributed per share to holders of shares of Common Stock plus an amount equal
to any accrued and unpaid dividends on such shares of Series A Participating
Preferred Stock.
Section 8. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share equal to 1,000 times the aggregate
amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Common Stock is
changed or exchanged.
Section 9. No Redemption. The shares of Series A Participating
Preferred Stock shall not be redeemable.
Section 10. Ranking. The Series A Participating Preferred Stock shall
rank junior to all other series of the Corporation's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
Section 11. Amendment. The Restated Certificate of Incorporation of the
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preference or special rights of the Series A
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority of the outstanding shares of
Series A Participating Preferred Stock, voting separately as a class.
Section 12. Fractional Shares. Series A Participating Preferred Stock
may be issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Participating Preferred Stock.
-4-
<PAGE>
RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of this corporation be, and they hereby
are, authorized and directed to prepare and file a Certificate of Designation of
Rights, Preferences and Privileges in accordance with the foregoing resolution
and the provisions of Delaware law and to take such actions as they may deem
necessary or appropriate to carry out the intent of the foregoing resolution."
We further declare under penalty of perjury that the matters set forth in
the foregoing Certificate of Designations are true and correct of our own
knowledge.
Executed at Lexington, Massachusetts on , 1997.
---------
-------------------------------------
David M. Clapper, President
-------------------------------------
Christopher D. Mitchell, Secretary
-5-
<PAGE>
EXHIBIT B
FORM OF RIGHTS CERTIFICATE
Certificate No. R- Rights
---------
NOT EXERCISABLE AFTER THE EARLIER OF (i) [ ], 2007 (ii) THE
----------
DATE TERMINATED BY THE COMPANY OR (iii) THE DATE THE COMPANY
EXCHANGES THE RIGHTS PURSUANT TO THE RIGHTS AGREEMENT. THE RIGHTS ARE
SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $0.01 PER
RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE
DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH
RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS
RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS
OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY
MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN
SECTION 7(e) OF SUCH RIGHTS AGREEMENT.]*
RIGHTS CERTIFICATE
FOCAL, INC.
This certifies that , or registered assigns,
-------------------------
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement dated as of [ ], 1997, (the "Rights Agreement"),
--------
between Focal, Inc. a Delaware corporation (the "Company"), and Norwest Bank of
Minnesota, N.A. ( the "Rights Agent"), to purchase from the Company at any time
after the Distribution Date (as such term is defined in the Rights Agreement)
and prior to 5:00 P.M., New York time, on [ ], 2007 at the office of the
--------
Rights Agent designated for such purpose, or at the office of its successor as
Rights Agent, one one-thousandth (1/1,000) of a fully paid non-assessable share
of Series A Participating Preferred Stock, no par value, (the "Preferred
Shares"), of the Company, at a Exercise Price of [One Hundred Fifty Dollars
($150.00)] per one-thousandth of a Preferred Share (the
- -------------------
* The portion of the legend in bracket shall be inserted only if applicable and
shall replace the preceding sentence.
<PAGE>
"Exercise Price"), upon presentation and surrender of this Rights Certificate
with the Form of Election to Purchase and related Certificate duly executed.
The number of Rights evidenced by this Rights Certificate (and the number of
one-thousandths of a Preferred Share which may be purchased upon exercise
hereof) set forth above are the number and Exercise Price as of [ ],
----------
1997 based on the Preferred Shares as constituted at such date. As provided in
the Rights Agreement, the Exercise Price and the number and kind of Preferred
Shares or other securities which may be purchased upon the exercise of the
Rights evidenced by this Rights Certificate are subject to modification and
adjustment upon the happening of certain events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the principal executive offices of
the Company and the above-mentioned office of the Rights Agent.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Rights Certificate (i) may be redeemed by the Company, at its
option, at a redemption price of $0.01 per Right or (ii) may be exchanged by the
Company in whole or in part for Common Shares, substantially equivalent rights
or other consideration as determined by the Company.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the office of the Rights Agent designated for such purpose,
may be exchanged for another Rights Certificate or Rights Certificates of like
tenor and date evidencing Rights entitling the holder to purchase a like
aggregate amount of securities as the Rights evidenced by the Rights Certificate
or Rights Certificates surrendered shall have entitled such holder to purchase.
