<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CUBIST PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2834 22-3192085
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
24 EMILY STREET
CAMBRIDGE, MA 02139
(617) 576-1999
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
SCOTT M. ROCKLAGE, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CUBIST PHARMACEUTICALS, INC.
24 EMILY STREET
CAMBRIDGE, MA 02139
(617) 576-1999
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
WITH COPIES TO:
JUSTIN P. MORREALE, ESQ. STEVEN D. SINGER, ESQ.
JULIO E. VEGA, ESQ. VIRGINIA H. KINGSLEY, ESQ.
BINGHAM, DANA & GOULD LLP HALE AND DORR
150 FEDERAL STREET 60 STATE STREET
BOSTON, MA 02110 BOSTON, MA 02109
(617) 951-8000 (617) 526-6000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If 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
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value................. 2,875,000 $13.00 $37,375,000 $12,888
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes up to 375,000 shares of Common Stock which the Underwriters have
the option to purchase from the Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CUBIST PHARMACEUTICALS, INC.
CROSS REFERENCE SHEET BETWEEN ITEMS IN PART I OF FORM S-1 AND THE PROSPECTUS
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS
----------------------- ---------------------
<S> <C>
1.Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus...... Outside Front Cover Page of Prospectus
2.Inside Front and Outside Back
Cover Pages of Prospectus..... Inside Front and Outside Back Cover Pages
of Prospectus
3.Summary Information and Risk
Factors....................... Prospectus Summary; Risk Factors
4.Use of Proceeds................. Prospectus Summary; Use of Proceeds
5.Determination of Offering
Price......................... Outside Front Cover Page of Prospectus;
Risk Factors; Underwriting
6.Dilution........................ Risk Factors; Dilution
7.Selling Security Holders........ Not Applicable
8.Plan of Distribution............ Outside Front and Inside Front Cover Page
of Prospectus; Underwriting
9.Description of Securities to be
Registered.................... Outside Front Cover Page of Prospectus;
Prospectus Summary; Dividend Policy;
Capitalization; Description of Capital
Stock
10.Interests of Named Experts and
Counsel....................... Legal Matters; Experts
11.Information with Respect to
Registrant.................... Outside Front and Inside Front Cover Pages;
Prospectus Summary; Risk Factors; Dividend
Policy; Capitalization; Selected Financial
Data; Management's Discussion and Analysis
of Financial Condition and Result of
Operations; Business; Management; Certain
Transactions; Principal Stockholders;
Description of Capital Stock; Shares
Eligible for Future Sale; Experts;
Financial Statements
12.Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated June 25, 1996
PROSPECTUS
2,500,000 SHARES
[LOGO]
CUBIST PHARMACEUTICALS, INC.
COMMON STOCK
-------------
All of the 2,500,000 shares of Common Stock offered hereby are being sold by
Cubist Pharmaceuticals, Inc. ("Cubist" 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.
Application has been made to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "CBST."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," BEGINNING ON PAGE 6.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY OTHER 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>
Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................... $ $ $
- --------------------------------------------------------------------------------
Total(3)........................ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $600,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 375,000 additional shares of
Common Stock on the same terms as set forth above, solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public will be $ , the Underwriting Discounts and Commissions will be
$ , and the Proceeds to Company will be $ . See "Underwriting."
-------------
The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of the shares of Common Stock will be
made through the offices of UBS Securities LLC, 299 Park Avenue, New York, New
York on or about , 1996.
-------------
UBS SECURITIES
HAMBRECHT & QUIST
PACIFIC GROWTH EQUITIES, INC.
, 1996
<PAGE>
Current antiinfective drugs are Protein synthesis is a sequential
categorized according to the four process essential to the life of the
types of essential cell functions cell whereby amino acids are
they inhibit: (i) protein synthesis, incorporated into proteins. Cubist
(ii) cell metabolism, (iii) cell wall focuses on discovering novel anti-
synthesis and (iv) nucleic acid infective drugs that inhibit new
synthesis. targets essential to protein
synthesis. These targets are shown
(i) Protein in the boxes below.
Synthesis
(ii) Cell Ribonuclease P
Metabolism
(iii) Cell Wall [PICTURE OF RIBONUCLEASE
Synthesis Ribosomes P AND tRNA APPEARS HERE]
(iv) Nucleic Acid [PICTURE OF
Synthesis CELL AND Immature Mature
CELL FUNCTION tRNA tRNA
APPEARS HERE]
Enzyme
Ribonuclease P (RNase P)
DNA binds to and cleaves immature
tRNA molecules to produce
mature tRNAs.
mRNA Synthetase Amino Amidotransferase
Acid Glutamine
[PICTURE OF AMINOACYL tRNA [PICTURE OF AMIDOTRANSFERASE
SYNTHETASE CHARGING APPEARS MODIFYING GLUTAMATE tRNA
HERE] APPEARS HERE]
Charged Glutamine
tRNA
Certain bacteria lack glutamine
Aminoacyl tRNA synthetase binds to tRNA synthetase and require
mature tRNA and charges it with a amidotransferase (AdTase) to
specific amino acid. bind to an inappropriately
charged tRNA and modify the
EF-Tu amino acid glutamate to
glutamine.
[PICTURE OF ELONGATION FACTOR Protein
Tu AND CHARGED tRNA APPEARS HERE]
[PICTURE OF CHARGED tRNA,
RIBOSONE,mRNA, AND PROTEIN
Elongation factor EF-Tu binds to CHAIN APPEARS HERE]
charged tRNA and transports it to
the ribosome for protein synthesis. mRNA
Ribosome
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus, including the information under "Risk Factors." This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed under "Risk
Factors."
THE COMPANY
Cubist Pharmaceuticals, Inc. ("Cubist" or the "Company") is a
biopharmaceutical company engaged in the research, development and
commercialization of novel antiinfective drugs to treat infectious diseases
caused by bacteria and fungi, primarily those resistant to existing
antiinfective drugs. The increasing prevalence of drug-resistant bacterial and
fungal pathogens has led to significantly higher mortality rates from
infectious diseases and currently presents a serious crisis worldwide. Cubist's
strategy for combating antiinfective drug resistance is to identify novel
intracellular targets essential for cell function in bacteria and fungi, such
as proteins, RNA or DNA, which if inhibited by a drug would kill or attenuate
the growth of the pathogen. Cubist selects these targets based on a thorough
understanding of their function, thereby providing a foundation for assay
development and identification of leads for drug discovery.
Cubist believes that its rational, target-based, drug discovery strategy
represents a distinct departure from and offers significant advantages over
traditional drug discovery strategies to counter drug resistance. These
traditional strategies have generally involved (i) whole-cell screening
methodologies which provide only limited knowledge of target function, (ii)
chemical modifications of existing antiinfective drugs, such as penicillin, or
(iii) the combination of existing antiinfective drugs with another agent (an
"antibiotic potentiator") to block drug resistance. For decades, antiinfective
drug discovery research has utilized only a fixed number of targets and
chemical structures, thereby limiting the ability of these approaches to
identify new classes of drugs effective against drug-resistant bacteria and
fungi. Cubist believes that the identification of new drug classes inhibiting
new targets will provide a compelling solution to drug resistance. The Company
has identified over 100 proprietary targets and related assays for the
discovery of new drugs. The Company expects that drugs inhibiting these new
targets will be immediately effective against drug-resistant bacteria and fungi
since these pathogens have not had an opportunity to evolve resistance specific
to these new drugs. Furthermore, Cubist's most advanced drug discovery program
could identify a drug which inhibits more than one essential target for a given
pathogen, which would significantly decrease the rate of emergence of drug
resistance.
The increasing prevalence of and rise in mortality rates from infectious
diseases places additional stress on the already overburdened U.S. health care
system. According to estimates from the U.S. Centers for Disease Control and
Prevention (the "CDC"), infectious diseases ranked as the third leading cause
of death in 1992, with mortality rates increasing by 58% during the period from
1980 to 1992, in contrast to mortality rates due to all causes which decreased
by 3% during this period. Based on CDC estimates, approximately two million
hospital-acquired infections occur each year, causing more than eight million
days of extended hospital stay and resulting in more than $4.5 billion in
additional health care costs each year.
According to 1995 sales data compiled by IMS International, an independent
pharmaceutical research firm, antiinfective drugs generated $26 billion in
sales and constituted the third largest pharmaceutical market worldwide, behind
only gastrointestinal and cardiovascular drugs. The growth of the worldwide
antiinfective drug market from 1994 to 1995 was 13%. Of the 100 best-selling
brand name drugs worldwide, 19 are antiinfective drugs addressing bacterial and
fungal infections. In the United States, sales of antiinfective drugs totaled
over $7 billion in 1995, and brand name antiinfective drugs accounted for 15 of
the leading 100 prescription drugs.
Cubist's initial focus is on the identification and development of
antiinfective drugs to inhibit selected targets involved in the essential
process of protein synthesis. Cubist's programs are based on targets that are
responsible for the: (i) addition or charging of amino acids to tRNA molecules
by enzymes known as aminoacyl-tRNA synthetases (the "Synthetase Program"), (ii)
cleavage of immature tRNA to form mature tRNA prior to its charging with amino
acids by the enzyme ribonuclease P (the "Ribonuclease P Program"), (iii)
modification of the amino acid glutamate to
3
<PAGE>
glutamine on incorrectly charged tRNAs by the enzyme amidotransferase (the
"Amidotransferase Program") and (iv) transport of amino acid-charged tRNA
molecules to the site of protein synthesis by elongation factors (the
"Elongation Factors Program"). The Company believes that its target-based
programs will enable the development of clinically effective drugs to treat
infectious diseases caused by pathogens such as staphylococci, enterococci,
streptococci and candida. To date, the Company has identified lead candidates
targeting certain aminoacyl-tRNA synthetases, which demonstrate potency and
selectivity and inhibit the growth of bacteria or fungi. Cubist expects to
complete optimization of these lead candidates and select its first drug
candidate for pre-clinical development by the end of 1996. Assuming successful
pre-clinical development, the Company expects to file an Investigational New
Drug ("IND") application by the end of 1997.
A key element of the Company's strategy is to enhance certain of its drug
discovery and development programs and to fund its capital requirements, in
part, by entering into collaborative agreements with major pharmaceutical
companies. To date, the Company has entered into agreements based on certain
targets within the Synthetase Program with Bristol-Myers Squibb Company, Merck
& Co., Inc. and Pfizer Inc. Assuming that these collaborative agreements
continue until their scheduled expirations, and that a separate drug is
successfully developed and commercialized from each of the five research
programs to be conducted pursuant to these agreements, Cubist will be entitled
to receive a total of $98.5 million in research support payments, technology
licensing fees, milestone payments and equity investments. In addition, the
Company will be entitled to receive royalties on worldwide sales of any drug
developed and commercialized from the collaborations.
Bristol-Myers Squibb. Cubist is collaborating with Bristol-Myers Squibb
Company ("Bristol-Myers Squibb") to discover antibacterial, antimycobacterial
and antifungal drug candidates from leads detected in the screening of Bristol-
Myers Squibb's compound library against six of Cubist's aminoacyl-tRNA
synthetase targets. If a separate drug is successfully developed and
commercialized through each of the bacterial, mycobacterial and fungal programs
within this collaboration, Cubist will be entitled to receive a total of $56.5
million in research support payments, technology licensing fees, milestone
payments and other payments from Bristol-Myers Squibb, including an equity
investment of $4.0 million made in June 1996. In addition, the Company will be
entitled to receive royalties on worldwide sales of any drug developed and
commercialized from this collaboration.
Merck. Cubist is collaborating with Merck & Co., Inc. ("Merck") to discover
antibacterial drug candidates from leads detected in the screening of Merck's
compound library against three of Cubist's aminoacyl-tRNA synthetase targets.
If a drug is successfully developed and commercialized through this
collaboration, Cubist will be entitled to receive a total of $20.5 million in
research support payments, technology licensing fees, milestone payments and
other payments from Merck. In addition, the Company will be entitled to receive
royalties on worldwide sales of any drug developed and commercialized from this
collaboration.
Pfizer. Cubist is collaborating with Pfizer Inc ("Pfizer") to discover
antibacterial drug candidates from leads detected in the screening of Pfizer's
compound library against six of Cubist's aminoacyl-tRNA synthetase targets. If
a drug is successfully developed and commercialized through this collaboration,
Cubist will be entitled to receive a total of $21.5 million in research support
payments, technology licensing fees, milestone payments and other payments from
Pfizer, including a $5.0 million equity investment. In addition, the Company
will be entitled to receive royalties on worldwide sales of any drug developed
and commercialized from this collaboration.
Apart from these collaborations, Cubist has retained rights to internally
develop and commercialize certain proprietary products which will enable the
Company either to commercialize certain drug candidates independently, or to
enter into future drug development and commercialization alliances with third
parties at a later stage in the development process.
The Company was incorporated under the laws of the State of Delaware on May
1, 1992. The Company's principal executive offices are located at 24 Emily
Street, Cambridge, Massachusetts 02139, and its telephone number is (617) 576-
1999.
--------------
Cubist(TM), Cubist Pharmaceuticals(TM) and the Cubist logo are trademarks of
the Company. All other trademarks and trade names referenced in this Prospectus
are the property of their respective owners.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered............................ 2,500,000 shares
Common Stock Outstanding after this Offering.... 8,878,605 shares(1)
Use of Proceeds................................. To fund research and development and working
capital and for general corporate purposes.
Proposed Nasdaq National Market Symbol.......... CBST
Risk Factors.................................... The Common Stock offered hereby involves a high
degree of risk. See "Risk Factors."
</TABLE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ----------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Sponsored research revenues.... $ -- $ -- $ 1,271 $ -- $ 54
Total operating expenses....... 1,716 4,758 6,673 1,696 1,900
Net interest income (expense).. 28 (55) 6 (25) (27)
-------- -------- -------- ------- -------
Net loss....................... $(1,688) $(4,813) $(5,396) $(1,721) $(1,873)
======== ======== ======== ======= =======
Pro forma net loss per
share(2)...................... $ (0.86) $ (0.28)
======== =======
Pro forma weighted average
shares used in computing
pro forma net loss per
share(2)...................... 6,265 6,797
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(3)(4)
-------- ------------ -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
investments......................... $ 2,192 $ 6,192 $ 33,492
Working capital...................... 1,226 5,226 32,526
Total assets......................... 5,148 9,148 36,448
Long-term debt and capital lease
obligations, less current portion... 1,103 1,103 1,103
Accumulated deficit.................. (13,805) (13,805) (13,805)
Total stockholders' equity........... 3,024 7,024 34,324
</TABLE>
- -------
(1) Excludes (i) an aggregate of 517,485 shares of Common Stock issuable
pursuant to stock options outstanding as of May 31, 1996, at a weighted
average exercise price per share of $1.21, (ii) 682,105 shares of Common
Stock reserved for issuance pursuant to stock options that may be granted
from time to time, and (iii) 86,619 shares of Common Stock issuable
pursuant to warrants outstanding as of May 31, 1996, at a weighted average
exercise price per share of $4.04. See "Management--Amended and Restated
1993 Stock Option Plan."
(2) Computed on the basis described in Note B of the Notes to Financial
Statements.
(3) Presented on a pro forma basis to give effect to the sale subsequent to
March 31, 1996 of 2,816,902 shares of Series D Convertible Preferred Stock
(convertible into 402,414 shares of Common Stock) to Bristol-Myers Squibb
and the receipt of approximately $4,000,000 in net proceeds therefrom.
(4) Adjusted to reflect the sale of 2,500,000 shares of Common Stock offered
hereby and receipt by the Company of the estimated net proceeds therefrom,
based upon an assumed initial public offering price of $12.00 per share and
after deducting the underwriting discount and estimated offering expenses
payable by the Company. See "Use of Proceeds" and "Capitalization."
--------------
Unless otherwise indicated, all information in this Prospectus (i) assumes
the Underwriters' over-allotment option is not exercised, (ii) reflects a one-
for-seven reverse stock split of the Common Stock to be effected prior to the
date of this Prospectus, (iii) reflects the conversion upon the closing of this
Offering of all outstanding shares of the Company's Preferred Stock into an
aggregate of 5,366,869 shares of Common Stock and of all outstanding warrants
to purchase shares of Preferred Stock into warrants to purchase 86,619 shares
of Common Stock, (iv) reflects the amendment and restatement of the Company's
Amended and Restated 1993 Stock Option Plan effective upon the closing of this
Offering, (v) reflects the amendment and restatement of the Company's Amended
and Restated By-Laws effective upon the closing of this Offering and (vi)
reflects the amendment of the Company's Restated Certificate of Incorporation
prior to the date of this Prospectus. See "Capitalization," "Description of
Capital Stock" and "Underwriting."
5
<PAGE>
RISK FACTORS
Prospective investors in the shares offered hereby should carefully consider
the following risk factors, in addition to the other information appearing in
this Prospectus.
Early Stage of Product Development; No Assurance of Successful
Commercialization. Since inception, the Company has generated no revenue from
product sales. The Company's research and development programs are at an early
stage, and the Company does not expect that any drugs resulting from its
research and development efforts, or from the joint efforts of the Company and
its collaborative partners, will be commercially available for a significant
number of years, if at all. The Company is currently in the process of
optimizing lead candidates to select drug candidates for pre-clinical
development; however, to date, the Company has not, independently or with its
collaborative partners, completed the optimization of any lead candidates or
selected any drug candidates. Any future drug candidates developed by the
Company will require significant additional research and development efforts,
including extensive pre-clinical (animal and in vitro data) and clinical
testing and regulatory approval, prior to commercial sale. None of the
Company's potential drug candidates have advanced to any phase of pre-clinical
or clinical trials. There can be no assurance that the Company's approach to
drug discovery, acting independently or with the efforts of any collaborative
partner of the Company, will be effective or will result in the development of
any drug. The Company's potential drug candidates will be subject to the risks
of failure inherent in the development of pharmaceutical products based on new
technologies. These risks include the possibilities that any or all of the
Company's drug candidates will be found to be unsafe, ineffective or toxic or
otherwise fail to meet applicable regulatory standards or receive necessary
regulatory clearances; that these drug candidates, if safe and effective, will
be difficult to develop into commercially viable drugs or to manufacture on a
large scale or will be uneconomical to market; that proprietary rights of
third parties will preclude the Company from marketing such drugs; or that
third parties will market superior or equivalent drugs. The failure to develop
safe, commercially viable drugs would have a material adverse effect on the
Company's business, operating results and financial condition.
Uncertainty Due To Unproven Technology. The Company's drug discovery
approach faces technical issues which have not been resolved and requires the
development of multiple novel technologies to create a successful drug
candidate. While the Company has demonstrated that certain compounds have the
ability to inhibit the activity of certain aminoacyl-tRNA synthetases, the
Company has not proven that this activity can be utilized clinically as a
therapeutic. Furthermore, there can be no assurance that the inhibitory
activity already demonstrated in primary screening will continue to be
encouraging in further screening or drug discovery studies. The Company has
not tested any drug candidates in humans, and there can be no assurance that
there will be clinical benefits associated with any such drug candidates.
Furthermore, there can be no assurance that the Company will successfully
address these technological challenges or others that may arise in the course
of development. Any failure of the Company to anticipate or respond adequately
to technological developments will have a material adverse effect on the
Company's business, operating results and financial condition. There can be no
assurance that the study of antiinfectives will lead to the discovery and
development of any drug candidates in the future or that the Company will be
able to employ its drug discovery approach successfully.
Dependence on Collaborative Partners and Others. A key element of the
Company's strategy is to enhance certain of its drug discovery and development
programs and to fund its capital requirements, in part, by entering into
collaborative agreements with major pharmaceutical companies. In December
1995, the Company entered into a Research Collaboration Agreement with Pfizer
(the "Pfizer Agreement"), and in June 1996, the Company entered into a
Collaborative Research and License Agreement with Bristol-Myers Squibb (the
"Bristol-Myers Squibb Agreement") and a Collaborative Research and License
Agreement with Merck (the "Merck Agreement" and, together with the Pfizer
Agreement and the Bristol-Myers Squibb Agreement, the "Collaborative
Agreements"). Under the Collaborative Agreements, each of Bristol-Myers
Squibb, Merck and Pfizer is responsible for (i) providing libraries of
compounds for screening against certain of the Company's aminoacyl-tRNA
synthetase targets, (ii) selecting, in collaboration with Cubist, compounds
determined to be leads in the screening for subsequent development, (iii)
conducting preclinical and clinical trials and obtaining required regulatory
approvals of drug candidates, and (iv) manufacturing and
6
<PAGE>
commercializing resulting drugs. As a result, the Company's receipt of
revenues (whether in the form of continued research funding, drug development
milestones or royalties on sales) under the Collaborative Agreements is
dependent upon the decisions made by and the manufacturing and marketing
resources of its collaborative partners. The Company's collaborative partners
are not obligated to develop or commercialize any drug candidates resulting
from the Collaborative Agreements. The amount and timing of resources
dedicated by the Company's collaborative partners to their respective
collaborations with the Company is not within the Company's control. Moreover,
certain drug candidates discovered by the Company may be viewed by the
Company's collaborative partners as competitive with such partners' drugs or
drug candidates. Accordingly, there can be no assurance that the Company's
collaborative partners will elect to proceed with the development of drug
candidates which the Company believes to be promising or that they will not
pursue their existing or alternative technologies in preference to such drug
candidates. There can be no assurance that the interests of the Company will
continue to coincide with those of its collaborative partners, that some of
the Company's collaborative partners will not develop independently or with
third parties drugs that could compete with drugs of the types contemplated by
the Collaborative Agreements, or that disagreements over rights or technology
or other proprietary interests will not occur.
If any of the Company's collaborative partners breaches or terminates its
agreement with the Company, or otherwise fails to conduct its collaborative
activities in a timely manner, the development or commercialization of any
drug candidate or research program under these Collaborative Agreement may be
delayed, the Company may be required to undertake unforeseen additional
responsibilities or to devote unforeseen additional resources to such
development or commercialization, or such development or commercialization
could be terminated. Any such event could materially adversely affect the
Company's financial condition, intellectual property position and operations.
In addition, there have been a significant number of recent consolidations
among pharmaceutical companies. Such consolidations among the companies with
which the Company is collaborating could result in the diminution or
termination of, or delays in, the development or commercialization of drug
candidates or research programs under one or more of the Collaborative
Agreements.
Additional Financing Requirements; Uncertainty of Available Funding. The
Company will require substantial additional funds for its drug discovery and
development programs, for operating expenses, for pursuing regulatory
clearances, for the development of manufacturing, marketing and sales
capabilities and for prosecuting and defending its intellectual property
rights before it can expect to realize significant revenues from commercial
sales. The Company believes that the net proceeds of this Offering, together
with its existing capital resources, interest income and revenue from the
Collaborative Agreements, will be sufficient to fund its operating expenses
and capital requirements as currently planned through the end of 1998.
However, there can be no assurance that such funds will be sufficient to fund
its operating expenses and capital requirements during such period. The
Company's actual cash requirements may vary materially from those now planned
and will depend upon numerous factors, including the results of the Company's
research and development and collaboration programs, the timing and results of
pre-clinical and clinical trials, the timing and costs of obtaining regulatory
approvals, the level of resources that the Company commits to the development
of manufacturing, marketing and sales capabilities, the ability of the Company
to maintain existing and establish new collaborative agreements with other
companies to provide funding to the Company, the technological advances and
activities of competitors and other factors. Thereafter, the Company will need
to raise substantial additional capital to fund its operations. The Company
intends to seek such additional funding through public or private financing or
collaborative or other arrangements with corporate partners. If additional
funds are raised by issuing equity securities, further dilution to existing
stockholders may result and future investors may be granted rights superior to
those of existing stockholders. There can be no assurance, however, that
additional financing will be available from any of these sources or, if
available, will be available on acceptable or affordable terms. If adequate
funds are not available, the Company may be required to delay, reduce the
scope of or eliminate one or more of its research and development programs or
to obtain funds by entering into arrangements with collaborative partners or
others that require the Company to issue additional equity securities or to
relinquish rights to certain technologies or drug candidates that the Company
would not otherwise issue or relinquish in order to continue independent
operations. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
7
<PAGE>
History of Losses and Expectation of Future Losses; Uncertainty of Future
Profitability. The Company has incurred a cumulative operating loss of
approximately $13.8 million through March 31, 1996. Losses have resulted
principally from costs incurred in research and development activities related
to the Company's efforts to develop target candidates and from the associated
administrative costs. The Company expects to incur significant additional
operating losses over the next several years and expects cumulative losses to
increase substantially due to expanded research and development efforts, pre-
clinical and clinical trials and development of manufacturing, marketing and
sales capabilities. In the next few years, the Company's revenues may be
limited to research support payments under the Collaborative Agreements and
any amounts received under other research or drug development collaborations
that the Company has established or will establish. There can be no assurance,
however, that the Company will be able to establish any additional
collaborative relationships on terms acceptable to the Company or maintain in
effect the current Collaborative Agreements. The Company's ability to achieve
significant revenue or profitability is dependent on its or its collaborative
partners' ability to successfully complete the development of drug candidates,
to develop and obtain patent protection and regulatory approvals for the drug
candidates and to manufacture and commercialize the resulting drugs. The
Company will not receive revenues or royalties from commercial sales for a
significant number of years, if at all. Failure to receive significant
revenues or achieve profitable operations would impair the Company's ability
to sustain operations. There can be no assurance that the Company will ever
successfully identify, develop, commercialize, patent, manufacture and market
any products, obtain required regulatory approvals or achieve profitability.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Uncertainty of Patents and Proprietary Rights. The Company's success will
depend in part on its ability to obtain U.S. and foreign patent protection for
its drug candidates and processes, preserve its trade secrets and operate
without infringing the proprietary rights of third parties. Because of the
length of time and expense associated with bringing new drug candidates
through the development and regulatory approval process to the marketplace,
the pharmaceutical industry has traditionally placed considerable importance
on obtaining patent and trade secret protection for significant new
technologies, products and processes. There can be no assurance that any
additional patents will issue from any of the patent applications owned by, or
licensed to, the Company. Further, there can be no assurance that any rights
the Company may have under issued patents will provide the Company with
significant protection against competitive products or otherwise be
commercially viable. Legal standards relating to the validity of patents
covering pharmaceutical and biotechnological inventions and the scope of
claims made under such patents are still developing. There is no consistent
policy regarding the breadth of claims allowed in biotechnology patents. The
patent position of a biotechnology firm is highly uncertain and involves
complex legal and factual questions. There can be no assurance that any
existing or future patents issued to, or licensed by, the Company will not
subsequently be challenged, infringed upon, invalidated or circumvented by
others. In addition, patents may have been granted, or may be granted,
covering products or processes that are necessary or useful to the development
of the Company's drug candidates. If the Company's drug candidates or
processes are found to infringe upon the patents, or otherwise impermissibly
utilize the intellectual property of others, the Company's development,
manufacture and sale of such drug candidates could be severely restricted or
prohibited. In such event, the Company may be required to obtain licenses from
third parties to utilize the patents or proprietary rights of others. There
can be no assurance that the Company will be able to obtain such licenses on
acceptable terms, or at all. There has been significant litigation in the
industry regarding patents and other proprietary rights. If the Company
becomes involved in litigation regarding its intellectual property rights or
the intellectual property rights of others, the potential cost of such
litigation and the potential damages that the Company could be required to pay
could be substantial.
In addition to patent protection, the Company relies on trade secrets,
proprietary know-how and technological advances which it seeks to protect, in
part, by confidentiality agreements with its collaborative partners, employees
and consultants. There can be no assurance that these confidentiality
agreements will not be breached, that the Company would have adequate remedies
for any such breach, or that the Company's trade secrets, proprietary know-how
and technological advances will not otherwise become known or be independently
discovered by others. See "Business--Patents and Proprietary Technology."
8
<PAGE>
Uncertainty Associated with Pre-clinical and Clinical Testing. Before
obtaining regulatory approvals for the commercial sale of any of the Company's
potential drugs, the drug candidates will be subject to extensive pre-clinical
and clinical trials to demonstrate their safety and efficacy in humans. The
Company is dependent on its collaborative partners to conduct clinical trials
for the drug candidates resulting from the Collaborative Agreements and may
become dependent on other third parties to conduct future clinical trials of
its internally developed drug candidates. The Company has no experience in
conducting pre-clinical or clinical trials, and no pre-clinical or clinical
trials have been commenced with respect to any of the Company's potential drug
candidates or any drug candidate being developed jointly by the Company and
its collaborative partners. Furthermore, there can be no assurance that pre-
clinical or clinical trials of any future drug candidates will demonstrate the
safety and efficacy of such drug candidates at all or to the extent necessary
to obtain regulatory approvals. Companies in the biotechnology industry have
suffered significant setbacks in advanced clinical trials, even after
demonstrating promising results in earlier trials. The failure to adequately
demonstrate the safety and efficacy of a drug candidate under development
could delay or prevent regulatory approval of the drug candidate and would
have a material adverse effect on the Company's business, operating results
and financial condition. See "Business--Government Regulation."
No Assurance of Market Acceptance. There can be no assurance that any drugs
successfully developed by the Company, independently or with its collaborative
partners, if approved for marketing, will achieve market acceptance. The
antiinfective drugs which the Company is attempting to develop will compete
with a number of well-established antiinfective drugs manufactured and
marketed by major pharmaceutical companies. The degree of market acceptance of
any drugs developed by the Company will depend on a number of factors,
including the establishment and demonstration of the clinical efficacy and
safety of the Company's drug candidates, their potential advantage over
existing therapies and reimbursement policies of government and third-party
payors. There is no assurance that physicians, patients or the medical
community in general will accept and utilize any drugs that may be developed
by the Company independently or with its collaborative partners.
Intense Competition. The biotechnology and pharmaceutical industries are
intensely competitive and subject to rapid and significant technological
change. Competitors of the Company in the United States and elsewhere are
numerous and include, among others, major, multinational pharmaceutical and
chemical companies, specialized biotechnology firms and universities and other
research institutions. Many of these competitors employ greater financial and
other resources, including larger research and development staffs and more
effective marketing and manufacturing organizations, than the Company or its
collaborative partners. Acquisitions of competing companies and potential
competitors by large pharmaceutical companies or others could enhance
financial, marketing and other resources available to such competitors. As a
result of academic and government institutions becoming increasingly aware of
the commercial value of their research findings, such institutions are more
likely to enter into exclusive licensing agreements with commercial
enterprises, including competitors of the Company, to market commercial
products. There can be no assurance that the Company's competitors will not
succeed in developing technologies and drugs that are more effective or less
costly than any which are being developed by the Company or which would render
the Company's technology and future drugs obsolete and noncompetitive.
In addition, some of the Company's competitors have greater experience than
the Company in conducting pre-clinical and clinical trials and obtaining U.S.
Food and Drug Administration ("FDA") and other regulatory approvals.
Accordingly, the Company's competitors may succeed in obtaining FDA or other
regulatory approvals for drug candidates more rapidly than the Company.
Companies that complete clinical trials, obtain required regulatory agency
approvals and commence commercial sale of their drugs before their competitors
may achieve a significant competitive advantage, including certain patent and
FDA marketing exclusivity rights that would delay the Company's ability to
market certain products. There can be no assurance that drugs resulting from
the Company's research and development efforts, or from the joint efforts of
the Company and its collaborative partners, will be able to compete
successfully with competitors' existing products or products under development
or that they will obtain regulatory approval in the United States or
elsewhere.
9
<PAGE>
Impact of Extensive Government Regulation. The FDA and comparable agencies
in foreign countries impose substantial requirements upon the introduction of
pharmaceutical products through lengthy and detailed pre-clinical, laboratory
and clinical testing procedures, sampling activities and other costly and
time-consuming procedures to establish their safety and efficacy. All of the
Company's drug candidates will require governmental approvals for
commercialization, none of which have been obtained. Pre-clinical and clinical
trials and manufacturing of the Company's drug candidates will be subject to
the rigorous testing and approval processes of the FDA and corresponding
foreign regulatory authorities. Satisfaction of these requirements typically
takes a significant number of years and can vary substantially based upon the
type, complexity and novelty of the product. There can be no assurance as to
when Cubist, independently or with its collaborative partners, might first
submit an IND for FDA or other regulatory review. Government regulation also
affects the manufacturing and marketing of pharmaceutical products. See
"Business--The Cubist Programs."
The effect of government regulation may be to delay marketing of the
Company's potential drugs for a considerable or indefinite period of time,
impose costly procedural requirements upon the Company's activities and
furnish a competitive advantage to larger companies or companies more
experienced in regulatory affairs. Delays in obtaining governmental regulatory
approval could adversely affect the Company's marketing as well as the
Company's ability to generate significant revenues from commercial sales.
There can be no assurance that FDA or other regulatory approvals for any drug
candidates developed by the Company will be granted on a timely basis or at
all. Moreover, if regulatory approval of a drug candidate is granted, such
approval may impose limitations on the indicated use for which such drug may
be marketed. Even if initial regulatory approvals for the Company's drug
candidates are obtained, the Company, its drugs and its manufacturing
facilities would be subject to continual review and periodic inspection, and
later discovery of previously unknown problems with a drug, manufacturer or
facility may result in restrictions on such drug or manufacturer, including
withdrawal of the drug from the market. The regulatory standards are applied
stringently by the FDA and other regulatory authorities and failure to comply
can, among other things, result in fines, denial or withdrawal of regulatory
approvals, product recalls or seizures, operating restrictions and criminal
prosecution.
The FDA has developed two "fast track" policies for certain new drugs
(including antibiotics), one policy for expedited development and review and
one policy for accelerated approval. The expedited development and review
policy applies to new drug therapies that are intended to treat persons with
life-threatening and severely-debilitating illnesses, especially where no
satisfactory alternative therapy exists. The accelerated approval policy
applies to certain new drugs that are intended to treat persons with serious
or life-threatening illnesses that provide a meaningful therapeutic benefit to
patients over existing treatments. See "Business--Government Regulation."
There can be no assurance that any drug candidate contemplated by the Company
will qualify for the FDA's various fast track or priority approval policies.
Nor can there be any assurance that such policies will remain as currently
implemented by the FDA.
As with many biotechnology and pharmaceutical companies, the Company is
subject to numerous environmental and safety laws and regulations. Any
violation of, and the cost of compliance with, these regulations could
materially adversely affect the Company's business, operating results and
financial condition. The Company is subject to periodic inspections and has
not received notice of any material violations of any environmental or safety
law or regulation. See "Business--Government Regulation."
Dependence on Key Personnel. The Company is highly dependent upon the
efforts of its senior management and scientific team, including its President
and Chief Executive Officer. The loss of the services of one or more of these
individuals might impede the achievement of the Company's development
objectives. Because of the specialized scientific nature of the Company's
business, the Company is highly dependent upon its ability to attract and
retain qualified scientific and technical personnel. There is intense
competition among major pharmaceutical and chemical companies, specialized
biotechnology firms and universities and other research institutions for
qualified personnel in the areas of the Company's activities.
10
<PAGE>
There can be no assurance that the Company will be able to continue to attract
and retain the qualified personnel necessary for the development of its
business. Loss of the services of, or failure to recruit, key scientific and
technical personnel could adversely affect the Company's business, operating
results and financial condition. See "Business--Employees" and "Management--
Executive Officers, Key Employees and Directors."
Lack of Manufacturing, Marketing and Sales Capability and Experience. Cubist
has not yet invested in the development of manufacturing, marketing or sales
capabilities. The Company has no experience in, and currently lacks the
facilities and personnel to, manufacture products in accordance with Good
Manufacturing Practices ("GMP") as prescribed by the FDA or to produce an
adequate supply of compounds to meet future requirements for clinical trials.
If the Company is unable to develop or contract for manufacturing capabilities
on acceptable terms, the Company's ability to conduct pre-clinical and
clinical trials with the Company's drug candidates, if any, will be adversely
affected, resulting in delays in the submission of drug candidates for
regulatory approvals and in the initiation of new development programs, which
in turn could materially impair Cubist's competitive position and the
possibility of achieving profitability.
The Company has no experience in marketing drugs. The Company has granted
marketing rights to its collaborative partners with respect to drugs developed
through the Collaborative Agreements. The Company may seek to collaborate with
a third party to market those drugs for which it has retained marketing rights
or may seek to market and sell such drugs directly. If the Company seeks to
collaborate with a third party, there can be no assurance that a collaborative
agreement can be reached on acceptable terms. If the Company seeks to market
and sell such drugs directly, the Company will need to hire additional
personnel skilled in marketing and sales as it develops drugs with commercial
potential. There can be no assurance that the Company will be able to acquire,
or establish third-party relationships to provide, any or all of these
capabilities.
Reimbursement and Drug Pricing Uncertainty. The successful commercialization
of, and the interest of potential collaborative partners to invest in, the
development of the Company's drug candidates will depend substantially on
reimbursement of the costs of the resulting drugs and related treatments at
acceptable levels from government authorities, private health insurers and
other organizations, such as health maintenance organizations ("HMOs"). There
can be no assurance that reimbursement in the United States or elsewhere will
be available for any drugs the Company may develop or, if available, will not
be decreased in the future, or that reimbursement amounts will not reduce the
demand for, or the price of, the Company's drugs, thereby adversely affecting
the Company's business. If reimbursement is not available or is available only
to limited levels, there can be no assurance that the Company will be able to
obtain collaborative partners to manufacture and commercialize its drugs, or
would be able to obtain a sufficient financial return on its own manufacture
and commercialization of any future drugs.
Third-party payors are increasingly challenging the prices charged for
medical products and services. Also, the trend toward managed health care in
the United States and the concurrent growth of organizations such as HMOs,
which can control or significantly influence the purchase of health care
services and products, as well as legislative proposals to reform health care
or reduce government insurance programs, may result in lower prices for
pharmaceutical products. The cost containment measures that health care
providers are instituting, including practice protocols and guidelines and
clinical pathways, and the effect of any health care reform, could materially
adversely affect the Company's ability to sell any of its drugs if
successfully developed and approved. Moreover, the Company is unable to
predict what additional legislation or regulation, if any, relating to the
health care industry or third-party coverage and reimbursement may be enacted
in the future or what effect such legislation or regulation would have on the
Company's business.
Potential Product Liability and Availability of Insurance. The Company's
business exposes it to potential liability risks that are inherent in the
testing, manufacturing and marketing of pharmaceutical products. The use of
the Company's drug candidates in clinical trials may expose the Company to
product liability claims and possible adverse publicity. These risks will
expand with respect to the Company's drug candidates, if any,
11
<PAGE>
that receive regulatory approval for commercial sale. Product liability
insurance for the biotechnology industry is generally expensive, if available
at all. The Company does not have product liability insurance but intends to
obtain such coverage if and when its drug candidates are tested in clinical
trials. However, such coverage is becoming increasingly expensive and there
can be no assurance that the Company will be able to obtain insurance coverage
at acceptable costs or in a sufficient amount, if at all, or that a product
liability claim would not adversely affect the Company's business, operating
results or financial condition.
Control by Existing Stockholders. Upon completion of this Offering, the
Company's officers, directors and principal stockholders and their affiliates
will own or control approximately 67% of the Company's outstanding Common
Stock. As a result, these stockholders, acting together, will have the ability
to control most matters requiring approval by the stockholders of the Company,
including the election of the Company's Board of Directors.
No Prior Public Market; Stock Price Volatility. Prior to this Offering there
has been no public market for any of the Company's securities. Accordingly,
there can be no assurance that an active trading market will develop after
this Offering or that the Common Stock offered hereby will not decline below
the initial public offering price. The initial public offering price will be
determined by negotiations between the Company and the Representatives. See
"Underwriting." The market price of the Company's securities is likely to be
highly volatile. Factors such as announcements of technological innovations,
new commercial products, preclinical and clinical trials by the Company or its
competitors, other evidence of the safety or efficacy of products of the
Company or its competitors, governmental regulations and developments, health
care legislation, developments relating to patents or proprietary rights of
the Company or its competitors, including litigation, fluctuations in the
Company's operating results, market conditions for biotechnology stocks in
general and other factors may have a significant effect on the market price of
the Company's Common Stock. There has also been a history of significant
volatility in the market price for shares of other companies in the
biotechnology field.
Possible Adverse Impact of Shares Available for Future Sale. Sales of
substantial amounts of Common Stock (including shares issued upon the exercise
of outstanding options and warrants) in the public market after this Offering
or the prospect of such sales could adversely affect the market price of the
Common Stock and may have a material adverse effect on the Company's ability
to raise any necessary capital to fund its future operations. Upon completion
of this Offering, the Company will have 8,878,605 shares of Common Stock
outstanding. The 2,500,000 shares offered hereby will be freely tradeable
without restriction or further registration under the Securities Act of 1933,
as amended (the "Securities Act"), except for any shares held by "affiliates"
of the Company within the meaning of the Securities Act which will be subject
to the resale limitations of Rule 144 promulgated under the Securities Act
("Rule 144"). The remaining 6,378,605 shares are "restricted" securities that
may be sold only if registered under the Securities Act, or sold in accordance
with an applicable exemption from registration, such as Rule 144. The officers
and directors of the Company, each person known by the Company to beneficially
own more than 5% of the Common Stock and certain other stockholders, who
together hold 6,378,605 shares of Common Stock, and options to purchase an
additional 517,485 shares of Common Stock, have agreed not to sell directly or
indirectly, any Common Stock without the prior written consent of UBS
Securities LLC for a period of 180 days from the date of this Prospectus (the
"Lock-up Agreements"). Commencing on the expiration of the Lock-up Agreements,
3,695,511 shares of Common Stock will be eligible for sale in the public
market, subject to compliance with Rule 144. In addition, holders of 5,453,488
shares of Common Stock will be entitled to certain registration rights with
respect to such shares. If such holders, by exercising their registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could have a material adverse effect on the market price of
the Common Stock. In addition, any demand of such holders to include such
shares in Company-initiated registration statements could have an adverse
effect on the Company's ability to raise needed capital. See "Description of
Capital Stock--Registration Rights" and "Shares Eligible for Future Sale."
Potential Anti-Takeover Effect of Certain Charter and By-Law
Provisions. Pursuant to the Company's Restated Certificate of Incorporation,
to be effective upon the closing of this Offering (the "Restated
12
<PAGE>
Certificate of Incorporation"), special meetings of stockholders may be called
only by the Chairman of the Board, the President or a majority of the Board of
Directors of the Company. In addition, the Restated Certificate of
Incorporation authorizes the Board of Directors to issue preferred stock and
to determine its rights and preferences in order to eliminate delays
associated with a stockholder vote on specific issuances. The Company has no
present plans to issue any shares of preferred stock. The Restated Certificate
of Incorporation also provides for staggered elections of the Company's Board
of Directors and specific procedures for director nominations by stockholders
and submission of other proposals for consideration at stockholder meetings.
These provisions may have the effect of deterring hostile takeovers or
delaying or preventing changes in control or management of the Company,
including transactions in which stockholders might otherwise receive a premium
for their shares over then-current market prices. Certain provisions of
Delaware law applicable to the Company could also delay or make more difficult
a merger, tender offer or proxy contest involving the Company, including
Section 203 of the Delaware General Corporation Law (the "DGCL"), which
prohibits a Delaware corporation from engaging in any business combination
with any stockholder owning 15% or more of Company's outstanding voting stock
("interested stockholder") for a period of three years from the date a
stockholder becomes an interested stockholder unless certain conditions are
met. These provisions could also limit the price that investors might be
willing to pay in the future for shares of Common Stock. See "Description of
Capital Stock--Delaware Law and Certain Charter and By-Law Provisions."
Dilution. The initial public offering price is substantially higher than the
net tangible book value per share of the currently outstanding Common Stock.
Investors purchasing shares of Common Stock in this Offering will therefore
suffer immediate dilution in net tangible book value of $8.13 per share. The
dilution will be increased to the extent that the holders of outstanding
options or warrants to purchase Common Stock at prices below the initial
public offering price exercise such options or warrants. See "Dilution."
Absence of Dividends. The Company has never declared or paid cash dividends
and does not intend to declare or pay any cash dividends in the foreseeable
future. See "Dividend Policy."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby are estimated to be approximately $27,300,000
($31,485,000 if the Underwriters' over-allotment option is exercised in full),
based on an assumed initial public offering price of $12.00 per share and
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company.
The Company intends to use the net proceeds for research and development,
working capital and general corporate purposes. The Company may also use a
portion of the net proceeds to acquire or license products or technologies
complementary to the Company's business, although the Company has no
agreements or commitments for any such acquisition or license. Pending such
use, the Company intends to invest the net proceeds in interest-bearing,
investment-grade securities.
The Company believes that the net proceeds of this Offering, together with
its existing capital resources, interest income and revenue from the
Collaborative Agreements, will be sufficient to fund its operating expenses
and capital requirements as currently planned through the end of 1998.
However, there can be no assurance that such funds will be sufficient to fund
its operating expenses and capital requirements during such period. The
Company's actual cash requirements may vary materially from those now planned
and will depend upon numerous factors, including the results of the Company's
research and development and collaboration programs, the timing and results of
pre-clinical and clinical trials, the timing and costs of obtaining regulatory
approvals, the level of resources that the Company commits to the development
of manufacturing, marketing and sales capabilities, the ability of the Company
to maintain existing and establish new collaborative arrangements with other
companies to provide funding to the Company, the technological advances and
activities of competitors, and other factors. See "Risk Factors--Additional
Financing Requirements; Uncertainty of Available Funding."
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its capital stock
since its inception and does not anticipate paying cash dividends in the
foreseeable future.