If this Rights Certificate shall be exercised in part, the holder shall be
entitled to receive upon surrender hereof another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.
No fractional portion of less than one one-thousandth of a Preferred
Share will be issued upon the exercise of any Right or Rights evidenced hereby
but in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of the
Preferred Shares or of any other securities of the Company which may at any time
be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights
-2-
<PAGE>
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Rights Certificate shall have been
exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of , 19 .
--------------- -----
ATTEST: FOCAL, INC.
- ----------------------------- By:
------------------------------
, Secretary
- ----------------
Its:
-----------------------------
Countersigned:
NORWEST BANK OF MINNESOTA, N.A.
as Rights Agent
By:
---------------------------
Its:
--------------------------
-3-
<PAGE>
Form of Reverse Side of Rights Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate)
FOR VALUE RECEIVED hereby sells, assigns and
--------------------
transfers unto
---------------------------------------------------------------
(Please print name and address of transferee)
- ------------------------------------------------------------------------------
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
---------------------------
Attorney, to transfer the within Rights Certificate on the books of the
within-named Company, with full power of substitution.
Dated: , 19
--------------- ---
------------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned
and transferred by or on behalf of a Person who is or was an Acquiring Person,
or an Affiliate or Associate of any such Person (as such terms are defined in
the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of any such Person.
Dated: , 19
-------------- ---
-------------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
<PAGE>
Form of Reverse Side of Rights Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Rights Certificate)
To:
-------------------------
The undersigned hereby irrevocably elects to exercise
Rights represented by this Rights Certificate to
- ----------------------
purchase the number of one-thousandths of a Preferred Share issuable upon the
exercise of such Rights and requests that certificates for such number of
one-thousandths of a Preferred Share issued in the name of:
Please insert social security
or other identifying number
- ------------------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- ------------------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------------------
Dated: , 19
----------------- ----
-------------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Person (as such terms are defined in the
Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or subsequently became an Acquiring Person or an Affiliate or
Associate of any such Person.
Dated: , 19
--------------- ----
-------------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
<PAGE>
Form of Reverse Side of Rights Certificate -- continued
NOTICE
The signature in the foregoing Forms of Assignment and Election must
conform to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
<PAGE>
EXHIBIT C
STOCKHOLDER RIGHTS PLAN
FOCAL, INC.
Summary of Rights
Distribution and The Board of Directors has declared a dividend of one
Transfer of Rights; Right for each share of Focal, Inc. (the "Company")
Rights Certificates: Common Stock outstanding. Prior to the Distribution
Date referred to below, the Rights will be evidenced by
and trade with the certificates for the Common Stock.
After the Distribution Date, the Company will mail
Rights certificates to the Company's stockholders and
the Rights will become transferable apart from the
Common Stock.
Distribution Date: Rights will separate from the Common Stock and become
exercisable following the tenth day (or such later date
as may be determined by a majority of the Directors not
affiliated with the acquiring person or group (the
"Continuing Directors")) after a person or group (a)
acquires beneficial ownership of [ ]% or more of the
Company's Common Stock or (b) announces a tender or
exchange offer, the consummation of which would result
in ownership by a person or group of [ ]% or more of
the Company's Common Stock.
Preferred Stock After the Distribution Date, each Right will entitle
Purchasable Upon the holder to purchase, for [$ ] (the "Exercise
-----
Exercise of Rights: Price"), a fraction of a share of the Company's
Preferred Stock with economic terms similar to that of
one share of the Company's Common Stock.