14
<PAGE>
CAPITALIZATION
The following table sets forth at March 31, 1996 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company, as described in Note 1 below, and (iii) the pro forma capitalization
of the Company as adjusted to reflect the receipt of the estimated proceeds
from the sale of 2,500,000 shares of Common Stock being offered by the Company
hereby after deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by the Company. This table should be
read in conjunction with the Financial Statements of the Company and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
-------- -------------- -----------------
(in thousands)
<S> <C> <C> <C>
Long-term debt and capital lease ob-
ligations, less current portion.... $ 1,103 $ 1,103 $ 1,103
Stockholders' equity:
Preferred Stock, par value $.001
per share; 43,000,000 shares
authorized and 34,751,183 shares
issued and outstanding, actual;
5,000,000 shares authorized and
no shares issued and outstanding,
pro forma and pro forma as
adjusted......................... 35 -- --
Common Stock, par value $.001 per
share; 52,000,000 shares
authorized and 1,010,844 shares
issued and outstanding, actual;
25,000,000 shares authorized, pro
forma and pro forma as adjusted;
6,377,713 issued and outstanding,
pro forma and 8,877,713 shares
issued and outstanding, pro forma
as adjusted(3)................... 1 6 9
Additional paid-in capital........ 16,793 20,823 48,120
Accumulated deficit............... (13,805) (13,805) (13,805)
-------- -------- --------
Total stockholders' equity....... 3,024 7,024 34,324
-------- -------- --------
Total capitalization............. $ 4,127 $ 8,127 $ 35,427
======== ======== ========
</TABLE>
- --------
(1) Presented on a pro forma basis to give effect to (i) the sale subsequent
to March 31, 1996 of 2,816,902 shares of Series D Convertible Preferred
Stock (convertible into 402,414 shares of Common Stock) to Bristol-Myers
Squibb and the receipt of approximately $4,000,000 in net proceeds
therefrom, (ii) the conversion upon the closing of this Offering of all
outstanding shares of the Company's Preferred Stock into an aggregate of
5,366,869 shares of Common Stock and (iii) the amendment of the Company's
Restated Certificate of Incorporation prior to the date of this
Prospectus.
(2) Adjusted to reflect the sale of 2,500,000 shares of Common Stock offered
hereby and receipt by the Company of the estimated net proceeds therefrom,
based upon an assumed initial public offering price of $12.00 per share
and after deducting the underwriting discount and estimated offering
expenses payable by the Company. See "Use of Proceeds."
(3) Excludes (i) an aggregate of 517,485 shares of Common Stock issuable
pursuant to stock options outstanding as of May 31, 1996, at a weighted
average exercise price per share of $1.21, (ii) 682,105 shares of Common
Stock reserved for issuance pursuant to stock options that may be granted
from time to time under the Amended and Restated 1993 Stock Option Plan,
(iii) 86,619 shares of Common Stock issuable pursuant to warrants
outstanding as of May 31, 1996, at a weighted average exercise price per
share of $4.04 and (iv) an aggregate of 892 shares of Common Stock
outstanding pursuant to the exercise of stock options between March 31,
1996 and May 31, 1996.
15
<PAGE>
DILUTION
As of March 31, 1996, the Company had a pro forma net tangible book value of
$7,024,000, or $1.10 per share. Pro forma net tangible book value per share is
determined by dividing the pro forma net tangible book value (tangible assets
less liabilities) of the Company by 6,377,713 pro forma shares of Common Stock
outstanding at such date, after giving effect to (i) the sale subsequent to
March 31, 1996 of 2,816,902 shares of Series D Convertible Preferred Stock
(convertible into 402,414 shares of Common Stock) to Bristol-Myers Squibb and
the receipt of approximately $4,000,000 in net proceeds therefrom and (ii) the
conversion upon the closing of this Offering of all outstanding shares of the
Company's Preferred Stock into an aggregate of 5,366,869 shares of Common
Stock. Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of Common Stock in
this Offering and the pro forma net tangible book value per share of Common
Stock immediately after the completion of this Offering. Without taking into
account any changes in pro forma net tangible book value after March 31, 1996
other than as described above and to give effect to the sale by the Company of
the 2,500,000 shares of Common Stock offered hereby and the receipt by the
Company of the estimated net proceeds therefrom, the pro forma net tangible
book value of the Company as of March 31, 1996 would have been $3.87 per
share. This represents an immediate increase in the pro forma net tangible
book value of $2.77 per share to existing investors and an immediate dilution
in net tangible book value of $8.13 per share to new investors purchasing
shares of Common Stock in this Offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share as of March 31,
1996....................................................... $1.10
Increase per share attributable to this Offering............ 2.77
-----
Pro forma net tangible book value per share after this
Offering................................................... 3.87
------
Dilution per share to new investors......................... $ 8.13
======
</TABLE>
The following table summarizes on a pro forma basis as of May 31, 1996, the
total number of shares of Common Stock purchased from the Company (adjusted to
give effect to the automatic conversion of all outstanding shares of Preferred
Stock into 5,366,869 shares of Common Stock upon the closing of this
Offering), the total consideration paid, and the average price per share paid
by existing stockholders and by new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 6,378,605 71.8% $21,083,272 41.3% $ 3.31
New investors................... 2,500,000 28.2 30,000,000 58.7 12.00
--------- ----- ----------- -----
Total....................... 8,878,605 100.0% $51,083,272 100.0%
========= ===== =========== =====
</TABLE>
The foregoing table assumes no exercise of outstanding options or warrants
to purchase Common Stock after May 31, 1996. At May 31, 1996, there were
outstanding options granted under the Amended and Restated 1993 Stock Option
Plan (the "Plan"), exercisable for an aggregate of 517,485 shares of Common
Stock at a weighted average exercise price of $1.21 per share, and, after
giving effect to the amendment and restatement of the Plan prior to the
closing of this Offering, the Company had reserved an additional 682,105
shares of Common Stock for future option grants under the Plan. In addition,
at May 31, 1996 there were outstanding warrants to purchase 86,619 shares of
Common Stock at a weighted average exercise price per share of $4.04. The
exercise of these options and warrants would result in further dilution to new
investors. See "Management--Amended and Restated 1993 Stock Option Plan,"
"Certain Transactions" and "Description of Capital Stock--Warrants."
16
<PAGE>
SELECTED FINANCIAL DATA
The following Selected Financial Data should be read in conjunction with the
Company's Financial Statements and the Notes thereto, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and other
financial information included elsewhere in this Prospectus. The data set
forth below, as of December 31, 1994 and 1995 and for each of the three years
in the period ended December 31, 1995, are derived from the Company's
financial statements which have been audited by Coopers & Lybrand L.L.P.,
independent accountants, and which are included elsewhere in this Prospectus.
The selected financial data as of December 31, 1992 and 1993 and for the
period from inception (May 1, 1992) to December 31, 1992 are derived from and
are qualified by reference to, the Company's financial statements not included
in this Prospectus, all of which have been audited by Coopers & Lybrand
L.L.P., independent accountants. The selected financial data at March 31, 1996
and for the three months ended March 31, 1995 and 1996 are derived from the
Company's unaudited financial statements included elsewhere in this Prospectus
and include, in the opinion of the Company, all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
Company's financial position at that date and results of operations for those
periods. Operating results for the three months ended March 31, 1996 are not
necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION THREE MONTHS
(MAY 1, 1992) YEARS ENDED DECEMBER 31, ENDED MARCH 31,
TO DECEMBER 31, ---------------------------- ----------------
1992 1993 1994 1995 1995 1996
--------------- -------- -------- -------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Sponsored research
revenues............... $-- $ -- $ -- $ 1,271 $ -- $ 54
Operating expenses......
Research and
development........... 32 1,169 3,309 4,965 1,148 1,523
General and
administrative........ 6 547 1,449 1,708 548 377
---- -------- -------- -------- ------- -------
Total operating
expenses.............. 38 1,716 4,758 6,673 1,696 1,900
---- -------- -------- -------- ------- -------
Interest income......... 3 45 113 239 25 25
Interest expense........ -- (17) (168) (233) (50) (52)
---- -------- -------- -------- ------- -------
Net loss............... $(35) $ (1,688) $ (4,813) $ (5,396) $(1,721) $(1,873)
==== ======== ======== ======== ======= =======
Pro forma net loss per
share(1)............... $ (0.86) $ (0.28)
======== =======
Pro forma weighted
average common and
common equivalent
shares outstanding(1).. 6,265 6,797
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1996
-------------------------- ----------------------
1993 1994 1995 ACTUAL PRO FORMA(2)
------- ------- -------- -------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
investments.................... $ 4,457 $ 1,221 $ 3,056 $ 2,192 $ 6,192
Working capital................. 3,937 (92) 3,215 1,226 5,226
Total assets.................... 7,241 4,250 7,048 5,148 9,148
Long-term debt and capital lease
obligations, less current
portion........................ 1,164 2,032 1,257 1,103 1,103
Accumulated deficit............. (1,723) (6,536) (11,932) (13,805) (13,805)
Total stockholders' equity...... 5,488 823 4,895 3,024 7,024
</TABLE>
- --------
(1) Computed on the basis described in Note B of the Notes to the Financial
Statements.
(2) Presented on a pro forma basis to give effect to the sale subsequent to
March 31, 1996 of 2,816,902 shares of Series D Convertible Preferred Stock
(convertible into 402,414 shares of Common Stock) to Bristol-Myers Squibb
and the receipt of approximately $4,000,000 in net proceeds therefrom.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the related Notes thereto included elsewhere in this
Prospectus. This Prospectus contains forward-looking statements which involve
risk and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that
might cause such a difference include, but are not limited to, those discussed
in "Risk Factors."
OVERVIEW
Since its incorporation on May 1, 1992 and commencement of operations in
February 1993, Cubist has been engaged in the research, development and
commercialization of novel antiinfective drugs to treat infectious diseases
caused by bacteria and fungi, primarily those resistant to existing
antiinfective drugs. To date, the Company has raised over $19 million in
funding primarily through the sale of preferred stock. Additionally, the
Company has received several SBIR grants from the National Institutes of
Health. The Company has a limited history of operations and has experienced
significant operating losses since inception. The Company expects to incur
significant additional operating losses over the next several years and
expects cumulative losses to increase substantially due to expanded research
and development efforts, pre-clinical and clinical trials and development of
manufacturing, marketing and sales capabilities.
A key element of the Company's strategy is to enhance certain of its drug
discovery and development programs and to fund its capital requirements, in
part, by entering into collaborative agreements with major pharmaceutical
companies. To date, the Company has entered into agreements based specifically
on the Synthetase Program with Bristol-Myers Squibb, Merck and Pfizer.
Assuming that the Collaborative Agreements continue until their scheduled
expirations, and that a separate drug is successfully developed and
commercialized from each of the five research programs to be conducted
pursuant to these agreements, Cubist will be entitled to receive a total of
$98.5 million in research support payments, technology licensing fees,
milestone payments and equity investments. In addition, the Company will be
entitled to receive royalties on worldwide sales of any drug developed and
commercialized from the collaborations.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1995
Revenues. Total revenues in the three months ended March 31, 1996 were
$53,667. No revenues were received in the three months ended March 31, 1995.
The Company recognized $53,667 relating to SBIR Phase I grants and Pfizer
research support funding during the three months ended March 31, 1996.
Research and Development Expenses. Total research and development expenses
were $1,523,259 in the three months ended March 31, 1996 compared to
$1,148,158 in the three months ended March 31, 1995, an increase of $375,101
or 32.7%. The increase was largely due to increased costs related to
additional personnel, laboratory research supplies and compound purchases to
expand the Company's compound collection.
General and Administrative Expenses. General and administrative expenses
were $376,665 in the three months ended March 31, 1996 compared to $547,715 in
the three months ended March 31, 1995, a decrease of $171,050 or 31.2%. The
decrease is primarily due to the preparation of fewer patent applications in
the three months ended March 31, 1996 as compared to the three months ended
March 31, 1995.
Interest Income and Expense. Interest income was $25,044 in the three months
ended March 31, 1996 compared to $24,864 in the three months ended March 31,
1995. Interest expense was $52,014 in the three months ended March 31, 1996
compared to $49,960 in the three months ended March 31, 1995, an increase of
$2,045 or 4.1%.
18
<PAGE>
Net Loss. The net loss was $1,873,227 during the three months ended March
31, 1996 and $1,720,969 during the three months ended March 31, 1995, an
increase of $152,258 or 8.8% primarily as a result of the items discussed
above.
Years ended December 31, 1995 and 1994
Revenues. Total revenues in 1995 were $1,271,333. No revenues were received
in 1994. The Company recognized $283,000 relating to three SBIR Phase I grants
awarded during 1995. In addition, sponsored research revenues were recognized
upon the signing of the Pfizer Agreement in December 1995. Revenues included
$500,000 in license fees and $488,000 in research funding.
Research and Development Expenses. Total research and development expenses
were $4,964,876 in 1995 compared to $3,309,161 in 1994, an increase of
$1,655,715 or 50.0%. The increase was largely due to increased costs related
to additional personnel, increased facility-related expenses reflecting the
construction of 6,500 square feet of additional laboratory space and increased
license and collaboration expenses.
General and Administrative Expenses. General and administrative expenses
were $1,708,513 in 1995 compared to $1,448,928 in 1994, an increase of
$259,585 or 17.9%. The increase is primarily due to increased compensation
expenses reflecting a full year of executive compensation and increased patent
application expenses offset by decreased relocation expenses.
Interest Income and Expense. Interest income was $239,030 in 1995 compared
to $113,338 in 1994, an increase of $125,692 or 110.9%. This increase was due
to an increase in the average cash balance from two equity financings during
1995 raising approximately $9,000,000. Interest expense was $232,980 in 1995
compared to $168,284 in 1994, an increase of $64,696 or 38.4%. This increase
was due to additional capital lease obligations entered into during 1995.
Net Loss. The net loss was $5,396,006 during 1995 and $4,813,035 during
1994, an increase of $582,971 or 12.1%. The increase was primarily due to
additional expenses incurred to support the advancement of the Company's
internal research programs. Offsetting these additional expenses were revenues
associated with the Pfizer Agreement and SBIR Phase I grants.
Years ended December 31, 1994 and 1993
Revenues. No revenues were received during these periods.
Research and Development Expenses. Total research and development expenses
were $3,309,161 in 1994 compared to $1,169,168 in 1993, an increase of
$2,139,993 or 183.0%. The increase was largely due to increased costs related
to additional personnel, as well as increased laboratory research supplies
supporting the advancement of the Company's internal research programs.
General and Administrative Expenses. General and administrative expenses
were $1,448,928 in 1994 compared to $546,843 in 1993, an increase of $902,085
or 165.0%. The increase is primarily due to increased compensation and
recruiting expenses and legal expenses associated with patent filings.
Interest Income and Expense. Interest income was $113,338 in 1994 compared
to $45,028 in 1993, an increase of $68,310 or 151.7%. This increase was due to
an increase in the average cash balance due to an equity infusion during
August 1993 raising approximately $7,100,000. Interest expense was $168,284 in
1994 compared to $16,911 in 1993, an increase of $151,373 or 895.1%. This
increase was due to capital lease obligations entered into during 1994 and a
full year of interest expense incurred in 1994 for debt entered into by the
Company relating to the facility renovation in September 1993.
19
<PAGE>
Net Loss. The net loss was $4,813,035 during 1994 and $1,687,894 in 1993, an
increase of $3,125,141 or 185.2%. The increase was primarily due to additional
expenses incurred to support the advancement of the Company's internal
research programs.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations through the sale of
equity securities, equipment financing, sponsored research revenues, license
revenues and interest earned on invested capital. The Company's total cash,
cash equivalent and investments balance at March 31, 1996 was $2,192,057
compared to $3,056,124 at December 31, 1995. The Company raised approximately
$9,468,000 in equity financings, $488,000 in sponsored research revenues,
$283,000 in SBIR grants and $500,000 in licensing revenues during 1995.
Net cash used in operating activities was $6,514,231 in 1995 compared to
$3,753,728 and $1,390,476 in 1994 and 1993, respectively. The cash used in
operations was primarily to fund research and development and for general and
administrative expenses.
As of March 31, 1996, the Company had invested $3,947,485 in property and
equipment, primarily in facility renovations and laboratory equipment under
capital leases. The present value of obligations under capital leases at March
31, 1996 was $1,102,276. Minimum annual principal payments due under capital
leases total $520,060 in 1996 and 1997. Principal payments decline each year
thereafter until expiration in 1999. The Company made principal payments under
capital lease obligations in 1995 and 1994 of $318,272 and $212,428,
respectively. The Company expects its capital expenditures in 1996 to be
approximately $1,000,000, consisting of $300,000 in leasehold improvements and
$700,000 of laboratory and other equipment purchases.
The Company believes that the net proceeds of this Offering, together with
its existing capital resources, interest income and revenue from the
Collaborative Agreements, will be sufficient to fund its operating revenues
and capital requirements as currently planned through the end of 1998. These
funding requirements include continued expenditures for research and
development activities, as well as expenditures related to leasehold
improvements and the purchase of additional laboratory and other equipment.
The Company has not entered into any formal commitments to use the proceeds
from the Offering for increased personnel, capital expenditures or any other
purpose. See "Use of Proceeds."
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of." This standard is effective for financial
statements for fiscal years beginning after December 15, 1995. The Company's
analysis of this new standard indicates that it will not have a material
effect on the Company's financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which encourages companies to recognize compensation expense in
the income statement based on the fair value of the underlying common stock at
the date of the awards are granted. However, it will permit continued
accounting under APB Opinion 25, "Accounting for Stock Issued to Employees,"
accompanied by a disclosure of the pro forma effects on net income and
earnings per share had the new accounting rules been applied. The statement is
effective for fiscal year 1996. The Company has determined that it will elect
the disclosure-only alternative permitted under SFAS No. 123. The Company will
be required to disclose pro forma net income and pro forma earnings per share
in the footnotes using the fair value based method beginning in 1996 with
comparable disclosures for 1995. The Company has not determined the impact of
the pro forma adjustments to its net income or earnings per share.
20
<PAGE>
BUSINESS
THE COMPANY
Cubist Pharmaceuticals, Inc. ("Cubist" or the "Company") is a
biopharmaceutical company engaged in the research, development and
commercialization of novel antiinfective drugs to treat infectious diseases
caused by bacteria and fungi, primarily those resistant to existing
antiinfective drugs. The increasing prevalence of drug-resistant bacterial and
fungal pathogens has led to significantly higher mortality rates from
infectious diseases and currently presents a serious crisis worldwide.
Cubist's strategy for combating antiinfective drug resistance is to identify
novel intracellular targets essential for cell function in bacteria and fungi,
such as proteins, RNA or DNA, which if inhibited by a drug would kill or
attenuate the growth of the pathogen. Cubist selects these targets based on a
thorough understanding of their function, thereby providing a foundation for
assay development and identification of leads for drug discovery.
Cubist believes that its rational, target-based, drug discovery strategy
represents a distinct departure from and offers significant advantages over
traditional drug discovery strategies to counter drug resistance. These
traditional strategies have generally involved (i) whole-cell screening
methodologies which provide only limited knowledge of target function, (ii)
chemical modifications of existing antiinfective drugs, such as penicillin, or
(iii) the combination of existing antiinfective drugs with an antibiotic
potentiator to block drug resistance. For decades, antiinfective drug
discovery research has utilized only a fixed number of targets and chemical
structures thereby limiting the ability of these approaches to identify new
classes of drugs effective against drug-resistant bacteria and fungi. Cubist
believes that the identification of new drug classes inhibiting new targets
will provide a compelling solution to drug resistance. The Company has
identified over 100 proprietary targets and related assays for the discovery
of new drugs. The Company expects that drugs inhibiting these new targets will
be immediately effective against drug-resistant bacteria and fungi since these
pathogens have not had an opportunity to evolve resistance specific to these
new drugs. Furthermore, Cubist's most advanced drug discovery program could
identify a drug which inhibits more than one essential target for a given
pathogen, which would significantly decrease the rate of emergence of drug
resistance.
Cubist's initial focus is on the identification and development of
antiinfective drugs to inhibit selected targets involved in the essential
process of protein synthesis. Cubist's programs are based on targets that are
responsible for the: (i) addition or charging of amino acids to tRNA molecules
by enzymes known as aminoacyl-tRNA synthetases, (ii) cleavage by the enzyme
ribonuclease P of immature tRNA to form mature tRNA prior to its charging with
amino acids by the enzyme ribonuclease P, (iii) modification of the amino acid
glutamate into glutamine on incorrectly charged tRNAs by the enzyme
amidotransferase and (iv) transport of amino acid-charged tRNA molecules to
the site of protein synthesis by elongation factors. The Company believes that
its target-based programs will enable the development of clinically effective
drugs to treat infectious diseases caused by pathogens such as staphylococci,
enterococci, streptococci and candida. To date, the Company has identified
lead candidates targeting certain aminoacyl-tRNA synthetases, which
demonstrate potency and selectivity and inhibit the growth of bacteria or
fungi. Cubist expects to complete optimization of these lead candidates and
select its first drug candidate for pre-clinical development by the end of
1996. Assuming successful pre-clinical development, the Company expects to
file an IND application by the end of 1997.
A key element of the Company's strategy is to enter into collaborations with
major pharmaceutical companies to develop its initial products. These
collaborations are expected to provide the Company with funding, research and
development resources, and access to libraries of diverse compounds and
clinical development, manufacturing and commercialization capabilities. To
date, the Company has entered into collaborative agreements based on certain
targets within the Synthetase Program with Bristol-Myers Squibb, Merck and
Pfizer to screen the collaborators' respective compound libraries against
certain aminoacyl-tRNA synthetase targets. Assuming that the Collaborative
Agreements continue until their scheduled expirations, and that a separate
drug is successfully developed and commercialized from each of the five
research programs
21
<PAGE>
to be conducted pursuant to these agreements, Cubist will be entitled to
receive a total of $98.5 million in research support payments, technology
licensing fees, milestone payments and equity investments. In addition, the
Company will be entitled to receive royalties on worldwide sales of drugs
resulting from these collaborations. Through June 1996, the Company's
collaborative partners have provided the Company with $1.0 million of research
support payments and a technology licensing fee and $4.0 million in equity
investments.
Apart from these collaborations, Cubist has retained rights to internally
develop and commercialize certain proprietary products which will enable the
Company either to commercialize certain drug candidates independently or to
enter into future drug development and commercialization alliances with third
parties at a later stage in the development process.
OVERVIEW OF INFECTIOUS DISEASE AND DRUG RESISTANCE
Infectious diseases are caused by bacteria and fungi present in the
environment that enter the body through the skin or mucous membranes of the
lungs, nasal passages and gastrointestinal tract, and overwhelm the body's
immune system. These pathogens then establish themselves in various tissues and
organs throughout the body and cause a number of serious and, in some cases,
lethal infections, including those of the bloodstream, heart, lung, liver and
urinary tract.
The increasing prevalence of and rise in mortality rates from infectious
diseases places additional stress on the already overburdened U.S. health care
system. According to estimates from the CDC, approximately two million
hospital-acquired infections occur each year, causing more than eight million
days of extended hospital stay and resulting in more than $4.5 billion in
additional health care costs each year. Based on CDC estimates, infectious
diseases ranked as the third leading cause of death in 1992, with mortality
rates increasing by 58% during the period from 1980 to 1992, in contrast to
mortality rates due to all causes which decreased by 3% during this period, as
shown in the following table:
LEADING CAUSES OF MORTALITY BY INFECTIOUS DISEASE (U.S.)
<TABLE>
<CAPTION>
NO. OF MORTALITY
DEATHS IN PER 100,000 % INCREASE
INFECTIOUS DISEASE 1992 IN 1992 1980-1992
------------------- --------- ----------- ----------
<S> <C> <C> <C>
Respiratory tract.......................... 77,336 30.3 21 %
HIV/AIDS(1)................................ 33,581 13.2 N/A (2)
Bloodstream................................ 19,667 7.7 83
Kidney/Urinary tract....................... 12,399 4.9 40
Heart...................................... 3,950 1.5 36
Gall bladder............................... 2,494 1.0 100
Fungal..................................... 2,298 0.9 200
Other...................................... 14,322 5.5 N/A (2)
--------- ----- ----
All infectious diseases.................... 166,047 65.0 58 %
All deaths................................. 2,175,613 852.0 (3)%
</TABLE>
--------
(1) Although the HIV virus is known to be the underlying cause of AIDS, the
majority of patients infected with AIDS die of opportunistic bacterial
or fungal infections such as pneumonia.
(2) N/A--data not available.
Source: Journal of the American Medical Association estimates (1996).
22
<PAGE>
Antiinfective drugs have, in many cases, proven highly successful in
controlling the serious morbidity and mortality that accompany these
infections. These drugs work by chemically binding to specific targets in a
bacterial or fungal pathogen, thereby inhibiting a cell function essential to
its survival. Currently available antiinfective drugs can be divided into the
following four broad categories, according to the type of essential cell
function they inhibit: (i) protein synthesis (e.g., tetracyclines, macrolides
and aminoglycosides), (ii) cell wall and membrane synthesis (e.g.,
penicillins, cephalosporins, carbapenems, glycopeptides and polyenes), (iii)
nucleic acid synthesis (e.g., fluoroquinolones) and (iv) cell metabolism
(e.g., trimethoprim, sulfonamides, azoles and allylamines).
Recently, there has been a rise in the incidence of infectious diseases
caused by bacteria and fungi that have developed resistance to existing
antiinfective drugs. This phenomenon has been well documented in medical
literature. A number of serious pathogens such as Staphylococcus aureus,
Streptococcus pneumoniae, Enterococcus faecalis, Enterococcus faecium,
Escherichia coli, Haemophilus influenzae, Pseudomonas aeruginosa,
Mycobacterium tuberculosis, Candida albicans, Aspergillus fumigatus and
Aspergillus flavus have shown significant evidence of drug resistance. The
figure below shows the increase in the incidence of hospital-acquired
infections caused by drug-resistant strains of Staphylococcus aureus and
enterococci bacteria as documented by the CDC, indicating significant and
increasing levels of drug resistance prevalent in these common, often lethal,
pathogens.
[LINE AND BAR CHARTS INDICATING INCIDENCE OF DRUG RESISTANCE IN
HOSPITAL-ACQUIRED INFECTIONS]
The increasing prevalence of drug-resistant pathogens has contributed to
higher mortality rates from infectious diseases, particularly those caused by
Staphylococcus aureus and Streptococcus pneumoniae. Staphylococcus aureus is
the most common pathogen to cause blood-borne infections and the most
frequently isolated pathogen in skin and soft tissue infections. Recent data
show that methicillin-resistant strains of Staphylococcus aureus have been
found in approximately 24% of the patient population in U.S. nursing homes.
During the years 1990 to 1993, the mortality rate for individuals with blood-
borne methicillin-resistant Staphylococcus aureus was 42%, as compared to 22%
for individuals infected with methicillin-susceptible strains. Streptoccocus
pneumoniae is the most frequently isolated pathogen in children with otitis
media (middle ear infections) and in adults with sinusitis. In the 1990's,
penicillin-resistant Streptococcus pneumoniae has accounted for 10% to 50%
(depending on geographic location) of all pediatric infections in day care
centers. During the years 1991 to 1994, the mortality rate in patients with
blood-borne strains of vancomycin-resistant enterococci was 57%, as compared
to approximately 35% for individuals infected with vancomycin--susceptible
strains.
23
<PAGE>
The increasing prevalence of antiinfective drug resistance is a natural
outcome of the use and overuse of antiinfective drugs. When bacteria or fungi
are exposed to an antiinfective drug, the drug kills or attenuates
the growth of the susceptible pathogen. However, any variant in the bacterial
population that has spontaneously undergone a genetic change that confers drug
resistance will have a selective growth advantage, which is known in
evolutionary terms as natural selection. Thus, the antiinfective drug does not
technically cause the resistance but creates a situation in which the
resistant pathogen can multiply in the presence of the drug, increasing the
population approximately a millionfold in a day and quickly becoming the
predominant microorganism. These resistant bacteria can then spread rapidly
from the infected patient to healthy individuals.
Certain medical practices and sociological factors have facilitated and
accelerated the process of natural selection of drug-resistant bacteria and
fungi and help explain the increase in the rate at which pathogens are
becoming resistant to antiinfective drugs. These practices and factors
include: (i) the use of antibacterial drugs to treat non-bacterial infections,
(ii) the prophylactic use of antiinfective drugs to prevent potential but
unconfirmed infections, (iii) the use of antiinfective drugs active against
multiple pathogens (broad spectrum drugs) to treat an infection before the
specific disease-causing pathogen has been identified, (iv) the lack of
patient compliance with the prescribed course of antiinfective therapy and (v)
long-term antiinfective therapy for patients who are unable to clear
infections due to other conditions such as immunosuppression as a consequence
of organ transplants or cancer chemotherapy, or diseases such as AIDS.
Bacteria and fungi have evolved multiple resistance mechanisms against
currently available categories of antiinfective drugs. These mechanisms
include: (i) utilization of an enzyme to alter the drug's structure by
creating or destroying chemical bonds, (ii) modification of the cell membrane
to block entry of the drug, (iii) utilization of a protein to pump the drug
out of their cells before the drug binds to the target and (iv) alteration of
the target to significantly limit the ability of the antiinfective drug to
bind to the target. Bacteria and fungi change the target by mutation of the
target's protein sequence, chemical modification of the target structure or
the acquisition of a new gene from another pathogen that substitutes for the
target function.
Traditional drug discovery approaches have not met the challenge posed by
drug-resistant pathogens. To date, biology-based approaches have attempted to
identify compounds that kill or attenuate the growth of the pathogen using
whole-cell screening assays. This approach is limited because compounds that
could effectively inhibit a target function inside the cell, but are unable to
penetrate cell membranes, are not identified by whole-cell screening assays.
Thus, entire classes of effective inhibitors of intracellular targets, which
could be modified by medicinal chemistry to penetrate cell membranes, have
potentially been overlooked. Chemistry-based approaches have focused on
chemically modifying the molecular structure of existing antiinfective drugs
or combining existing antiinfective drugs with another agent (an antibiotic
potentiator) to circumvent established drug resistance mechanisms. Despite the
introduction of second and third generation antiinfective drugs, certain
pathogens, such as vancomycin-resistant strains of Enterococcus faecium, have
developed resistance to all currently available drugs. During the past 20
years, these traditional approaches have identified only one new chemical
class of antiinfective drugs to meet the challenge posed by drug-resistant
pathogens.
24
<PAGE>
THE CUBIST SOLUTION
Cubist is combating antiinfective drug resistance by identifying new targets
in bacteria or fungi which if inhibited by a drug would disrupt an essential
cell function and thereby kill or attenuate the growth of the pathogen,
allowing it to be cleared by the immune system. This rational, target-based
approach represents a distinct departure from traditional strategies to
develop drugs that only counter drug resistance. The Company has identified
over 100 proprietary targets and related assays for the discovery of new
drugs. The Company expects that drugs inhibiting these new targets would be
immediately effective against currently drug-resistant bacteria and fungi
since these pathogens have not had an opportunity to evolve resistance
specific to these new drugs. Furthermore, Cubist's most advanced drug
discovery program could identify a drug which inhibits more than one essential
target for a given pathogen, which would significantly decrease the rate of
emergence of drug resistance.
MARKET OPPORTUNITY
Potential Market
According to 1995 sales data compiled by IMS International, antiinfective
drugs generated $26 billion in sales and constituted the third largest
pharmaceutical market worldwide, behind only gastrointestinal and
cardiovascular drugs. The growth of the worldwide antiinfective drug market
from 1994 to 1995 was 13%. Of the 100 best-selling brand name drugs worldwide,
19 are antiinfective drugs addressing bacterial and fungal infections. In the
United States, sales of antiinfective drugs totaled over $7 billion in 1995,
and brand name antiinfective drugs accounted for 15 of the leading 100
prescription drugs.
Antiinfective drugs are segmented into distinctive chemical classes, as
shown in the following table:
1995 ANTIINFECTIVE DRUG SALES
<TABLE>
<CAPTION>
CHEMICAL CLASS WORLDWIDE SALES SELECTED EXAMPLES INDICATED USE
- ------------------------ --------------- ------------------------ ------------------------
($ millions)
<S> <C> <C> <C>
ANTIBACTERIAL
Beta Lactams
Cephalosporins........ $8,540 Ceclor, Ceftriaxone, Bronchitis, pneumonia,
Cefuroxime meningitis
Penicillins........... 4,460 Ampicillin, Amoxicillin, Pneumonia, bronchitis,
Amoxicillin/Clavulanate otitis media, sinusitis
Carbapenems........... 550 Imipenem Bacteremia, pneumonia,
abdominal infections
Fluoroquinolones....... 3,310 Ciprofloxacin, Ofloxacin Urinary tract
infections,
gastroenteritis,
meningitis
Macrolides............. 3,115 Clarithromycin, Otitis media, sinusitis,
Azithromycin, skin and soft tissue
Erythromycin infections, meningitis
Tetracyclines.......... 743 Minocycline, Doxycycline Acne, pelvic
inflammatory disease
Aminoglycosides........ 712 Gentamicin, Amikacin Pneumonia, bacteremia,
abdominal and urinary
tract infections
Glycopeptides.......... 533 Vancomycin Intestinal infections,
Staphylococcus aureus
infections
Aminopyrimidines....... 380 Trimethoprim/Sulfonamide Bronchitis, urinary
tract infections
ANTIFUNGAL
Azoles................. 1,430 Fluconazole, Vaginitis, skin and oral
Itraconazole infections, systemic
Ketoconazole infections
Allylamines............ 190 Terbinafine Vaginitis, skin and oral
infections, systemic
infections
Polyenes............... 190 Amphotericin B, Nystatin Meningitis, pneumonia,
fungemia
</TABLE>
- --------
Source: IMS International (1996).
25
<PAGE>
Currently, several antiinfective drug classes generate over $1 billion in
annual worldwide sales. Within the cephalosporin class alone, there are six
drugs each with worldwide sales of between $300 million and $1.2 billion
annually. In addition, at least three drugs have individually reached
worldwide sales of over $1 billion annually: Augmentin
(amoxicillin/clavulanate) sold by SmithKline Beecham, Cipro (ciprofloxacin)
sold by Bayer Corp. and Rocephin (ceftriaxone) sold by Hoffmann-La Roche Inc.
Each of these drugs replaced previously prescribed drugs (such as penicillin,
tetracycline and erythromycin) whose effectiveness has greatly diminished as a
consequence of bacterial drug resistance. The clinical efficacy of these new
drugs, however, is similarly being threatened by emerging strains of drug-
resistant pathogens.
Cubist is focusing its drug discovery programs on pathogens that have a high
annual incidence rate worldwide and that have become resistant to all but a
few available antiinfective drugs. The CDC has reported that 44% of the two
million hospital-acquired infections in the United States are caused by four
bacteria: staphylococci, enterococci, pneumococci and pseudomonas. The table
below lists the hospital and community-acquired pathogens that are the focus
of Cubist's drug discovery programs, the estimated annual incidence of
infectious disease caused by these pathogens, the types of infectious diseases
caused by these pathogens and the existing drugs to which these pathogens have
developed resistance.
CUBIST'S THERAPEUTIC TARGETS
<TABLE>
<CAPTION>
ESTIMATED EXAMPLES OF
ANNUAL DRUGS SUBJECT TO
PATHOGEN INCIDENCE(1) PRINCIPAL DISEASES RESISTANCE
- -------------------- ------------ ------------------------ ------------------------
<S> <C> <C> <C>
BACTERIAL
Staphylococcus au- 9,000,000 Skin and soft tissue Methicillin, Beta
reus.............. infections, bacteremia Lactams
Streptococcus 8,000,000 Otitis media, sinusitis, Penicillin, Beta Lactams
pneumoniae........ pneumonia
Escherichia coli... 4,800,000 Abdominal infections, Ampicillin,
urinary tract Cephalosporins
infections, bacteremia
Haemophilus 1,000,000 Otitis media, Ampicillin
influenzae........ bronchitis, pneumonia
Enterococci 850,000 Urinary tract Vancomycin, Beta Lactams
faecium/faecalis.. infections, bacteremia
Helicobacter pylo- 500,000 Gastritis, duodenal Nitroimidazoles,
ri................ ulcer Macrolides
Pseudomonas 220,000 Pneumonia Carbapenems,
aeruginosa........ Aminoglycosides
Mycobacterium tu- 25,000 Rifampicin, Isoniazid
berculosis........ Pneumonia
FUNGAL
Candida albicans... 7,000,000 Vaginitis, skin Fluconazole, Azoles
infections, bacteremia,
hepatitis
Pneumocystis 60,000 None documented(2)
carinii........... Pneumonia
Aspergillus 8,000 Azoles
fumigatis/flavus.. Pneumonia
</TABLE>
- --------
(1) Cubist's estimate of the incidence in 1995 in the United States.
(2) Limited effective therapies available.
26
<PAGE>
Antiinfective Drug Development
The pre-clinical and clinical development path for antiinfective drugs has
been well-established. A novel antiinfective drug has a high likelihood of
efficacy in humans if it has demonstrated (i) appropriate in vitro activity
against a broad spectrum of clinical pathogens, (ii) in vivo activity in
highly-predictive animal models of infection and (iii) effective
pharmacokinetics, such as half-life in the bloodstream.
The FDA has indicated that antibiotic drugs may receive fast track approval
consideration if the antibiotics have been studied for their safety and
effectiveness in treating serious or life-threatening illnesses and the drugs
provide "meaningful therapeutic benefit" to patients over existing treatments
(for example, the ability to treat patients unresponsive to, or intolerant of,
available therapy, or improved patient response over available therapy). See
"Business--Government Regulation."
STRATEGY
The Company's objective is to become the worldwide leader in the discovery
and development of novel antiinfective drugs to treat infectious diseases
caused by drug-resistant pathogens. To achieve this objective, the principal
elements of the Company's strategy are to:
Pursue a Rational, Target-Based Approach to Drug Discovery. Cubist's
strategy for combating antiinfective drug resistance is to identify novel,
intracellular targets essential for cell function in bacteria or fungi which,
if inhibited by a drug, would kill or attenuate the growth of the pathogen.
The principal element of Cubist's drug discovery strategy is to rationally
select novel intracellular targets based on a thorough understanding of cell
function, thereby providing a foundation for assay development and lead
identification. Cubist believes that its rational, target-based strategy
represents a distinct departure from and offers significant advantages over
traditional drug discovery strategies to counter drug resistance.
Establish a Pipeline of New Targets to Address Drug Resistance. Cubist
believes that bacterial and fungal pathogens will eventually develop
resistance against any drug by evolving resistance mechanisms that prevent the
drug from binding to and inhibiting the function of its intended target.
Therefore, Cubist's strategy for combating drug-resistant pathogens is to
identify new targets and develop novel drugs that act upon such targets. The
Company has identified over 100 proprietary targets and related assays for the
discovery of drugs. Furthermore, Cubist's most advanced drug discovery program
could identify a drug which inhibits more than one essential target for a
given pathogen, which would significantly decrease the rate of emergence of
drug resistance.
Integrate Multiple Enabling Technologies. The Company's rational, target-
based approach to the discovery of novel drugs to combat drug-resistant
pathogens utilizes multiple enabling technologies, including genomics,
genetics, molecular biology, biochemistry, high-throughput screening,
medicinal and combinatorial chemistry, microbiology, pharmacology and
toxicology. The Company has assembled a team of scientists with expertise in
each of these disciplines and has successfully integrated these enabling
technologies into a drug discovery process involving the following stages:
target identification and validation, assay development, lead identification
and lead optimization. The Company believes that it has the internal
capability to advance a drug candidate through each of these stages.
Establish Collaborative Relationships to Discover New Drugs and Broaden
Technology Base. The Company employs two collaborative strategies for the
discovery of new antiinfective drugs: (i) collaborations with major
pharmaceutical companies to provide the Company with funding, research and
development resources, access to libraries of diverse compounds and clinical
development, manufacturing and commercialization capabilities and
(ii) alliances with biopharmaceutical companies to access additional compound
libraries for the identification and optimization of lead candidates for the
Company's internal programs. The Company has entered into collaborative
agreements based upon the Synthetase Program with Bristol-Myers Squibb,
27
<PAGE>
Merck and Pfizer. The Company believes that the Collaborative Agreements will
permit it to reduce its capital requirements and to leverage the development
expertise of its collaborative partners to accelerate the commercialization of
drug candidates. The Company has also entered into agreements with Terrapin
Technologies Inc., Pharm-Eco Laboratories, Inc. and ArQule, Inc. to obtain
additional compound libraries for Cubist's internal programs.
Retain Rights to Independently Develop and Market Certain Products. Cubist
intends to continue to retain rights to internally develop and commercialize
certain proprietary products. This will enable the Company either to
commercialize certain drug candidates independently or to enter into future
drug development and commercialization alliances with third parties at a later
stage in the development process. The Company believes that this will enable
it to obtain greater economic benefits from future collaborations. Except for
rights granted to Bristol-Myers Squibb, Merck and Pfizer pursuant to the
Collaborative Agreements, the Company has retained rights to technology
related to its Synthetase Program for internal drug discovery. In addition,
the Ribonuclease P, Amidotransferase and Elongation Factors Programs are
currently being pursued with internal resources.
Maintain and Enhance Strong Proprietary Position. Cubist plans to continue
to pursue an aggressive patent strategy to protect its proprietary drug
discovery technologies. The Company's policy is to protect, to the maximum
extent possible, its cloned targets, assays, organic synthetic processes, lead
compounds, screening technology and certain other technology. Cubist has 11
pending U.S. patent applications. In addition, Cubist has licensed three
issued U.S. patents, three pending U.S. applications and one international
patent application from the Massachusetts Institute of Technology, covering
inventions made by Dr. Paul R. Schimmel and Dr. Julius Rebek, Jr., the two
scientific founders of the Company.
28
<PAGE>
THE CUBIST PROGRAMS
Cubist's initial focus is on the identification and development of targets
that are involved in the fundamental process of protein synthesis. This process
involves a sequential order of well-established, enzymatic events that leads to
the incorporation of amino acids into proteins. Antiinfective drugs, such as
tetracyclines and erythromycin, that work by inhibiting protein synthesis at
the ribosome (a cellular component which is the site of incorporation of amino
acids into proteins) have been successfully developed and commercialized. There
are, however, several classes of essential enzyme targets that function
independently of the ribosome during protein synthesis that have not yet been
exploited as effective drug targets. The Company's programs address targets in
the areas of: (i) Synthetases, (ii) Ribonuclease P, (iii) Amidotransferase and
(iv) Elongation Factors. These enzyme targets are essential for the survival of
both bacterial and fungal pathogens. The Company believes that these targets
will enable the development of clinically useful antiinfective drugs against
susceptible and drug-resistant pathogens.
The following table describes the various stages of development of Cubist's
four target-based programs.
[GRAPH OF PROGRAM STATUS APPEARS HERE]
The Synthetase Program
Synthetases are enzymes that play a fundamental role in protein synthesis in
all living organisms. In most organisms, there are 20 essential aminoacyl-tRNA
synthetases, one for each amino acid, which charge its specific amino acid to a
transfer RNA molecule ("tRNA") forming an amino acid-charged tRNA. These
charged tRNAs then interact with messenger RNA ("mRNA") at the ribosome to
incorporate the amino acid into the protein being synthesized. Inhibition of
any one of the 20 aminoacyl-tRNA synthetases from any bacterial or fungal
pathogen, at the amino acid or tRNA binding sites, would disrupt protein
production, thereby killing or attenuating the growth of the pathogen. As a
result, large numbers of targets, each with multiple sites of inhibition, are
available to Cubist for drug discovery. Furthermore, Cubist has demonstrated
that the molecular structures of bacterial or fungal synthetases are
sufficiently different from human synthetases to permit a drug to selectively
recognize and inhibit pathogen synthetases.
29
<PAGE>
INHIBITION OF AMINOACYL - TRNA SYNTHETASE
AMINO ACID INHIBITOR
[PICTURE OF INHIBITOR [PICTURE OF AMINO
APPEARS HERE.] ACID APPEARS HERE.]
AMINOACYL - TRNA SYNTHETASE
[PICTURE OF AMINOACYL tRNA
SYNTHESIS APPEARS HERE.]
CHARGED TRNA
TRNA INHIBITED
SYNTHETASE
[PICTURE OF AMINO ACID,
tRNA, AND AMINOACYL-tRNA
SYNTHESIS APPEARS HERE]
PROTEIN INHIBITION OF PROTEIN
SYNTHESIS SYNTHESIS
[PICTURE OF INHIBITOR,
tRNA, AND AMINOACYL-tRNA
SYNTHESIS APPEARS HERE]
Binding of an amino Binding of an inhibitor
acid to the to the aminoacyl - tRNA
aminoacyl - tRNA synthetase alters the
synthetase leads to synthetase structure,
the formation of blocks amino acid binding
charged tRNA and and prevents the
protein synthesis formation of charged
tRNA, thereby inhibiting
protein synthesis
Aminoacyl-tRNA synthetases provide a significant opportunity to combat
bacterial and fungal drug resistance derived from the resistance mechanism of
target alteration, which involves a change to the target's protein sequence,
chemical modification of the target structure or acquisition of a new gene
from another pathogen, substituting for the target function. Because there are
structural and functional similarities among the 20 aminoacyl-tRNA
synthetases, it may be possible to identify a drug that can bind to and
inhibit two similar synthetases, thereby decreasing the rate of emergence of
drug resistance. Thus, a resistance mechanism involving target alteration
would necessitate simultaneous changes in two of the targets. From a
statistical standpoint, the probability of simultaneous alteration of two
targets would be extremely low. Therefore, a single drug active against more
than one aminoacyl-tRNA synthetase would be likely to have the advantage of an
extended therapeutic lifetime by significantly impeding the future emergence
of drug resistance.
Clinical precedent exists for the development of a bacterial aminoacyl-tRNA
synthetase inhibitor. Pseudomonic acid A, commercially marketed as Bactroban,
is an antibacterial drug that is a specific inhibitor of isoleucyl-tRNA
synthetase in several pathogens, including Staphylococcus aureus. The drug can
be used only as a topical agent, however, because it is unstable in the
bloodstream and therefore is not therapeutically effective when administered
systemically. Cubist's goal is to develop systemically-available drugs that
target aminoacyl-tRNA synthetases in either bacteria or fungi.
The Company has developed over 100 proprietary aminoacyl-tRNA synthetase
targets and related assays that are currently being utilized in the discovery
and characterization of leads in its Synthetase Program. These aminoacyl-tRNA
synthetase targets were cloned or purified from Streptococcus pneumoniae,
Staphylococcus aureus, Enterococcus faecalis, Escherichia coli, Haemophilus
influenzae, Mycobacterium tuberculosis and Helicobacter pylori
30
<PAGE>
bacteria, Candida albicans and Pneumocystis carinii fungi and cultured human
cells. The Company is currently developing assays and pursuing targets in
additional pathogens, such as Pseudomonas aeruginosa and Aspergillus
fumigatus.