Flip-In: If an acquiror (an "Acquiring Person") obtains [ ]% or
more of the Company's Common Stock (other than pursuant
to a tender offer deemed adequate and in the best
interests of the Company and its stockholders by the
Continuing Directors (a "Permitted Offer")), then each
Right (other than Rights owned by an Acquiring Person
or its affiliates) will entitle the holder thereof to
purchase, for the Exercise Price, a number of shares of
the Company's Common Stock having a then current market
value of twice the Exercise Price.
Flip-Over: If, after an Acquiring Person obtains [ ]% or more of
the Company's Common Stock, (a) the Company merges into
another entity, (b) an acquiring entity merges into the
Company or (c) the Company sells more than 50% of the
Company's assets or earning power, then each Right
(other than Rights owned by an Acquiring Person or its
affiliates) will entitle the holder thereof to
purchase,
<PAGE>
for the Exercise Price, a number of shares of Common
Stock of the person engaging in the transaction having
a then current market value of twice the Exercise Price
(unless the transaction satisfies certain conditions
and is consummated with a person who acquired shares
pursuant to a Permitted Offer, in which case the Rights
will expire).
Exchange Provision: At any time after the date an Acquiring Person obtains
[ ]% or more of the Company's Common Stock and prior
to the acquisition by the Acquiring Person of 50% or
more of the outstanding Common Stock, a majority of
the Board of Directors and a majority of the
Continuing Directors of the Company may exchange the
Rights (other than Rights owned by the Acquiring
Person or its affiliates), in whole or in part, for
shares of Common Stock of the Company at an exchange
ratio of one Common Share per Right (subject to
adjustment).
Redemption of Rights will be redeemable at the Company's option for
the Rights: $0.01 per Right at any time on or prior to the tenth
day (or such later date as may be determined by a
majority of the Continuing Directors) after public
announcement that a Person has acquired beneficial
ownership of [ ]% or more of the Company's Common
Stock (the "Shares Acquisition Date").
Expiration The Rights expire on the earliest of (a) [TEN YEARS
the Rights: AFTER ADOPTION], (b) exchange or redemption of the
Rights as described above, or (c) consummation of a
merger, consolidation or asset sale resulting in
expiration of the Rights as described above.
Amendment of The terms of the Rights and the Rights Agreement may be
Terms of Rights: amended in any respect without the consent of the
Rights holders on or prior to the Distribution Date;
thereafter, the terms of the Rights and the Rights
Agreement may be amended without the consent of the
Rights holders in order to cure any ambiguities or to
make changes which do not adversely affect the
interests of Rights holders (other than the Acquiring
Person).
Voting Rights: Rights will not have any voting rights.
Anti-Dilution Rights will have the benefit of certain customary
Provisions: anti-dilution provisions.
Taxes: The Rights distribution should not be taxable for
federal income tax purposes. However, following an
event which renders the Rights exercisable or upon
redemption of the Rights, stockholders may recognize
taxable income.
-2-
<PAGE>
The foregoing is a summary of certain principal terms of the Stockholder Rights
Plan only and is qualified in its entirety by reference to the detailed terms of
the Rights Agreement dated as of [DATE OF ADOPTION], between the Company and the
Rights Agent.
-3-
<PAGE>
FOCAL, INC.
and
NORWEST BANK MINNESOTA, N.A.