In its search for leads, Cubist combines automated, high-throughput
screening of its compound libraries with a rational drug design approach.
Cubist has synthesized molecules that structurally mimic the biochemical
intermediates that are formed during the charging of tRNA by aminoacyl-tRNA
synthetase enzymes. These structural mimics bind to the active site of the
enzyme and preclude the amino acid and other substrates from binding, thereby
inhibiting enzyme function. Using this approach, Cubist has discovered several
proprietary leads that inhibit certain aminoacyl-tRNA synthetases. Leads from
Cubist's rational drug design program as well as those identified through
screening compound libraries are currently being optimized to improve
stability, potency, selectivity, whole cell activity and efficacy in animal
models in an effort to identify clinical development candidates.
The Company has entered into agreements based on certain targets within the
Synthetase Program with Bristol-Myers Squibb, Merck and Pfizer. Under these
collaborations, the small molecule compound libraries of Cubist's
collaborative partners are screened for inhibitors of certain aminoacyl-tRNA
synthetases in enzyme assays developed by the Company. Inhibitors are then
characterized for their spectrum of inhibition against a variety of pathogens
as well as for selectivity and whole cell activity using an additional set of
Cubist's assays. Lead candidates which are selected by the collaborative
partners will then enter into a drug development program where medicinal
chemistry, microbiology and pharmacology studies will be conducted to optimize
the leads into drug candidates. The Company has also retained certain rights
to this technology for use in its internal programs. See "Collaborative
Agreements."
Cubist expects to complete the optimization of a lead from its internal
Synthetase Program efforts to select a drug candidate for pre-clinical
development by the end of 1996. Assuming successful pre-clinical development,
Cubist expects to file an IND by the end of 1997. Assuming successful
development of a drug candidate under one or more of its Collaborative
Agreements, Cubist believes a collaborative partner could file an IND as early
as the end of 1998.
The Ribonuclease P Program
The Company's Ribonuclease P Program focuses on the discovery of
antiinfective drugs that inhibit ribonuclease P ("RNase P"), an essential
target in the process of protein synthesis. All tRNAs are initially
synthesized as immature tRNA molecules which are cleaved to the required
functional size and structure by an essential enzyme, RNase P. Inhibition of
RNase P will thus prevent the maturation of tRNA molecules, an essential step
in protein synthesis, thereby killing or attenuating the growth of the
pathogen.
[PICTURE OF RIBONUCLEASE P AND tRNA APPEARS HERE]
RIBONUCLEASE P (RNASE P) BINDS TO AND CLEAVES IMMATURE TRNA MOLECULES TO
PRODUCE MATURE TRNAS
31
<PAGE>
Because RNase P has both RNA and protein components, each can serve as a
target for inhibition. To date, research has shown that both the bacterial RNA
and protein components of RNase P differ from those found in certain mammals.
The Company believes that the differences between the human and bacterial
RNase P enzymes indicate that the bacterial RNase P can be selectively
inhibited.
Cubist has cloned, sequenced and expressed the genes encoding both the
protein and the RNA components of RNase P from certain bacteria. Recombinant
RNase P enzymes that have demonstrated the ability to cleave immature tRNA
serve as the foundation for biological assays. The Company is currently
developing an automated in vitro enzyme assay feasible for high-throughput
screening to identify inhibitors of bacterial RNase P. The Company expects to
commence high-throughput screening for the identification of inhibitors of
RNase P activity in the first quarter of 1997.
The Amidotransferase Program
The Company's Amidotransferase Program focuses on the discovery of
antiinfective drugs that inhibit glutamine amidotransferase ("AdTase"), an
essential target in the process of protein synthesis. Certain bacteria have
only 19 of the 20 required aminoacyl-tRNA synthetases and lack glutamine-tRNA
synthetase. These bacteria still require all 20 amino acids for protein
synthesis and therefore have developed a two-step process to compensate for
the lack of glutamine aminoacyl-tRNA synthetase. In step one, glutamate-tRNA
synthetase attaches glutamate to both glutamate-tRNA and glutamine-tRNA. In
step two, AdTase modifies the glutamate that is charged to the glutamine-tRNA
into glutamine, the appropriate amino acid. The now correctly charged tRNA can
incorporate the amino acid glutamine into the growing protein chain.
Inhibiting AdTase activity would thus limit the synthesis of all proteins that
require glutamine, thereby killing or attenuating the growth of the pathogen.
Mammalian cells do not need AdTase because they have a glutamine-tRNA
synthetase. Therefore, an inhibitor of AdTase is expected to be inherently
selective for the bacterial enzyme.
[PICTURE OF AMIDOTRANSFERASE MODIFYING GLUTAMATE tRNA APPEARS HERE]
CERTAIN BACTERIA LACK GLUTAMINE TRNA SYNTHETASE AND REQUIRE
AMIDOTRANSFERASE (ADTASE) TO BINDTO AN INAPPROPRIATELY CHARGED TRNA AND
MODIFY THE AMINO ACID GLUTAMATE TO GLUTAMINE.
The Company has established that AdTase activity is present in certain
bacteria, including Staphylococcus aureus and Enterococcus faecalis. The
Company has developed an assay to monitor the function of this enzyme. Cubist
is currently adapting this assay for automated, high-throughput screening and
expects to commence such screening for the identification of inhibitors of
AdTase activity in the second half of 1997.
32
<PAGE>
The Elongation Factors Program
The Company's Elongation Factors Program focuses on the discovery of
antiinfective drugs that inhibit elongation factors Tu (EF-Tu) and Ts (EF-Ts),
essential protein targets in the process of protein synthesis. EF-Tu
transports amino acid-charged tRNA to the ribosome and also plays a role in
the continuing synthesis of proteins. During this process EF-Tu becomes
inactivated and its reactivation requires a second elongation factor, EF-Ts. A
crystal structure of EF-Tu associated with some of its substrates including
EF-Ts, has been defined. Inhibition of either EF-Tu or EF-Ts activity will
inhibit protein synthesis and kill or attenuate the growth of the pathogen.
The Company believes that based upon identified structural differences between
the bacterial and humans elongation factors, the bacterial enzymes can be
selectively inhibited.
EF-TU
PROTEIN
MRNA
RIBOSOME
[PICTURE OF ELONGATION FACTOR TU, CHARGED tRNA,
RIBOSOME, mRNA, AND PROTEIN CHAIN APPEARS HERE]
ELONGATION FACTOR EF-TU BINDS TO CHARGED TRNA AND TRANSPORTS IT TO THE
RIBOSOME FOR PROTEIN SYNTHESIS.
Cubist has cloned, sequenced and expressed the genes encoding the EF-Tu and
EF-Ts proteins. Cubist is currently developing an assay for automated, high-
throughput screening and expects to commence such screening for the
identification of inhibitors of EF-Tu and EF-Ts activity in the second half of
1997.
Other Target Discovery Programs
The Company is currently utilizing genomic information to develop additional
biological screening assays for drug discovery. Strategically, the Company
will continue to investigate targets involved in protein synthesis and will
broaden its focus to include additional targets outside of this area, for
example, protein-DNA interactions and cell metabolism.
33
<PAGE>
DRUG DISCOVERY TECHNOLOGIES
The Cubist drug discovery process consists of four primary steps as part of
an integrated platform: (i) target identification and validation, (ii) assay
development, (iii) lead identification and (iv) lead optimization.
[GRAPH OF CUBIST'S DRUG DISCOVERY PROCESS APPEARS HERE]
TARGET IDENTIFICATION AND VALIDATION--the use of microbial genomics and
functional genetics to identify multiple targets for drug discovery. The
Company uses a rational target selection approach which incorporates microbial
genomics and functional genetics to identify and characterize targets. To be
selected for entry into a drug discovery program, targets must be: (i)
essential for the life of the pathogen, so that inhibition of the target's
natural function will kill or attenuate the growth of the pathogen, (ii)
functionally characterized for assay development prior to high-throughput
screening and (iii) structurally divergent between bacteria or fungi and humans
so that the pathogen target can be selectively inhibited.
Cubist utilizes functional genetics to determine whether a particular target
is essential to the survival of the cell. Pathogen death following the
disruption or deletion of a gene encoding the target conclusively establishes
the essential nature of the target. The prevalence of a particular target among
different species of bacteria and fungi defines its spectrum. Structural
divergence between pathogen and human genes suggests the potential for
identifying compounds with selectivity for the pathogen.
ASSAY DEVELOPMENT--the use of molecular biology, biochemistry and enzymology
to characterize targets and validate high-throughput screening assays. Cubist
has built significant assay development capabilities which are an important
component of its proprietary drug discovery programs. Assay quality is the most
important determinant of any screening program's productivity. Established
molecular biology tools enable Cubist to rapidly clone, sequence, express and
purify multiple targets. Cubist then utilizes enzymology and biochemistry
techniques to functionally characterize targets. By characterizing these
targets, Cubist can develop robust, sensitive high-throughput screening assays.
The Company utilizes these assays to identify inhibitors. Cubist employs
proprietary screens to provide a quantitative description of potency, spectrum
and selectivity. In addition, the Company's enzymology studies identify
reaction mechanisms that provide the basis for rational drug design.
LEAD IDENTIFICATION--the use of high-throughput screening of small molecule
libraries, combinatorial chemistry and rational drug design to identify
potential drug candidates. Cubist has implemented automation and robotics to
perform high-throughput screening to address a critical rate-limiting step in
drug discovery: the large number of assays required to empirically screen
synthetic and natural product compound libraries to identify novel inhibitors.
Cubist has achieved a screening throughput rate of 1.5 million compounds per
year through the implementation of robotics and other enhancement techniques,
such as the simultaneous assay of mixtures of compounds. Novel inhibitors are
further characterized using Cubist's secondary screens consisting of
increasingly stringent selection criteria (such as spectrum and selectivity) to
identify drug candidates with the greatest potential for successful
development.
34
<PAGE>
To date, Cubist has assembled a library of over 135,000 structurally-diverse
synthetic small molecules for screening against each of its 100 proprietary
targets. Molecules used in the Cubist screening program currently originate
from four sources: (i) Cubist's proprietary rational design chemistry
programs, (ii) Cubist's proprietary combinatorial chemistry programs, (iii)
academic and industrial collaborations and (iv) commercial sources. Based on
the current rate of growth of the compound collection, the Company estimates
that the number of compounds available for high-throughput screening in its
proprietary programs will more than double during the next year. In addition,
the Company believes that the Collaborative Agreements provide it with access
to additional libraries of over one million structurally diverse molecules for
lead identification.
The Cubist combinatorial chemistry program generates two types of libraries,
general and lead-specific. The general libraries are designed to provide
Cubist with a diversity of molecular structures which can be used in
conjunction with high-throughput screening to identify novel lead compounds
which inhibit selected targets. Cubist constructs lead-specific libraries
based on principles of rational drug design using structural templates
demonstrated to interact with the aminoacyl-tRNA synthetases. Cubist's
proprietary general and lead-specific libraries are being used to identify new
lead inhibitors of the aminoacyl-tRNA synthetases and other enzyme targets.
LEAD OPTIMIZATION--the use of medicinal chemistry, high speed analoging and
pre-clinical evaluation to enhance pharmaceutical properties. Cubist optimizes
lead compounds, which have been identified by its high-throughput screening
and rational drug design approaches, through the iterative use of medicinal
chemistry and in vitro biological assays to enhance pharmaceutical properties.
These lead compounds first enter a high-speed chemical analoging program which
generates large numbers of structurally-related compounds. These analogs are
then evaluated for their (i) spectrum of inhibitory potency against a given
enzyme from a variety of pathogens, (ii) selectivity of the pathogen against
the human enzyme, (iii) inhibitory potency against multiple targets from a
single pathogen to identify a compound that could inhibit more than one target
and (iv) spectrum of activity against whole cells, including drug-resistant
strains, to determine potential clinical indication. Cubist subsequently
evaluates, in animal models, drug candidates exhibiting suitable potency,
spectrum and selectivity to determine their pharmacological and toxicological
properties.
COLLABORATIVE AGREEMENTS
A key element of the Company's strategy is to enter into collaborations with
major pharmaceutical companies to develop its initial products. These
collaborations are expected to provide the Company with funding, research and
development resources, and access to libraries of diverse compounds and
clinical development, manufacturing and commercialization capabilities. To
date, the Company has entered into agreements based on certain targets within
the Synthetase Program with Bristol-Myers Squibb, Merck and Pfizer to screen
the collaborators' respective compound libraries against certain aminoacyl-
tRNA synthetase targets. Assuming that the Collaborative Agreements continue
until their scheduled expirations, and that a separate drug is successfully
developed and commercialized from each of the five research programs to be
conducted pursuant to these agreements, Cubist will be entitled to receive a
total of $98.5 million in research support payments, technology licensing
fees, milestone payments and equity investments. In addition, the Company will
be entitled to receive royalties on worldwide sales of drugs resulting from
these collaborations. Through June 1996, the Company's collaborative partners
have provided the Company with $1.0 million of research support payments and a
technology licensing fee and $4.0 million in equity investments.
35
<PAGE>
Bristol-Myers Squibb
In June 1996, the Company and Bristol-Myers Squibb entered into the Bristol-
Myers Squibb Agreement pursuant to which they agreed to collaborate to
discover and develop novel antiinfective drugs from leads obtained by
screening six of Cubist's aminoacyl-tRNA synthetase targets against Bristol-
Myers Squibb's compound library. In connection with the signing of the
Bristol-Myers Squibb Agreement, Bristol-Myers Squibb made a $4.0 million
equity investment in the Company. See "Certain Transactions." If a separate
drug is successfully developed and commercialized through each of the
bacterial, mycobacterial and fungal programs within the collaboration, Cubist
will be entitled to receive a total of $56.5 million in research support
payments, technology licensing fees, milestone payments and other payments
from Bristol-Myers Squibb, including an equity investment of $4.0 million made
in June 1996. The development, manufacture and worldwide sale of drugs
resulting from the collaboration will be conducted by Bristol-Myers Squibb,
and the Company will be entitled to receive royalties on the worldwide sales
of any drug developed and commercialized from this collaboration. Cubist has
granted Bristol-Myers Squibb an exclusive worldwide license to conduct
research and drug development of drug candidates resulting from this
collaboration. There can be no assurance that any drug candidates will be
discovered through the collaboration or that if discovered, Bristol-Myers
Squibb will elect to proceed with the development of any drug candidates.
Under the terms of the Bristol-Myers Squibb Agreement, Bristol-Myers Squibb is
not obligated to develop or commercialize any drug candidates. As a result,
there can be no assurance that any of the milestone or royalty payments
contemplated by the Bristol-Myers Squibb Agreement will be made.
Merck
In June 1996, the Company and Merck entered into the Merck Agreement
pursuant to which they agreed to collaborate to discover and develop novel
antiinfective drugs from leads obtained by screening three of Cubist's
aminoacyl-tRNA synthetase targets against Merck's compound library. If a drug
is successfully developed and commercialized through this collaboration,
Cubist will be entitled to receive $20.5 million in research support payments,
technology licensing fees and milestone payments from Merck. The development,
manufacture and worldwide sale of drugs resulting from the collaboration will
be conducted by Merck, and the Company will be entitled to receive royalties
on the worldwide sales of any drug developed and commercialized from this
collaboration. Cubist has granted Merck an exclusive worldwide license to
commercialize drugs resulting from this collaboration. There can be no
assurance that any drug candidates will be discovered through the
collaboration or that, if discovered, Merck will elect to proceed with the
development of any drug candidates. Under the terms of the Merck Agreement,
Merck is not obligated to develop or commercialize any drug candidates. As a
result, there can be no assurance that any of the milestone or royalty
payments contemplated by the Merck Agreement will be made.
Pfizer
In December 1995, the Company and Pfizer entered into the Pfizer Agreement
pursuant to which they agreed to collaborate to discover and develop novel
antiinfective drugs from leads obtained by screening six of Cubist's
aminoacyl-tRNA synthetase targets against Pfizer's compound library. If a drug
is successfully developed and commercialized through this collaboration,
Cubist will be entitled to receive $21.5 million in research support payments,
technology licensing fees, milestone payments and other payments from Pfizer,
including a $5.0 million equity investment. The development, manufacture and
sale of drugs worldwide resulting from the collaboration will be conducted by
Pfizer, and the Company will be entitled to receive royalties on the worldwide
sales of any drug developed and commercialized from this collaboration. Cubist
has granted Pfizer an exclusive worldwide license to commercialize drugs
resulting from this collaboration. There can be no assurance that any drug
candidates will be discovered during the collaboration or that, if discovered,
Pfizer will elect to proceed with the development of any drug candidates.
Under the terms of the Pfizer Agreement, Pfizer is not obligated to develop or
commercialize any drug candidates. As a result, there can be no assurance that
any of the milestone or royalty payments contemplated by the Pfizer Agreement
will be made.
36
<PAGE>
The Company is dependent on its collaborative partners for drug development,
obtaining regulatory approvals and other resources for drug candidates
emerging from these collaborations. See "Risk Factors-- Dependence on
Collaborative Partners and Others" and "Risk Factors--Future Capital Needs;
Uncertainty of Additional Funding."
Other Collaborations
To obtain additional compound libraries for further expansion of the
Company's internal drug discovery programs, Cubist has entered into agreements
with Terrapin Technologies Inc., Pharm-Eco Laboratories, Inc. and ArQule, Inc.
If a drug is successfully developed and commercialized as a result of any of
these agreements, Cubist is granted a license to commercialize the drug and
will pay royalties to its partner on commercial sales. In addition, Cubist has
entered into an agreement with Ceregen, a division of Monsanto Company,
permitting coded access to the Company's combinatorial chemistry library for
screening against certain agricultural targets. If Ceregen successfully
develops and commercializes a product as a result of the agreement, Cubist
will be entitled to royalties on sales.
PATENTS AND PROPRIETARY TECHNOLOGY
Proprietary protection for the Company's compounds, technology and processes
is important to its business. The Company's policy is to protect, to the
maximum extent possible, its cloned targets, assays, organic synthetic
processes, lead compounds, screening technology and certain other technology
by, among other things, filing, or causing to be filed on its behalf, patent
applications for technology relating to the development of its business in the
United States and elsewhere. To date, the Company has received a notice of
allowance for one of these applications covering an isolated recombinant
nucleic acid encoding mycobacterial seryl-tRNA synthetase and processes of
making mycobacterial seryl-tRNA synthetases. Cubist has 11 pending U.S. patent
applications. In addition, Cubist has licensed three U.S. patents, three U.S.
patent applications and one international patent application from the
Massachusetts Institute of Technology.
Patent law, as it relates to inventions in the pharmaceutical and
biotechnology fields, is still evolving and involves complex legal and factual
questions for which legal principles are not firmly established. Moreover,
because (i) patent applications in the United States are maintained in secrecy
until patents issue, (ii) patent applications in certain other countries
generally are not published until more than eighteen months after they are
filed, (iii) publication of technological developments in the scientific or
patent literature often lags behind the date of such developments and (iv)
searches of prior art may not reveal all relevant prior inventions, the
Company cannot be certain that it was the first to invent the subject matter
covered by its patent applications or that it was the first to file patent
applications for such inventions. Accordingly, there can be no assurance that
patents will be granted with respect to any of the Company's pending patent
applications or with respect to any patent applications filed by the Company
in the future.
The commercial success of the Company will depend in part on not infringing
patents or proprietary rights of others. There can be no assurance that the
Company will be able to obtain a license to any third-party technology it may
require to conduct its business or that if obtainable, such technology can be
licensed at reasonable cost. Failure by the Company to obtain a license to
technology that it may require to utilize its technologies or commercialize
its products may have a material adverse effect on the Company's business,
operating results and financial condition. In some cases, litigation or other
proceedings may be necessary to defend against or assert claims of
infringement, to enforce patents issued to the Company, to protect trade
secrets, know-how or other intellectual property rights owned by the Company,
or to determine the scope and validity of the proprietary rights of third
parties. Any potential litigation could result in substantial costs to and
diversion of resources by the Company and could have a material adverse effect
on the Company's business, operating results and financial condition. There
can be no assurance that any of the Company's issued or licensed patents would
ultimately be held valid or that efforts to defend any of its patents, trade
secrets, know-how or other intellectual property rights would be successful.
An adverse outcome in any such litigation or proceeding could subject the
Company to significant liabilities, require the Company to cease
37
<PAGE>
using the subject technology or require the Company to license the subject
technology from the third party, all of which could have a material adverse
effect on the Company's business, operating results and financial condition.
Much of the know-how of importance to the Company's technology and many of
its processes are dependent upon the knowledge, experience and skills, which
are not patentable, of key scientific and technical personnel. To protect its
rights to and to maintain the confidentiality of trade secrets and proprietary
information, the Company requires employees, Scientific Advisory Board
members, consultants and collaborators to execute confidentiality and
invention assignment agreements upon commencement of a relationship with the
Company. These agreements prohibit the disclosure of confidential information
to anyone outside the Company and require disclosure and assignment to the
Company of ideas, developments, discoveries and inventions made by employees,
advisors, consultants and collaborators. There can be no assurance, however,
that these agreements will not be breached or that the Company's trade secrets
or proprietary information will not otherwise become known or developed
independently by others. See "Risk Factors--Uncertainty of Patents and
Proprietary Rights."
GOVERNMENT REGULATION
Overview
Regulations imposed by United States federal, state and local authorities,
as well as their counterparts in other countries, are a significant factor in
the conduct of the research, development, manufacturing and marketing
activities for the Company's potential drug candidates.
The development, manufacture and marketing of drugs (including antibiotics)
developed by the Company or its collaborative partners are subject to
regulation by numerous governmental agencies in the United States, principally
the FDA, by state and local governments, and in some instances by foreign
governments. Pursuant to the Federal Food, Drug, and Cosmetic Act and the
regulations promulgated thereunder (the "FDC Act"), the FDA regulates the pre-
clinical and, clinical trials, safety, effectiveness, manufacture, labeling,
storage, distribution, and promotion of drugs. Noncompliance with applicable
requirements can result in, among other things, fines, injunctions, recall or
seizure of products, total or partial suspension of production, refusals to
permit products to be imported into or exported out of the United States,
failure of the government to grant approval for new drugs or antibiotic
products, withdrawal of marketing approvals, denial or suspension of
government contracts and criminal prosecution.
Product development and approval within the FDA regulatory framework usually
takes a significant number of years, involves the expenditure of substantial
capital resources and is uncertain. Moreover, there is no assurance that the
current regulatory framework will not change or that additional regulatory
standards will not be promulgated at any stage of the Company's or its
collaborative partners' product development that may adversely affect
approval, delay the submission or review of an application or require
additional expenditures by the Company.
U.S. Regulatory Process
New drugs (as well as antibiotics not subject to certification) must be
found safe and effective by FDA through the approval of an NDA pursuant to
section 505 of the FDC Act prior to marketing in interstate commerce. Prior to
this, the pre-clinical data (animal and in vitro laboratory data) and clinical
data (human data) are regulated by FDA pursuant to regulations and the
issuance and continuing FDA oversight of an IND. Post-NDA approval, FDA
maintains continuing regulatory control over the marketing of approved drugs
regulating most closely manufacturing, promotional activities and the
appropriate submission of adverse reaction information. Any material changes
to the indication for use, other labeling or manufacturing, require FDA
approval of a Supplement to the NDA prior to any such change being made.