Rights Agent
PREFERRED SHARES RIGHTS AGREEMENT
Dated as of , 1997
---------------
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Certain Definitions.............................................1
Section 2. Appointment of Rights Agent.....................................7
Section 3. Issuance of Rights Certificates.................................7
Section 4. Form of Rights Certificates.....................................9
Section 5. Countersignature and Registration..............................10
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights
Certificates...................................................10
Section 7. Exercise of Rights; Exercise Price; Expiration Date of Rights..11
Section 8. Cancellation and Destruction of Rights Certificates............13
Section 9. Reservation and Availability of Preferred Shares...............13
Section 10. Record Date....................................................15
Section 11. Adjustment of Exercise Price, Number of Shares or Number of
Rights.........................................................15
Section 12. Certificate of Adjusted Exercise Price or Number of Shares.....21
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power..........................................................22
Section 14. Fractional Rights and Fractional Shares........................26
Section 15. Rights of Action...............................................27
Section 16. Agreement of Rights Holders...................................27
Section 17. Rights Certificate Holder Not Deemed a Stockholder.............27
Section 18. Concerning the Rights Agent....................................28
Section 19. Merger or Consolidation or Change of Name of Rights Agent......28
Section 20. Duties of Rights Agent.........................................29
Section 21. Change of Rights Agent.........................................31
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
Section 22. Issuance of New Rights Certificates............................32
Section 23. Redemption.....................................................32
Section 24. Exchange.......................................................33
Section 25. Notice of Certain Events.......................................35
Section 26. Notices........................................................35
Section 27. Supplements and Amendments.....................................36
Section 28. Successors.....................................................36
Section 29. Determinations and Actions by the Board of Directors, etc......36
Section 30. Benefits of this Agreement.....................................37
Section 31. Severability...................................................37
Section 32. Governing Law..................................................37
Section 33. Counterparts...................................................37
Section 34. Descriptive Headings...........................................37
EXHIBITS
Exhibit A Form of Certificate of Designations
Exhibit B Form of Rights Certificate
Exhibit C Summary of Rights
-ii-
<PAGE>
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended
December 31, Nine-Month Period ended September 30,
1996 1996 1997
------------ -------------- -------------
<S> <C> <C> <C>
Shares used to compute pro forma net income (loss)
per share:
Weighted average common
shares issued and outstanding 681,547 671,106 2,113,934
Weighted average common
equivalent shares assumed issued and outstanding - - 122,130
Weighted average common shares assumed
issued and outstanding upon conversion
of preferred stock and warrants 7,407,351 7,147,614 8,151,023
Incremental common shares, derived from
common and common equivalent shares
issued within 12 months of the registration
statement filing, assumed to be issued and
outstanding for all periods presented 182,532 182,532 163,708
---------------- -------------- --------------
Shares used in computing Pro Forma net
income (loss) per share 8,271,430 8,001,252 10,550,795
---------------- -------------- --------------
---------------- -------------- --------------
Net income (loss) ($10,059,375) ($7,382,353) $582,701
----------------- --------------- --------------
----------------- --------------- --------------
Pro Forma net income (loss) per share ($1.22) ($0.92) $.06
----------------- --------------- --------------
----------------- --------------- --------------
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated February 7, 1997
(except as to the first paragraph of Note 10, as to which the date is October
, 1997), in the Registration Statement (Form S-1) and related Prospectus of
Focal, Inc. for the registration of 2,875,000 shares of its common stock.
ERNST & YOUNG LLP
Boston, Massachusetts
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the Company
obtaining stockholder approval for the reverse stock split described in the
first paragraph of Note 10 to the financial statements.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
October 20, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF COUNSEL
We hereby consent to the reference to our firm under the caption
"Experts" in the Prospectus included in the Registration Statement on Form
S-1 of Focal, Inc.
ARNALL GOLDEN & GREGORY, LLP
/s/ Arnall Golden & Gregory, LLP
October 21, 1997
Atlanta, Georgia
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 5465 5161
<SECURITIES> 6743 8054
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 12679 13749
<PP&E> 3732 5790
<DEPRECIATION> (2599) (3438)
<TOTAL-ASSETS> 14089 18179
<CURRENT-LIABILITIES> 3676 4495
<BONDS> 0 0
0 0
243 243
<COMMON> 7 22
<OTHER-SE> 9849 12211
<TOTAL-LIABILITY-AND-EQUITY> 14089 18179
<SALES> 0 0
<TOTAL-REVENUES> 3098 12831
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 13756 12898
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 92 81
<INCOME-PRETAX> (10059) 583
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (10059) 583
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (10059) 583
<EPS-PRIMARY> (.92) .06
<EPS-DILUTED> 0 0
</TABLE>