Before testing in the United States of any compounds with potential
therapeutic value in human test subjects may begin, stringent government
requirements for preclinical data must be satisfied. Pre-clinical testing
includes both in vitro and in vivo laboratory evaluation and characterization
of the safety and efficacy
38
<PAGE>
of a drug and its formulation. Laboratories involved in pre-clinical testing
must comply with FDA regulations regarding Good Laboratory Practices. Pre-
clinical testing results obtained from studies in several animal species, as
well as from in vitro studies, are submitted to the FDA as part of the IND and
are reviewed by the FDA prior to the commencement of human clinical trials.
These pre-clinical data must provide an adequate basis for evaluating both the
safety and the scientific rationale for the initial (Phase I) studies in human
volunteers. Unless the FDA objects to an IND, the IND becomes effective 30
days following its receipt by the FDA. There can be no assurance that
submission of an IND will result in the commencement of human clinical trials.
Moreover, once trials have commenced, the FDA may stop the trials by placing
them on "clinical hold" because of concerns about, for example, the safety of
the product being tested. Such clinical holds either before the clinical
studies commence or after commencement may result in either a temporary halt
to the study or abandonment of any further work whatsoever.
Clinical trials, which involve the administration of the investigational
drug to healthy volunteers or to patients under the supervision of a qualified
principal investigator, are typically conducted in three sequential phases,
although the phases may overlap with one another. Clinical trials must be
conducted in accordance with the FDA's Good Clinical Practices, under
protocols that detail the objectives of the study, the parameters to be used
to monitor safety and the efficacy criteria to be evaluated. Each protocol
must be submitted to the FDA as part of the IND. Further, each clinical study
must be conducted under the auspices of an independent Institutional Review
Board (the "IRB") at the institution where the study will be conducted. The
IRB will consider, among other things, ethical factors, the safety of human
subjects, informed consent requirements and the possible liability of the
institution. Compounds must be formulated according to GMP.
Clinical testing involves the administration of the drug to healthy human
volunteers or to patients under the supervision of a qualified investigator,
usually a physician, pursuant to an FDA-reviewed protocol. Human clinical
trials are typically conducted in three sequential phases.
Phase I clinical trials represent the initial administration of the
investigational drug to a small group of healthy human subjects or, more
rarely, to a group of selected patients with the targeted disease or disorder.
The goal of Phase I clinical trials is typically to test for safety (adverse
effects), dose tolerance, absorption, biodistribution, metabolism, excretion
and clinical pharmacology and, if possible, to gain early evidence regarding
efficacy.
Phase II clinical trials involve a small sample of the actual intended
patient population and seek to assess the efficacy of the drug for specific
targeted indications, to determine dose tolerance and the optimal dose range
and to gather additional information relating to safety and potential adverse
effects.
Once an investigational drug is found to have some efficacy and an
acceptable safety profile in the targeted patient population, Phase III
clinical trials are initiated to establish further clinical safety and
efficacy of the investigational drug in a broader sample of the general
patient population at geographically dispersed study sites in order to
determine the overall risk-benefit ratio of the drug and to provide an
adequate basis for product labeling. The Phase III clinical development
program consists of expanded, large-scale studies of patients with the target
disease or disorder, to obtain definitive statistical evidence of the efficacy
and safety of the proposed product and dosage regimen. These studies may
include investigation of the effects in subpopulations of patients, such as
the elderly, children, etc. All of the phases of clinical studies must be
conducted in conformance with the FDA's bioresearch monitoring regulations
(such as IRB, informed consent and sponsor monitoring requirements).
At the same time that the human clinical program is being performed,
additional non-clinical (animal) studies are also conducted. Expensive, long
duration toxicity and carcinogenicity studies are done to demonstrate the
safety of drug administration for the extended period of time required for
effective therapy. Also, a variety of laboratory, animal and initial human
studies are performed to establish manufacturing methods for delivering the
drug, as well as stable, effective dosage forms.
39
<PAGE>
Unless exempted by specific regulation, antibiotic products are subject to
additional FDA regulations that pertain to batch certification requirements.
In general, the regulations require testing and certification of each batch of
an antibiotic drug for compliance with the FDA's monograph regulations. If the
FDA determines that the batch conforms to the applicable standards of
identity, strength, quality and purity found in the specific monograph, the
FDA will issue a certificate attesting that the batch conforms to the
applicable monograph standards. Manufacturers also are required to comply with
certain recordkeeping requirements that pertain to certification. If a given
batch does not comply with the stated requirements, the FDA will refuse to
certify the batch and the manufacturer will be prohibited from marketing the
product.
Antibiotic drugs for human use are exempt from batch certification if
certain conditions are satisfied. For example, in the case of an over-the-
counter ("OTC") antibiotic subject to an FDA OTC drug monograph, the drug will
be exempt from batch certification if the drug satisfies the conditions
specified in the applicable OTC drug monograph. For prescription antibiotics,
a drug may be exempt from batch certification if certain other conditions are
satisfied, including among others, that the antibiotic has been approved by
the FDA in an applicable antibiotic application for marketing, and that the
antibiotic product meets the standard of identity, strength, quality and
purity specified in an applicable monograph or in the applicable approved
antibiotic application. Once an antibiotic drug has been approved as safe and
effective, the FDA promulgates a regulation of general applicability,
describing in detail the required specifications of the drug. Thereafter,
anyone who meets the standards in that regulation may obtain FDA clearance for
his or her own product without submission of any data on safety and
effectiveness, other than data demonstrating bioequivalence to the original
product.
All data obtained from a comprehensive development program including
research and product development, manufacturing, pre-clinical and clinical
trials and related information are submitted in an NDA to the FDA and the
corresponding agencies in other countries for review and approval. In addition
to reports of the trials conducted under the IND application, the NDA includes
information pertaining to the preparation of the new drug or antibiotic,
analytical methods, details of the manufacture of finished products and
proposed product packaging and labeling. Although the FDC Act requires the FDA
to review NDAs within 180 days of their filing, in practice longer times may
be required. The FDA also frequently requests that additional information be
submitted, requiring significant additional review time. As a result of the
Prescription Drug User Fee Act, FDA has made commitments to speed the review
of NDAs and NDA Supplements. While implementation of this by the FDA has sped
up certain decision-making by the FDA, it has not, with regard to many drugs,
sped up the overall development and approval time. Any proposed product of the
Company likely would be subject to demanding and time-consuming NDA approval
procedures in virtually all countries where marketing of the products is
intended. These regulations define not only the form and content of safety and
efficacy data regarding the proposed product but also impose specific
requirements regarding manufacture of the product, quality assurance,
packaging, storage, documentation and record keeping, labeling, advertising
and marketing procedures.
The FDA has developed two "fast track" policies for certain new drugs, one
policy for expedited development and review, and one policy for accelerated
approval. The expedited review policy applies to new drug therapies, including
antibiotics, that are intended to treat persons with life-threatening and
severely-debilitating illnesses, especially where no satisfactory alternative
therapy exists. The FDA has defined "severely-debilitating" to mean diseases
or conditions that cause major irreversible morbidity. During the
developmental stage of drugs that qualify, the FDA expedites consultation and
review of these experimental therapies.
The FDA's accelerated approval policy applies to certain new drug or
antibiotic products that have been studied for their safety and effectiveness
in treating serious or life-threatening illnesses and that provide "meaningful
therapeutic benefit to patients over existing treatments." This accelerated
approval, or fast track approach, is generally limited to new drugs or
antibiotics that treat patients that are unresponsive to, or
40
<PAGE>
intolerant of, available therapy, or when there is improved patient response
over currently available therapy. The accelerated approval policy is further
limited to drugs for which the predictive value of the surrogate endpoint, in
terms of clinical outcome, has not been established. At the time of approval,
the FDA may grant approval on a surrogate endpoint or an effect on a clinical
endpoint other than survival or irreversible morbidity. The FDA may impose
certain restrictions on distribution, limiting its use to certain facilities
or specialty-trained physicians or making its use contingent on the
performance of certain specified medical procedures. Postmarketing studies
(Phase IV trials) are usually required to further affirm safety and/or
efficacy. However, if an acceptable clinical endpoint has been established,
the drug must be evaluated for approval under the traditional (non-fast track)
approach.
The FDA determines when a specific new drug or antibiotic product qualifies
for accelerated review. There is no guarantee that an application submitted
for a new drug or antibiotic product will receive fast track consideration by
the FDA or that the FDA will approve an NDA for such drug or antibiotic
product once it has been reviewed. Moreover, the FDA may grant marketing
approval and simultaneously require postmarketing studies. And, the FDA may
subsequently withdraw approval of a new drug or antibiotic product if a
postmarketing study fails to verify the clinical benefit of the new drug or
antibiotic.
Timetables for the various phases of clinical trials and NDA approval cannot
be predicted with any certainty. The Company, its collaborative partners or
the FDA may suspend clinical trials at any time if it is believed that
individuals participating in such trials are being exposed to unacceptable
health risks. Even assuming that clinical trials are completed and that an NDA
is submitted to the FDA, there can be no assurance that the NDA will be
reviewed by the FDA in a timely manner or that once reviewed, the NDA will be
approved. The approval process is affected by a number of factors, including
the severity of the targeted indications, the availability of alternative
treatments and the risks and benefits demonstrated in clinical trials. The
Company's ability to market its products successfully is further dependent on
the patent and marketing exclusivity rights of a competitor's products. With
regard to marketing exclusivity, the FDC Act provides for 5 years of marketing
exclusivity for new chemical entities having received an NDA. In addition,
NDAs or NDA Supplements for other new drugs may receive 3 years of marketing
exclusivity if their approved application contains new clinical investigations
(other than bioavailability) that are essential to the approval and were
conducted by or for the applicant. If the FDA grants such exclusivity, the FDA
will not approve another company's 505(b)(2) application (paper NDA) or
abbreviated NDA ("ANDA" or generic drug application) during that period. The
FDA may deny an NDA if applicable regulatory criteria are not satisfied or may
require additional testing or information with respect to the investigational
drug. Even if initial FDA approval is obtained, further studies, including
post-market studies, may be required in order to provide additional data on
safety and will be required in order to gain approval for the use of a product
as a treatment for clinical indications other than those for which the product
was initially tested. The FDA will also require post-market reporting and may
require surveillance programs to monitor the side effects of the drug. Results
of post-marketing programs may limit or expand the further marketing of the
drug. Further, if there are any modifications to the drug, including changes
in indication, manufacturing process or labeling, an NDA supplement may be
required to be submitted to the FDA. Further new scientific data or analyses
developed after approval may form the basis for the FDA to withdraw the NDA.
Among the other requirements for drug product approval is the requirement
that the prospective manufacturer conform to the FDA's current Good
Manufacturing Practice ("cGMP") regulations. Manufacturers also must continue
to expend time, money and effort in product, recordkeeping and quality control
to assure that the product meets applicable specifications and other
requirements. The manufacturer also has obligations to report postmarketing
adverse drug experiences to the FDA. The FDA periodically inspects
manufacturing facilities in the United States to assure compliance with
applicable cGMP and other regulatory requirements. Failure of the Company (or
prospective manufacturer) to comply with cGMP regulations or other FDA
regulatory requirements could have a material adverse effect on the Company
and result in one or more regulatory actions affecting either the product, the
Company and its officials, or both.
41
<PAGE>
The Company (or prospective manufacturer) also may be subject to certain user
fees that the FDA is authorized to collect under the Prescription Drug User
Fees Act of 1992 for certain drugs. User fees also pertain to the
establishments where the products are made and to the marketed prescription
drug products.
Completing the multitude of steps necessary before marketing can begin
requires the expenditure of considerable resources and can consume a long
period of time. Delay or failure in obtaining the required approvals,
clearances, permits or inclusions by the Company, its collaborative partners or
its licensees would have an adverse effect on the ability of the Company to
generate sales or royalty revenue. In addition, the impact of new or changed
laws or regulations cannot be predicted.
There can be no assurance that the regulatory framework described above will
not change or that additional regulations will not arise that may affect
approval of or delay an IND or an NDA. In addition, there can be no assurance
that there will not be a change in currently accepted scientific standards that
may affect the ultimate approval of such products. Moreover, because the
Company's present collaborative partners are, and it is expected that the
Company's future collaborative partners may be, primarily responsible for pre-
clinical and clinical trials, regulatory approvals, manufacturing and
commercialization of drugs, the ability to obtain and the timing of regulatory
approvals are not within the control of the Company. Should the collaborative
partners develop regulatory problems, for example, cGMP violations, such
problems may adversely impact upon the Company's resources.
Prior to the commencement of marketing a product in other countries, approval
by the regulatory agencies in such countries is required, whether or not FDA
approval has been obtained for such product. The requirements governing the
conduct of clinical trials and product approvals vary widely from country to
country, and the time required for approval may be longer or shorter than the
time required for FDA approval. Although there are some procedures for unified
filings for certain European countries, in general, each country has its own
procedures and requirements.
The Company is also subject to regulation under other federal laws and
regulation under state and local laws, including laws relating to occupational
safety, laboratory practices, the use, handling and disposition of radioactive
materials, environmental protection and hazardous substance control. Although
the Company believes that its safety procedures for handling and disposing of
radioactive compounds and other hazardous materials used in its research and
development activities comply with the standards prescribed by federal, state
and local regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of any such
accident, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company.
COMPETITION
The biotechnology and pharmaceutical industries are intensely competitive and
subject to rapid and significant technological change. Competitors of the
Company in the United States and elsewhere are numerous and include, among
others, major, multinational pharmaceutical and chemical companies, specialized
biotechnology firms and universities and other research institutions. Many of
these competitors employ greater financial and other resources, including
larger research and development staffs and more effective marketing and
manufacturing organizations, than the Company or its collaborative partners.
Acquisitions of competing companies and potential competitors by large
pharmaceutical companies or others could enhance financial, marketing and other
resources available to such competitors. As a result of academic and government
institutions becoming increasingly aware of the commercial value of their
research findings, such institutions are more likely to enter into exclusive
licensing agreements with commercial enterprises, including competitors of the
Company, to market commercial products. There can be no assurance that the
Company's competitors will not succeed in developing technologies and drugs
that are more effective or less costly than any which are being developed by
the Company or which would render the Company's technology and future drugs
obsolete and noncompetitive.
42
<PAGE>
In addition, some of the Company's competitors have greater experience than
the Company in conducting pre-clinical and clinical trials and obtaining FDA
and other regulatory approvals. Accordingly, the Company's competitors may
succeed in obtaining FDA or other regulatory approvals for drug candidates
more rapidly than the Company. Companies that complete clinical trials, obtain
required regulatory agency approvals and commence commercial sale of their
drugs before their competitors may achieve a significant competitive
advantage, including certain patent and FDA marketing exclusivity rights that
would delay the Company's ability to market certain products. There can be no
assurance that drugs resulting from the Company's research and development
efforts, or from the joint efforts of the Company and its collaborative
partners, will be able to compete successfully with competitors' existing
products or products under development or that they will obtain regulatory
approval in the United States or elsewhere.
EMPLOYEES
As of May 31, 1996, the Company had 49 full-time employees, 43 of whom were
engaged in research and development and six of whom were engaged in
management, administration and finance. Doctorates are held by 22 of the
Company's employees. Each of the Company's employees has signed an agreement
which prohibits the disclosure of confidential information to anyone outside
the Company and requires disclosure and assignment to the Company of ideas,
developments, discoveries and inventions made by the employee.
The Company's employees are not covered by a collective bargaining
agreement. The Company has never experienced an employment-related work
stoppage and considers its employee relations to be good.
PROPERTIES
The Company's headquarters and research and development facilities are
located in a 24,000 square foot facility in Cambridge, Massachusetts at 24
Emily Street. The Company believes that this space will be adequate for its
research and drug development activities for at least the next two years.
SCIENTIFIC ADVISORY BOARD
The Company has established a Scientific Advisory Board consisting of ten
members (including Dr. Schimmel and Dr. Rebek, two of the Company's founders
and directors) with experience in infectious disease, cell and molecular
biology, genetics, enzymology, bacterial pathogenesis, and medicinal and
combinatorial chemistry. The Scientific Advisory Board meets as a group once
per year and members are available individually on an ongoing basis. The
Scientific Advisory Board recommends and reviews with the Company novel
approaches to drug discovery and development. For biographical information
regarding Dr. Schimmel and Dr. Rebek, see "Management."
All of the Company's Scientific Advisory Board members have signed
consulting agreements with the Company and have either purchased shares of
Common Stock or been granted options to purchase Common Stock.
The members of Cubist's Scientific Advisory Board are:
Lan Bo Chen, Ph.D. is a Professor of Pathology at Harvard Medical School and
the Dana-Farber Cancer Institute. He is an expert in cell biology, immunology
and cancer. He consults with the Company on high-throughput screening and cell
culture. Dr. Chen received his B.S. in Chemistry from National Taiwan
University and his Ph.D. in Cell Biology from the Massachusetts Institute of
Technology.
R. Alan B. Ezekowitz, M.D., Ph.D. is Chief of Pediatrics at Massachusetts
General Hospital and Professor of Pediatrics at Harvard Medical School. He is
an expert in molecular biology and cell biology of macrophages and pattern
recognition of foreign molecules in host defenses. He consults with the
Company on opportunistic infections, particularly Pneumocystis carinii in
immunocompromised patients. Dr. Ezekowitz
43
<PAGE>
received his M.B.Ch.B. (equivalent to an M.D.) from the University of Cape
Town, Republic of South Africa and received his Ph.D. in Immunology from the
University of Oxford.
David C. Hooper, M.D. is an Associate Physician and Associate Chief of the
Infection Control Unit at Massachusetts General Hospital as well as an
Associate Professor of Medicine at Harvard Medical School. Dr. Hooper is an
expert in the mechanism of action and resistance in fluoroquinolones. He is a
clinical investigator in infectious disease and consults with the Company on
infectious disease clinical problems, antiinfective resistance and mechanisms
of action of antiinfective drugs. Dr. Hooper received his B.A. in Microbiology
from the University of Texas, Austin and his M.D. from Washington University
School of Medicine.
K.C. Nicolaou, Ph.D. is Chairman of the Department of Chemistry and a
Professor of Chemistry at The Scripps Research Institute. Dr. Nicolaou is an
expert on the total synthesis of biologically active natural products such as
macrolides, ionophores, eiconsanoids, saccharides, glycoconjugates and other
plant, bacterial and marine products. He consults with the Company on organic
and natural product synthesis. Dr. Nicolaou received his B.Sc. and Ph.D. in
Chemistry from the University of London.
Joanne Stubbe, Ph.D. is a Professor of Biology and Chemistry at the
Massachusetts Institute of Technology. Dr. Stubbe's expertise is in the
elucidation of enzyme mechanisms, the design of suicide inhibitors, the
mechanism of cleavage of DNA by antitumor agents, purine biosynthesis and the
mechanism of DNA repair enzymes. She consults with the Company on enzyme
kinetics and assay development. Dr. Stubbe received her B.A. in Chemistry from
the University of Pennsylvania and her Ph.D. in Organic Chemistry from the
University of California, Berkeley.
Jack Szostak, Ph.D. is a Professor of Genetics at Harvard Medical School and
a Molecular Biologist at Massachusetts General Hospital. He is an expert in
molecular biology and is known for his work on ribozymes. He consults with the
Company on molecular biology and assay development. Dr. Szostak received his
B.Sc. in Cell Biology from McGill University and his Ph.D. in Biochemistry from
Cornell University.
Andrew Wright, Ph.D. is a Professor of Molecular Biology and Microbiology at
Tufts University School of Medicine. Dr. Wright is an expert on the regulation
of transcription in bacteria and the study of pathogenic mechanisms in
Haemophilus influenzae and Helicobacter pylori. He consults with the Company on
molecular biology and assay development. Dr. Wright received his B.S. in
Chemistry and his Ph.D. in Biochemistry from the University of Edinburgh,
Scotland.
Richard Young, Ph.D. is a Member of the Whitehead Institute for Biomedical
Research and a Professor of Biology at the Massachusetts Institute of
Technology. Dr. Young is a molecular geneticist with expertise in gene
expression, bacterial pathogenesis and vaccine development. He consults with
the Company on selection of pathogenic organisms, molecular biology and assay
development. Dr. Young received his B.S. in Biology from Indiana University and
his Ph.D. in Molecular Biophysics and Biochemistry from Yale University.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
44
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The executive officers, key employees and directors of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <S> <C>
Scott M. Rocklage, Ph.D.(5)................ 42 President, Chief Executive Officer and Director
Francis P. Tally, M.D. .................... 56 Vice President of Research and Development
Arthur F. Kluge, Ph.D. .................... 52 Vice President of Chemistry
Neal M. Farber, Ph.D. ..................... 45 Vice President of Corporate Development
Thomas A. Shea............................. 36 Director of Finance & Administration, Treasurer
Philip A. Wendler, Ph.D. .................. 42 Director of Pharmacology
Susan K. Whoriskey, Ph.D. ................. 37 Director of Molecular Biology
John K. Clarke(2)(5)....................... 42 Chairman of the Board of Directors
Paul R. Schimmel, Ph.D.(5)................. 55 Director
Julius Rebek, Jr., Ph.D.(4)................ 52 Director
Ellen M. Feeney(1)(2)(3)................... 36 Director
Terrance G. McGuire(1)(3).................. 40 Director
Barry Bloom, Ph.D.(1)(4)................... 67 Director
George Conrades(2)(4)...................... 55 Director
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Class I Director--term expires in 1997.
(4) Class II Director--term expires in 1998.
(5) Class III Director--term expires in 1999.
Dr. Rocklage has served as President and Chief Executive Officer and as a
member of the Board of Directors of the Company since July 1994. From 1990 to
1994, Dr. Rocklage served as President and Chief Executive Officer of Nycomed
Salutar, Inc., a diagnostic imaging company. From 1992 to 1994, he also served
as President and Chief Executive Officer and Chairman of Nycomed
Interventional, Inc., a medical device company. From 1986 to 1990, he served
in various positions at Salutar, Inc., a diagnostic imaging company and was
responsible for designing and implementing research and development programs
that resulted in three drug products in human clinical trials, including the
approved drug Omniscan. Dr. Rocklage received his B.S. in Chemistry from the
University of California, Berkeley and his Ph.D. in Chemistry from the
Massachusetts Institute of Technology.
Dr. Tally has served as Vice President of Research and Development since
March 1995. From 1986 to 1995, he served as Executive Director of Infectious
Disease, Molecular Biology and Natural Products Research at the Lederle
Laboratories of American Cyanamid/American Home Products, where he was
responsible for worldwide clinical studies for piperacillin/tazobactam which
was registered for sales in Europe in 1992, approved by the FDA in 1993 and
marketed as Zosyn. From 1975 to 1986, he served as Senior Physician in
Infectious Disease at the New England Medical Center and Associate Professor
of Medicine at Tufts Medical Center. Dr. Tally received his A.B. in Biology
from Providence College and his M.D. from George Washington University School
of Medicine.
Dr. Kluge has served as Vice President of Chemistry since October 1995. From
1973 to 1995, Dr. Kluge served in various positions at Syntex Corporation
(which later became Roche Bioscience following the acquisition of Syntex by
Hoffmann-La Roche Inc.), including Vice President and Director, Institute of
Organic Chemistry, where he invented two currently marketed pharmaceutical
products: laidlomycin propionate and ketorolac. Dr. Kluge received his B.A. in
Chemistry from Park College, his M.S. and Ph.D. in Chemistry from the
University of Massachusetts and his M.B.A. from the University of Santa Clara.
Dr. Farber has served as Vice President of Corporate Development since April
1996. From 1993 to 1995, Dr. Farber served as Director of Business Development
at T Cell Sciences, Inc., a biotechnology company.
45
<PAGE>
From 1982 to 1993, Dr. Farber served in various positions at Biogen, Inc., a
biotechnology company. Dr. Farber received his B.Sc. in Chemistry and
Biochemistry from the Hebrew University, Israel and his Ph.D. in Biochemistry
from Columbia University.
Mr. Shea has served as Treasurer and Chief Accounting Officer since June
1996 and has served as Director of Finance and Administration since September
1993. From 1987 to 1993, he served as Manager of Accounting/MIS and Budget and
Financial Analyst at ImmuLogic Pharmaceutical Corporation, a biotechnology
company. Mr. Shea received his B.S. in Accounting/Law from Babson College.
Dr. Wendler has served as Director of Pharmacology since August 1994. From
1988 to 1994, he served in various scientific positions at Sandoz Chemicals
Biotech Research Corporation. Dr. Wendler received his B.S. in Biochemistry
from Trinity College and his Ph.D. in Biological Science (Biochemistry) from
the University of Rhode Island.
Dr. Whoriskey has served as Director of Molecular Biology since January
1996. From 1993 to 1995, she served as a Research Scientist and then Group
Leader of Molecular Biology at the Company. From 1989 to 1993, she was a
Research Fellow in the Department of Genetics at Harvard Medical School.
Dr. Whoriskey received her B.S. in Microbiology from the University of
Massachusetts, Amherst and her Ph.D. from the Molecular Biology Institute at
the University of California, Los Angeles.
Mr. Clarke is a founder of the Company and has served as Chairman of the
Board of Directors since its incorporation. From May 1992 to June 1994, Mr.
Clarke served as acting President and Chief Executive Officer of the Company.
Since 1982, he has been a general partner of DSV Management in Princeton, New
Jersey, the general partner of DSV Partners IV ("DSV"). He is a founder and
director of Alkermes, Inc. and DNX, Inc., biotechnology companies. Mr. Clarke
received his B.A. in Biology and Economics from Harvard College and his M.B.A.
from The Wharton School of the University of Pennsylvania.
Dr. Schimmel is a scientific founder of the Company and has served as a
director of the Company since its incorporation. Since 1967, he has served as
a Professor of Biochemistry and Biophysics at the Massachusetts Institute of
Technology and since 1992, he has been the John D. and Catherine T. MacArthur
Professor of Biochemistry and Biophysics. Dr. Schimmel is an expert in
molecular biology, protein translation and aminoacyl-tRNA synthetases. He is a
member of the National Academy of Sciences and the American Academy of Arts
and Sciences. Dr. Schimmel was a founder and is a director of Repligen
Corporation and Alkermes, Inc., biotechnology companies. Dr. Schimmel received
his A.B. in Pre-Medicine from Ohio Wesleyan University and his Ph.D. in
Biochemistry from the Massachusetts Institute of Technology.
Dr. Rebek is a scientific founder of the Company and has served as a
director of the Company since its incorporation. Since July 1996, he has
served as the Director of the Institute for Chemical Biology at The Scripps
Research Institute. From 1989 to June 1996, Dr. Rebek served as Professor of
Chemistry at the Massachusetts Institute of Technology, and from 1991 to June
1996, he served as the Camille Dreyfus Professor of Chemistry. Dr. Rebek is an
expert in synthetic organic chemistry, molecular recognition and combinatorial
chemistry. He is a member of the National Academy of Sciences and the American
Academy of Arts and Sciences. Dr. Rebek serves on the Scientific Advisory
Board of Procept, Inc., a biotechnology company. He is also a Founding Member
of the Scientific Advisory Board of Darwin Molecular, Inc., a genomics
company. Dr. Rebek received his B.S. in Chemistry from the University of
Kansas and his Ph.D. in Chemistry from the Massachusetts Institute of
Technology.
Ms. Feeney has served as a director of the Company since September 1993.
Since 1991, she has served as a principal of Weiss, Peck & Greer, L.L.C., and
since 1989, she has been a General Partner of WPG Venture Partners II, L.P.,
the general partner of WPG Enterprise Fund, L.P. ("WPG Enterprise"), Weiss,
Peck & Greer Venture Associates II, L.P. ("WPG Venture") and WPG Venture
Advisers, L.P., the adviser of Weiss, Peck & Greer Venture Associates II
(Overseas), L.P. ("WPG Overseas"). Ms. Feeney is a director of Heartstream,
Inc., a medical device company, and several private health care companies. Ms.
Feeney received her B.S. in Biology and Philosophy from Duke University and
her M.S. in Human Genetics from the University of California, Davis.
46
<PAGE>
Mr. McGuire has served as a director of the Company since September 1993.
Since 1995, he has been a Founding General Partner of Polaris Venture Partners,
and since 1989, has served as a general partner of Beta Partners Limited
Partnership, each of which is a venture capital firm. Since 1992, he has served
as a general partner of Alta V Management Partners L.P., which is the general
partner of Alta V Limited Partnership ("Alta"), a fund associated with Burr,
Egan, Deleage & Co. He is a director of Integ, Inc., a biotechnology company,
and several private health care companies. Mr. McGuire received his B.S. in
Physics and Economics from Hobart College, his M.S. in Engineering from
Dartmouth College and his M.B.A. from the Harvard Business School.
Dr. Bloom has served as a director of the Company since September 1993. Dr.
Bloom has more than 40 years experience in the pharmaceutical industry. From
1952 to 1993, Dr. Bloom served in various positions at Pfizer Inc, including
Executive Vice President of Research & Development. He is a director of Vertex
Pharmaceuticals, Inc. and Neurogen Corp., biotechnology companies, Southern New
England Telecommunications Corporation, Catalytica Fine Chemicals, Inc., a
chemical manufacturer and supplier, and Incyte Pharmaceuticals, Inc., a
genomics company. Dr. Bloom received his S.B. in Chemistry and his Ph.D. in
Organic Chemistry from the Massachusetts Institute of Technology.
Mr. Conrades has served as a director of the Company since June 1996. Since
1994, he has served as President and Chief Executive Officer of BBN
corporation, a corporation providing Internet services and research and
development and he has served as Chairman since 1995. From 1961 to 1992, Mr.
Conrades served in various positions at IBM, including Senior Vice President,
Corporate Marketing and Services. He is a member of the Board of Directors of
Westinghouse, Inc. and CRA Managed Care, Inc. Mr. Conrades received his B.A. in
Physics and Mathematics from Ohio Wesleyan University and his M.B.A. from the
University of Chicago.
BOARD OF DIRECTORS
Effective upon the consummation of this Offering, the Company's Board of
Directors will be divided into three classes, with one class of directors
elected each year at the annual meeting of stockholders for a three-year term
of office. All directors of one class hold their positions until the annual
meeting of stockholders at which their respective successors are elected and
qualified. Ms. Feeney and Mr. McGuire serve in the class whose term expires in
1997; Dr. Bloom, Mr. Conrades and Dr. Rebek serve in the class whose term
expires in 1998; and Mr. Clarke, Dr. Rocklage and Dr. Schimmel serve in the
class whose term expires in 1999. Executive officers of the Company are elected
annually by the Board of Directors and serve at the discretion of the Board of
Directors or until their successors are duly elected and qualified.
The Board of Directors has appointed an Audit Committee and a Compensation
Committee. The Audit Committee reviews the scope and results of the annual
audit of the Company's financial statements conducted by the Company's
independent accountants, the scope of other services provided by the Company's
independent accountants, proposed changes in the Company's financial and
accounting standards and principles, and the Company's policies and procedures
with respect to its internal accounting, auditing and financial controls, and
makes recommendations to the Board of Directors on the engagement of the
independent accountants, as well as other matters which may come before it or
as directed by the Board of Directors. The Compensation Committee administers
the Company's compensation programs, including the Plan, and performs such
other duties as may from time to time be determined by the Board of Directors.
DIRECTOR COMPENSATION
In 1995, the Company paid $6,000 to Dr. Bloom in connection with attendance
at meetings of the Board of Directors. No other director has received
compensation for his or her service on the Board of Directors or any committee
thereof.
Following this Offering, Dr. Bloom and Mr. Conrades will receive a fee of
$1,000 for each Board meeting attended and will be reimbursed for expenses
incurred in connection with their attendance. In addition, upon first joining
the Board each director who is not an employee of the Company will be granted
automatically a stock option exercisable for 7,000 shares of Common Stock, as
described below under "Amended and Restated 1993 Stock Option Plan."
47
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation paid by the Company during the fiscal year
ended December 31, 1995 to the Chief Executive Officer and the other executive
officers of the Company (the "Named Executive Officers") whose 1995
compensation exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------- --------------------------
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY($)(1) BONUS($) COMPENSATION($)(2) OPTIONS(#) COMPENSATION($)
- ------------------ ------------ -------- ------------------ ---------- ---------------
<S> <C> <C> <C> <C> <C>
Scott M. Rocklage....... $180,434 $50,000 $6,072 14,285 $23,587(3)
President, Chief
Executive Officer and
Director
Francis P. Tally........ 165,280 -- 8,258 -- --
Vice President of
Research and
Development
Nancy Gray(4)........... 113,228 11,440 -- 5,714 --
Vice President of
Corporate Development
</TABLE>
- --------
(1) Salary includes amounts, if any, deferred pursuant to the Company's 401(k)
Plan.
(2) Other Annual Compensation consists of long-term disability insurance
premiums paid by the Company on behalf of the Named Executive Officer.
(3) The Company forgave $23,587 of principal and accrued interest owed by Dr.
Rocklage under certain promissory notes. See "Certain Transactions."
(4) Dr. Gray resigned from the Company in February 1996, at which time options
for 4,285 shares were terminated and restricted stock totaling 17,857
shares were repurchased by the Company.
The following table sets forth certain information with respect to grants of
stock options under the Plan to the Named Executive Officers during the year
ended December 31, 1995.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM($)(2)
-------------------------------------------------- --------------------
PERCENT OF
NUMBER TOTAL
OF SECURITIES OPTIONS GRANTED EXERCISE
UNDERLYING TO EMPLOYEES IN PRICE PER EXPIRATION
NAME OPTIONS(#)(1) FISCAL YEAR(%) SHARE($) DATE 5% 10%
- ---- ------------- --------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Scott M. Rocklage....... 14,285 6.05% $0.42 10/18/05 $ 9,773 $ 15,562
Francis P. Tally........ -- -- -- -- -- --
Nancy Gray(3)........... 5,714 2.42 0.35 -- 4,561 7,262
</TABLE>
- --------
(1) Represents incentive stock options granted under the Plan to Dr. Rocklage
on October 18, 1995 and to Dr. Gray on January 1, 1995. Each option is
exercisable in 16 equal quarterly installments, and has a maximum term of
10 years from the date of grant, subject to earlier termination in the
event of the optionee's cessation of service with the Company. The options
are exercisable during the holder's lifetime only by the holder and they
are exercisable by the holder only while the holder is an employee of the
Company and for certain limited periods of time thereafter in the event of
termination of employment.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based upon assumed appreciation rates of 5% and 10% in the fair market
value of shares of Common Stock from the fair market value on the date of
grant, which rates are set by the Securities and Exchange Commission and
compounded annually from the date the respective options were granted to
their expiration date. The gains shown are net of option exercise prices,
but do not include deductions for taxes or other expenses associated with
the exercises. Actual gains, if any, are dependent on the performance of
the Common Stock and the date on which the option is exercised. There can
be no assurance that the amounts reflected will be achieved or will
otherwise be indicative of the actual amounts received, if any.
(3) Dr. Gray resigned from the Company in February 1996, at which time options
for 4,285 shares were terminated.
48
<PAGE>
The following table sets forth information with respect to (i) the number of
unexercised options held by the Named Executive Officers as of December 31,
1995 and (ii) the value of unexercised in-the-money options (options for which
the fair market value of the Common Stock exceeds the exercise price) as of
December 31, 1995. In fiscal 1995, there were no option exercises by the Named
Executive Officers.
AGGREGATED OPTION VALUES IN THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1995(#) AT DECEMBER 31, 1995 ($)(1)
------------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Scott M. Rocklage....... 0 14,285 $ 0 $6,000
Francis P. Tally........ -- -- -- --
Nancy Gray (2).......... 1,429 4,285 700 2,100
</TABLE>
- --------
(1) Based on the fair market value of the Common Stock as of December 15, 1995
of $0.84 per share, as determined by the Company's Board of Directors, less
the aggregate exercise price.
(2) Dr. Gray resigned from the Company in February 1996, at which time options
for 4,285 shares were terminated.
AMENDED AND RESTATED 1993 STOCK OPTION PLAN
The Plan provides for grants of stock options intended to qualify for
preferential tax treatment (the "Incentive Stock Options") under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and nonstatutory
stock options that do not qualify for such treatment. All employees of the
Company are eligible for stock options under the Plan in amounts and at prices
determined by the Compensation Committee, provided that, in the case of
Incentive Stock Options, the price will not be less than 100% of the fair
market value of the Common Stock on the date of grant, or not less than 110% of
the fair market value of the Stock on the grant date if the optionee owns,
directly or indirectly, more than 10% of the total combined voting power of all
classes of stock.
In addition, each director who is not an officer or employee of the Company
(a "Non-Employee Director") who is first elected to the Board of Directors
during the term of the Plan will receive, on the director's election date, an
option to purchase 7,000 shares of Common Stock. In addition, each Non-Employee
Director will receive an option to purchase 700 shares of Common Stock at fair
market value at the annual meeting of stockholders, which will become
exercisable in four equal installments on the last day of each subsequent
fiscal quarter if the optionee remains a director on that date.
The Plan will be administered by the Compensation Committee. The Compensation
Committee will select participants (other than for automatic grants to Non-
Employee Directors as set forth in the Plan) and, in a manner consistent with
the terms of the Plan, determine the number and duration of the options to be
granted and the terms and conditions of the option agreements. The Compensation
Committee has the right to alter, amend or revoke the Plan.
The Plan provides that each outstanding option will immediately become fully
exercisable upon a "Change in Corporate Control" of the Company, as defined in
the Plan. A "Change in Corporate Control" includes the acquisition by any third
party (as hereinafter defined), directly or indirectly, of more than 80% of the
Common Stock outstanding at the time, without the prior approval of the
Company's Board of Directors. A "third party" for purposes of the foregoing
means any person other than the Company or a subsidiary or employee benefit
plan or trust maintained by the Company or any of its subsidiaries together
with any of such person's "affiliates" and "associates" as defined in Rule 12b-
2 under the Securities Exchange Act of 1934, as amended.
A total of 1,500,000 shares of Common Stock of the Company is reserved for
issuance under the Plan. The maximum number of shares will increase, effective
as of January 1, 1998 and each January 1 thereafter
49
<PAGE>
during the term of the Plan, by an additional number of shares of Common Stock
equal to 15% of the excess, if any, of (i) the total number of shares of
Common Stock and Common Stock equivalents issued and outstanding as of the
close of business on December 31 of the preceding year over (ii) the total
number of shares of Common Stock and Common Stock equivalents issued and
outstanding as of the close of business on December 31 of the year prior to
such preceding year. The maximum number of shares that may be subject to
incentive stock options granted under the Plan is 1,500,000 shares.
401(K) PLAN
The Company has implemented a retirement savings plan (the "401(k) Plan"),
which covers all full-time employees. Pursuant to the 401(k) Plan, an employee
may elect to reduce his or her current compensation by up to 15% (subject to
certain overall dollar limits) and have the amount of such reduction
contributed to the 401(k) Plan. The 401(k) Plan allows employees with six
months continuous service to make certain tax-deferred voluntary
contributions, which the Company generally intends to match with a 1.5%
contribution, but in any event not to exceed $500. The 401(k) Plan is intended
to qualify under Section 401 of the Code, so that contributions by employees,
and earned income thereon, are not taxable to employees until withdrawn from
the 401(k) Plan. The administrator of the 401(k) Plan will invest each
employee's account at the direction of each such employee, who can choose
among certain investment alternatives provided.
EMPLOYMENT AGREEMENT
Dr. Rocklage, the Company's President and Chief Executive Officer, is
employed pursuant to an employment agreement with the Company, dated June 20,
1994 (the "Employment Agreement"). Under the terms of the Employment
Agreement, Dr. Rocklage will receive an annual base salary in 1996 of $185,000
and is entitled to a performance bonus of up to $50,000, subject to review by
the Company's Board of Directors, upon the Company's achievement of certain
milestones for such year that have been mutually agreed upon by Dr. Rocklage
and the Board of Directors prior to the commencement of such fiscal year.
Pursuant to the terms of the Employment Agreement, on July 21, 1994 the
Company granted to Dr. Rocklage a stock option exercisable for 188,121 shares
of the Company's Common Stock at an exercise price of $0.35 per share, and
sold to Dr. Rocklage 263,370 shares of Series B Convertible Preferred Stock
(convertible into 37,624 shares of Common Stock) at a purchase price of $0.50
per share ($3.50 per share on an as-converted basis). To purchase the shares
of Series B Convertible Preferred Stock and to exercise his option, Dr.
Rocklage issued two promissory notes to the Company. See "Certain
Transactions." The Employment Agreement also provides Dr. Rocklage with
medical insurance and other fringe benefits. Dr. Rocklage's employment with
the Company may be terminated by the Company at any time by giving written
notice of termination and may be terminated by Dr. Rocklage at any time upon
thirty days' written notice of termination. Upon any termination by the
Company of Dr. Rocklage's employment without cause, Dr. Rocklage is entitled
to severance pay in an amount equal to three months of his then current annual
base salary.
None of the Company's other executive officers has entered into an
employment agreement with the Company. See "Risk Factors--Dependence on Key
Personnel."
COMPENSATION COMMITTEE INTERLOCKS
In 1995, the members of the Compensation Committee of the Board of Directors
were Mr. Clarke, Dr. Schimmel and Dr. Rebek, none of whom is an employee of
the Company. As of June, 1996, the members of the Compensation Committee are
Mr. Clarke, Mr. Conrades and Ms. Feeney, none of whom is an employee of the
Company.
50
<PAGE>
CERTAIN TRANSACTIONS
In August 1993, the Company sold an aggregate of 14,270,000 shares of its
Series B Convertible Preferred Stock (convertible into 2,038,571 shares of
Common Stock), at a purchase price of $0.50 per share ($3.50 per share on an
as-converted basis) to a group of stockholders, including DSV, Alta, WPG
Enterprise, WPG Venture, and Interwest Partners V, L.P. ("Interwest"), Dr.
Schimmel, Dr. Rebek, and the Julius Rebek, Jr. Retirement Plan. Mr. Clarke, a
director of the Company, is a general partner of DSV Management, the general
partner of DSV. Ms. Feeney, a director of the Company, is a general partner of
WPG Venture Partners II, L.P., the general partner of WPG Enterprise and WPG
Venture. Mr. McGuire, a director of the Company, is a general partner of Alta
V Management Partners, L.P., the general partner of Alta. Dr. Schimmel and Dr.
Rebek are directors of the Company. The Julius Rebek, Jr. Retirement Plan is
an affiliate of Dr. Rebek.
In August 1993, Dr. Schimmel executed a promissory note to the Company in
the amount of $250,000 with a 4% annual interest rate in connection with his
purchase of Series B Convertible Preferred Stock. This note has been paid in
full.
In June 1994, the Company entered into an Employment Agreement with Dr.
Rocklage, President, Chief Executive Officer and a director of the Company.
See "Management--Employment Agreement." In consideration for the performance
of services by Dr. Rocklage under the Employment Agreement, the Company
granted to Dr. Rocklage an incentive stock option to purchase 188,121 shares
of Common Stock, at a purchase price of $0.35, the fair market value of the
Common Stock on the date of grant. Dr. Rocklage purchased 263,370 shares of
Series B Convertible Preferred Stock (convertible into 37,624 shares of Common
Stock), at a purchase price of $0.50 per share ($3.50 per share on an as-
converted basis). In July 1994, Dr. Rocklage executed a promissory note to the
Company in the amount of $131,685 with a 4% annual interest rate to purchase
his shares of Series B Convertible Preferred Stock. This note is secured by
263,370 shares of Series B Convertible Preferred Stock (convertible into
37,624 shares of Common Stock). In November 1994, Dr. Rocklage executed a
promissory note to the Company in the amount of $65,842 with a 4% annual
interest rate in connection with the exercise of his stock option agreement.
One-third of the principal and interest on the promissory note has been
forgiven and the remainder will be forgiven in equal installments on November
28, 1996 and November 28, 1997.
In December 1994, the Company consummated a financing in which it issued
Convertible Demand Promissory Notes in the aggregate principal amount of
$1,000,000 (the "Notes") to a group of existing investors including DSV, Alta,
WPG Enterprise, WPG Venture and Interwest.
In February 1995, the Company sold an aggregate of 9,428,644 shares of its
Series C Convertible Preferred Stock (convertible into 1,346,949 shares of
Common Stock), at a purchase price of $0.60 per share ($4.20 per share on an
as-converted basis) to a group of existing investors, including DSV, Alta, WPG
Enterprise, WPG Venture and Interwest. The purchase price of the Series C
Convertible Preferred Stock was paid in part by the conversion and
cancellation of the Notes (plus accrued interest) previously issued by the
Company to certain investors.
In May 1995, the Company issued a warrant to each of Dr. Schimmel and Dr.
Rebek to purchase 120,000 shares of Series C Convertible Preferred Stock
(convertible into 17,142 shares of Common Stock), at an exercise price of
$0.60 per share ($4.20 per share on an as-converted basis).
In May 1995, the Company sold an aggregate of 5,589,169 shares of its Series
C Convertible Preferred Stock (convertible into 798,452 shares of Common
Stock), at a purchase price of $0.60 per share ($4.20 per share on an as-
converted basis) to a group of new investors, including H&Q Healthcare
Investors, H&Q Life Sciences Investors, and Rovent II Limited Partnership.
In June 1996, the Company sold a total of 2,816,902 shares of Series D
Convertible Preferred Stock (convertible into 402,414 shares of Common Stock),
at a purchase price of $1.42 per share ($9.94 per share on an as-converted
basis), to Bristol-Myers Squibb.
51
<PAGE>
For a description of certain transactions and certain employment and other
arrangements between the Company and certain of its directors and executive
officers, see "Management--Director Compensation" and "--Employment
Agreements."
The Company believes that the securities issued in the transactions
involving the Company described above were sold by the Company at their then
fair market value and that the terms of the transactions described above were
no less favorable than the Company could have obtained from unaffiliated third
parties.
The Company has adopted a policy, effective following the consummation of
this Offering, that all future transactions between the Company and its
officers, directors and affiliates must (i) be approved by a majority of the
disinterested members of the Company's Board of Directors and (ii) be on terms
no less favorable to the Company than could be obtained from unrelated third
parties.
52
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 31, 1996, giving effect to
the conversion of all outstanding shares of the Company's Preferred Stock into
an aggregate of 5,366,869 shares of Common Stock by (i) each person known to
the Company to be the beneficial owner of more than 5% of the shares of Common
Stock, (ii) each director of the Company, (iii) each of the Named Executive
Officers and (iv) all current directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES PERCENT PERCENT
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ------------------------------------ ------------ -------- --------
<S> <C> <C> <C>
DSV Partners IV.................................... 1,643,499 25.77% 18.51%
221 Nassau Street
Princeton, NJ 08542
Entities affiliated with
Interwest Management Partners(2)................... 789,213 12.37 8.89
300 Sandhill Road
Building 3, Suite 255
Menlo Park, CA 94025-7112
Entities affiliated with
Burr, Egan, Deleage & Co.(3)....................... 786,356 12.33 8.86
One Post Office Square, Suite 3800
Boston, MA 02109
Entities affiliated with
Weiss, Peck & Greer, L.L.C.(4)..................... 667,308 10.46 7.52
555 California Street, Suite 4760
San Francisco, CA 94104
Entities affiliated with
H&Q Capital Management(5).......................... 428,571 6.72 4.83
50 Rowes Wharf
Boston, MA 02110
Bristol-Myers Squibb Company(6).................... 402,414 6.31 4.53
P.O. Box 4000
Princeton, NJ 08543
Entities affiliated with
Advent International Corporation(7)................ 357,142 5.60 4.02
101 Federal Street
Boston, MA 02110
Scott M. Rocklage(8)............................... 240,302 3.77 2.71
Francis P. Tally................................... 92,857 1.46 1.05
Nancy Gray(9)...................................... 12,142 * *
John K. Clarke(10)................................. 1,643,499 25.77 18.51
Paul R. Schimmel(11)............................... 302,856 4.74 3.40
Julius Rebek, Jr.(12).............................. 241,000 3.77 2.71
Ellen M. Feeney(13)................................ 667,308 10.46 7.52
Terrance G. McGuire(14)............................ 786,356 12.33 8.86
Barry Bloom(15).................................... 8,928 * *
George Conrades.................................... * * *
All current executive officers and directors as a
group (11 persons)(16)..............................3,983,106. 62.44 44.86
</TABLE>
53
<PAGE>
- --------
* Less than 1% of the outstanding shares of Common Stock.
(1) Beneficial ownership is determined in accordance with Rule 13d-3(d)
promulgated by the Commission under the Securities and Exchange Act of
1934, as amended. Shares of Common Stock issuable pursuant to options,
warrants and convertible securities, to the extent such securities are
currently exercisable or convertible within 60 days of May 31, 1996, are
treated as outstanding for computing the percentage of the person holding
such securities but are not treated as outstanding for computing the
percentage of any other person. Unless otherwise noted, each person or
group identified possesses sole voting and investment power with respect
to shares, subject to community property laws where applicable. Shares not
outstanding but deemed beneficially owned by virtue of the right of a
person or group to acquire them within 60 days are treated as outstanding
only for purposes of determining the number of and percent owned by such
person or group.
(2) Includes shares held by Interwest and Interwest Investors V.
(3) Includes shares held by Alta and Customs House Partners.
(4) Includes shares held by WPG Enterprise, WPG Venture and WPG Overseas (the
"WPG Group").
(5) Includes shares held by H&Q Healthcare Investors and H&Q Life Sciences
Investors.
(6) Includes the sale in June 1996 of 2,816,902 shares of Series D Convertible
Preferred Stock.
(7) Includes shares held by Rovent II Limited Partnership, Advent Performance
Materials Limited Partnership and Advent International Investors II
Limited Partnership.
(8) Includes 2,678 shares of Common Stock which Dr. Rocklage has the right to
acquire within 60 days of May 31, 1996 upon exercise of stock options.
(9) Dr. Gray resigned from the Company in February 1996.
(10) Includes shares held by DSV. Mr. Clarke, Chairman of the Board of
Directors of the Company, is a general partner of the general partner of
DSV. Mr. Clarke shares voting and investment control with respect to the
shares owned by DSV. Mr. Clarke may be deemed to beneficially own the
shares held by DSV although he disclaims beneficial ownership except to
the extent of his proportionate partnership interest therein.
(11) Includes 17,142 shares of Common Stock which Dr. Schimmel has the right to
acquire within 60 days of May 31, 1996 upon the exercise of his stock
options and warrants.
(12) Includes 17,142 shares of Common Stock which Dr. Rebek has the right to
acquire within 60 days of May 31, 1996 upon the exercise of his stock
options and warrants and 3,857 shares held by the Julius Rebek, Jr.
Retirement Plan, over which Dr. Rebek has sole voting power and beneficial
ownership. Includes shares owned by Dr. Rebek's wife. Dr. Rebek disclaims
beneficial ownership of all shares owned by his wife.
(13) Includes shares held by the WPG Group. Ms. Feeney, a director of the
Company, is a general partner of the general partner of WPG Enterprise and
WPG Venture and of the adviser to WPG Overseas. Ms. Feeney shares voting
and investment control with respect to the shares owned by the WPG Group.
Ms. Feeney may been deemed to beneficially own the shares held by the WPG
Group although she disclaims beneficial ownership except to the extent of
her proportionate partnership interest therein.
(14) Includes shares held by Alta and Customs House Partners. Mr. McGuire, a
director of the Company, is a general partner of the general partner of
Alta. Mr. McGuire shares voting and investment control with respect to the
shares owned by Alta. Mr. McGuire may been deemed to beneficially own the
shares held by Alta although he disclaims beneficial ownership except to
the extent of his proportionate partnership interest therein. Mr. McGuire
disclaims beneficial ownership of all the shares held by Customs House
Partners.
(15) Includes 1,785 shares of Common Stock which Dr. Bloom has the right to
acquire within 60 days of May 31, 1996 upon the exercise of his stock
options.
(16) Includes 38,747 shares of Common Stock which all directors and executive
officers have the right to acquire within 60 days of May 31, 1996 upon the
exercise of their stock options.
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this Offering, the Company will be authorized to issue
25,000,000 shares of Common Stock, $0.001 par value per share, of which
8,878,605 shares will be issued and outstanding, and 5,000,000 shares of
undesignated Preferred Stock, $0.001 par value per share, of which no shares
will be issued and outstanding.
COMMON STOCK
Upon the closing of this Offering, the Company's Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") will authorize the
issuance of up to 25,000,000 shares of Common Stock, $0.001 par value per
share. Holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor and subject to any
preferential dividend rights of any then outstanding Preferred Stock. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities and subject to any
liquidation preference of any then outstanding Preferred Stock. Holders of
Common Stock have no preemptive, subscription, redemption or conversion
rights. The outstanding shares of Common Stock are, and the shares offered by
the Company in this Offering will be, when issued and paid for, fully paid and
nonassessable.
As of May 31, 1996, there were 6,378,605 shares of Common Stock outstanding
held by 84 stockholders (after giving effect to the automatic conversion of
all outstanding shares of Preferred Stock into an aggregate of 5,366,869
shares of Common Stock effective upon the closing of this Offering).
PREFERRED STOCK
Upon the closing of this Offering, the Restated Certificate will have an
authorized class of undesignated preferred stock consisting of 5,000,000
shares, $0.001 par value per share. The Board of Directors will be authorized,
subject to any limitations prescribed by law, without further stockholder
approval, to issue from time to time shares of preferred stock in one or more
series. Each such series of preferred stock shall have such number of shares,
designations, preferences, voting powers, qualifications and special or
relative rights or privileges as shall be determined by the Board of
Directors, which may include, among others, dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences, conversion
rights and preemptive rights.
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. Such rights may include voting and conversion rights
which could adversely affect the holders of Common Stock. Satisfaction of any
dividend preferences of outstanding preferred stock would reduce the amount of
funds available, if any, for the payment of dividends on Common Stock. See
"Dividend Policy." Holders of preferred stock would typically be entitled to
receive a preference payment in the event of a liquidation, dissolution or
winding up of the Company before any payment is made to the holders of Common
Stock. Additionally, the issuance of preferred stock 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
As of May 31, 1996, there were outstanding warrants exercisable for up to
86,619 shares of Common Stock (after giving effect to the conversion of all
outstanding warrants to purchase shares of the Company's
55
<PAGE>
Preferred Stock into warrants for shares of Common Stock which will occur upon
the closing of this Offering). Such warrants have expiration dates ranging
from 2003 to 2006 and have a weighted average exercise price equal to $4.04
per share. The holders of the warrants are entitled to certain registration
rights in respect of the shares of Common Stock issuable upon exercise of
their respective warrants. See "Registration Rights."
REGISTRATION RIGHTS
Certain persons and entities have rights with respect to the registration of
Common Stock under the Securities Act. Immediately after the closing of this
Offering, those rights will cover approximately 5,960,631 shares of Common
Stock (the "Registrable Shares"), which will include 86,619 shares of Common
Stock issuable upon exercise of warrants. In general, in the event that the
Company proposes to register any shares of Common Stock under the Securities
Act for its own account or the account of other stockholders at any time or
times, subject to certain exceptions, the Company must, upon the written
request of a holder of Registrable Shares, use its best efforts to cause to be
registered under the Securities Act all of the Registrable Shares requested to
be registered, provided, however, that the Company is not required to register
Registrable Securities in excess of the amount, if any, of Common Stock which
the principal underwriter of an underwritten offering shall agree to include
in such offering. The holders of 5,960,631 of the Registrable Shares will also
have the right to require the Company to prepare and file from time to time a
registration statement under the Securities Act with respect to their
Registrable Shares, provided that such holders may not exercise such right
more than once with respect to a registration statement on Form S-1 or more
than three times in any calendar year with respect to a registration statement
on Form S-3. Upon receipt of any such request from such holders, the Company
will be required to use its best efforts to effect such registration, subject
to certain conditions and limitations. If such holders are unable to include
in such registration statement on Form S-1 at least 90% of the Registrable
Shares that such holders have requested for inclusion, then such holders will
have the right to require that the Company prepare and file a second
registration statement on Form S-1 and the Company will be required to use its
best efforts to effect such registration, subject to certain conditions and
limitations.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the DGCL. Subject
to certain exceptions, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the interested
stockholder attained such status with the approval of the Board of Directors
or unless the business combination is approved in a prescribed manner. A
"business combination" includes certain mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an "interested stockholder" is a person who,
together with his or her affiliates and associates, owns, or within three
years prior did own, 15% or more of the corporation's voting stock.
The Restated Certificate of Incorporation and Amended and Restated By-Laws
(the "By-Laws") provide that, effective upon the consummation of this
Offering, any action required or permitted to be taken by the stockholders of
the Company may be taken only at duly called annual or special meetings of the
stockholders, and that special meetings may be called only by the Chairman of
the Board of Directors, the President or a majority of the Board of Directors
of the Company. These provisions could have the effect of delaying until the
next annual stockholders' meeting stockholder actions that are favored by the
holders of a majority of the outstanding voting securities of the Company,
including actions to remove directors. These provisions may also discourage
another person or entity from making a tender offer for the Company's Common
Stock, because such person or entity, even if it acquired all or a majority of
the outstanding voting securities of the Company, would be able to take action
as a stockholder (such as electing new directors or approving a merger) only
at a duly called stockholders meeting, and not by written consent.
56
<PAGE>
The Company's Restated Certificate of Incorporation and By-Laws provide
that, effective upon the consummation of this Offering, for nominations for
the Board of Directors or for other business to be properly brought by a
stockholder before a meeting of stockholders, the stockholder must first have
given timely notice thereof in writing to the Secretary of the Company. To be
timely, a notice of nominations or other business to be brought before an
annual meeting must be delivered not less than 120 days nor more than 150 days
prior to the first anniversary of the date of the proxy statement delivered to
stockholders in connection with the preceding year's annual meeting or, if the
date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary, or if no proxy statement was delivered to stockholders
in connection with the preceding year's annual meeting, such notice must be
delivered not earlier than 90 days prior to such annual meeting and not later
than the later of (i) 60 days prior to the annual meeting or (ii) 10 days
following the date on which public announcement of the date of such annual
meeting is first made by the Company. With respect to special meetings, notice
must generally be delivered not more than 90 days prior to such meeting and
not later than the later of 60 days prior to such meeting or 10 days following
the day on which public announcement of such meeting is first made by the
Company. The notice must contain, among other things, certain information
about the stockholder delivering the notice and, as applicable, background
information about each nominee or a description of the proposed business to be
brought before the meeting.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless the corporation's certificate
of incorporation or by-laws, as the case may be, requires a greater
percentage. The Company's Restated Certificate of Incorporation requires the
affirmative vote of the holders of at least 75% of the outstanding voting
stock of the Company to amend or repeal any of the foregoing provisions, or to
reduce the number of authorized shares of Common Stock and preferred stock. A
75% vote is also required to amend or repeal any of the foregoing By-Law
provisions. Such 75% stockholder vote would in either case be in addition to
any separate class vote that might in the future be required pursuant to the
terms of any preferred stock that might be outstanding at the time any such
amendments are submitted to stockholders. The By-Laws may also be amended or
repealed by a majority vote of the Board of Directors.
The Company's Restated Certificate of Incorporation and By-Laws provide for
the division of the Board of Directors into three classes, as nearly equal in
size as possible, with staggered three-year terms. See "Management--Executive
Officers, Key Employees and Directors." Any director may be removed only for
cause and then only by the vote of a majority of the shares entitled to vote
for the election of directors.
The Company's Restated Certificate of Incorporation empowers the Board of
Directors, when considering a tender offer or merger or acquisition proposal,
to take into account factors in addition to potential economic benefits to
stockholders. Such factors may include (i) comparison of the proposed
consideration to be received by stockholders in relation to the then current
market price of the Company's capital stock, the estimated current value of
the Company in a freely negotiated transaction and the estimated future value
of the Company as an independent entity, and (ii) the impact of such a
transaction on the employees, suppliers and customers of the Company and its
effect on the communities in which the Company operates.
The foregoing provisions 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, control of the Company.
The Company's Restated Certificate of Incorporation contains certain
provisions permitted under the DGCL relating to the liability of directors.
These provisions eliminate a director's personal liability for monetary
damages resulting from a breach of fiduciary duty, except in certain
circumstances involving certain wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions that involve intentional
misconduct or a knowing violation of law. These provisions do not limit or
eliminate the rights of the Company or any stockholder to seek non-monetary
relief, such as an injunction or rescission, in the event of a breach of a
director's fiduciary duty. There provisions will not alter a director's
liability under federal
57
<PAGE>
securities laws. The Company's Restated Certificate of Incorporation and By-
Laws also contain provisions indemnifying the directors and officers of the
Company to the fullest extent permitted by the DGCL. The Company believes that
these provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is The First
National Bank of Boston.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
8,878,605 shares of Common Stock. Of these shares, the 2,500,000 shares sold
in this Offering will be freely tradeable without restriction or further
registration under the Securities Act unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act. The
remaining 6,378,605 shares outstanding upon completion of this Offering will
be "restricted securities" as that term is defined under Rule 144 (the
"Restricted Shares"). Sales of Restricted Shares in the public market, or the
availability of such shares for sale, could adversely affect the market price
of the Common Stock. The executive officers, directors, employees and other
stockholders of the Company who beneficially own an aggregate of 6,378,605
shares of Common Stock outstanding prior to this Offering have agreed that
they will not, without the prior written consent of UBS Securities LLC, offer,
sell or otherwise dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock owned by them for a period of 180 days
after the effective date of this Offering (the "Lock-Up Period"). See
"Underwriting."
Upon expiration of the Lock-Up Period, approximately 216,864 Restricted
Shares held by non-affiliates will be eligible for sale in the public market
without restriction pursuant to Rule 144(k) and approximately 3,322,888
Restricted Shares held by affiliates and approximately 155,759 Restricted
Shares held by non-affiliates will be so eligible subject to compliance with
the volume limitations of Rule 144 described below. The remaining 2,556,987
Restricted Shares may be sold pursuant to Rule 144 only after they have been
fully paid for and held for at least two years from the later of the date of
issuance by the Company or acquisition from an affiliate (which dates do not
occur until after the expiration of the Lock-Up Period).
Beginning 90 days after the date of this Prospectus, certain shares issued
or issuable upon exercise of options granted by the Company prior to the date
of this Prospectus will also be eligible for sale in the public market
pursuant to Rule 701 under the Securities Act. In general, Rule 701 permits
resales of shares issued pursuant to certain compensatory benefit plans and
contracts commencing 90 days after the issuer becomes subject to the reporting
requirements of the Securities and Exchange Act of 1934, as amended, in
reliance upon Rule 144 but without compliance with certain restrictions,
including the holding period requirements, contained in Rule 144. If all the
requirements of Rule 701 are met, upon expiration of the Lock-Up Period an
aggregate of 126,107 shares of Common Stock currently outstanding, and an
aggregate of 517,485 shares of Common Stock issuable upon exercise of
currently outstanding options will be eligible for sale pursuant to such rule
commencing on the 181st day after this Prospectus.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who beneficially owned Restricted Shares for at
least two years, including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the number of shares
of Common Stock then outstanding or the average weekly trading volume of the
Common Stock during the four calendar weeks preceding the filing of a Form 144
with respect to such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions and notice requirements and to the availability of
current public information about the Company. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding
58
<PAGE>
the sale, and who has beneficially owned for at least three years the shares
proposed to be sold, would be entitled to sell such shares under Rule 144(k)
without regard to the requirements described above.
The Securities and Exchange Commission has recently proposed reducing the
initial Rule 144 holding period to one year and the Rule 144(k) holding period
to two years. There can be no assurance as to when or whether such rule
changes will be enacted. If enacted, such modifications will have a material
effect on the times when shares of the Company's Common Stock become eligible
for resale.
The Company is unable to estimate accurately the number of Restricted Shares
that will be sold under Rule 144 since this will depend in part on the market
price for the Common Stock, the personal circumstances of the sellers and
other factors.
Rule 144A under the Securities Act would permit, subject to certain
conditions, the sale by the current holders of Restricted Shares of all or a
portion of their shares to certain "qualified institutional buyers," as
defined in Rule 144A.
The Company intends to file a Form S-8 registration statement under the
Securities Act to register all shares of Common Stock issuable under the Plan.
That registration statement is expected to be filed within 180 days after the
date of this Prospectus and is expected to become effective immediately upon
filing. Shares covered by such registration statement will be eligible for
resale in the public market after the effective date of such registration
statements, subject to Rule 144 limitations applicable to affiliates and to
the Lockup Period, if applicable.
In addition, upon completion of this Offering, the holders of 5,453,488
shares of Common Stock (including holders of warrants to purchase 86,619
shares of Common Stock) will be entitled to certain rights with respect to
registration of such shares under the Securities Act. Registration of such
shares under the Securities Act would result in such shares becoming freely
tradeable without restriction under the Securities Act (except for shares
purchased by affiliates of the Company) immediately upon the effectiveness of
such registration. See "Description of Capital Stock--Registration Rights."
59
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom UBS Securities LLC,
Hambrecht & Quist LLC and Pacific Growth Equities, Inc. are acting as
representatives (the "Representatives"), have agreed to purchase from the
Company the following respective number of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
UBS Securities LLC.................................................
Hambrecht & Quist LLC..............................................
Pacific Growth Equities, Inc.......................................
</TABLE>
<TABLE>
<S> <C>
---------
Total.......................................................... 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Common Stock offered hereby if any of such shares are
purchased. The Underwriting Agreement contains certain provisions whereby if
any Underwriter defaults in its obligation to purchase shares, and the
aggregate obligations of the Underwriters so defaulting do not exceed 10% of
the shares offered hereby, the remaining Underwriters, or some of them, must
assume such obligations.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock directly to the public at the offering
price set forth on the cover of this Prospectus, and to certain dealers at
such 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 dealers. After the public offering of the shares of
Common Stock, the offering price and other selling terms may be changed by the
Underwriters.
The Company has granted the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock to cover over-allotments, if any, at the
public offering price set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. To the extent that the Underwriters
exercise this option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of shares
of Common Stock to be purchased by it shown in the above table bears to the
total number of shares of Common Stock offered hereby. The Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters to
the extent the option is exercised.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The executive officers, directors, employees and other stockholders of the
Company who beneficially own an aggregate of 6,378,605 shares of Common Stock
outstanding prior to this Offering have agreed that they will not, without the
prior written consent of UBS Securities LLC, offer, sell or otherwise dispose
of any shares of Common Stock, options or warrants to acquire shares of Common
Stock or securities exchangeable for or convertible into shares of Common
Stock owned by them for a period of 180 days after the effective date of this
Offering. The Company has agreed that it will not, without the prior written
consent of UBS Securities LLC, offer, sell or otherwise dispose of any shares
of Common Stock, options or warrants to acquire
60
<PAGE>
shares of Common Stock for a period of 180 days after the date of this
Prospectus, except that the Company may grant additional options under its
stock option plans, or issue shares upon the exercise of outstanding stock
options.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Prior to this Offering, there has been no public market for the Common Stock.
The initial public offering price will be negotiated 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 and
economic conditions, are certain financial information of the Company, the
history of, and the prospects for, the Company and the industry in which it
competes, an assessment of the Company's management, its past and present
operations, the prospects for, and timing of, future revenues of the Company,
the present stage of the Company's development, and the above factors in
relation to market values and various valuation measures of other companies
engaged in activities similar to the Company. The initial public offering price
set forth on the cover page of this Prospectus should not, however, be
considered an indication of the actual value of the Common Stock. Such price is
subject to change as a result of market conditions and other factors. There can
be no assurance that an active trading market will develop for the Common Stock
or that the Common Stock will trade in the public market subsequent to this
Offering at or above the initial offering price.
The Company has applied for listing of the Common Stock on the Nasdaq
National Market under the symbol "CBST."
LEGAL MATTERS
Bingham, Dana & Gould LLP, Boston, Massachusetts will pass on the validity of
the shares offered hereby for the Company. Justin P. Morreale, Esq., a partner
at Bingham, Dana & Gould LLP, is the Secretary of the Company and owns 42,857
shares of Common Stock. David L. Engel, Esq., a partner at Bingham, Dana &
Gould LLP, owns 5,952 shares of Common Stock. Certain legal matters will be
passed upon for the Underwriters by Hale and Dorr, Boston, Massachusetts.
EXPERTS
The balance sheets of the Company as of December 31, 1994 and 1995 and the
related statements of operations, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995 included in this
Prospectus and in the Registration Statement have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given upon the authority of that firm as experts in accounting and auditing.
The statement in this Prospectus under the captions "Risk Factors--
Uncertainty of Patents and Proprietary Rights" and "Business--Patents and
Proprietary Rights" have been reviewed and approved by Hamilton, Brook, Smith &
Reynolds, P.C. patent counsel to the Company, as experts on such matters, and
are included herein in reliance upon that review and approval. David E. Brook,
Esq., a shareholder at Hamilton, Brook, Smith & Reynolds, P.C. owns 14,285
shares of Common Stock. Dr. Helen Wendler, an attorney at Hamilton, Brook,
Smith & Reynolds, P.C., is the spouse of Dr. Philip Wendler. Dr. Philip Wendler
owns 10,285 shares of Common Stock and has stock options exercisable for 26,142
shares of Common Stock.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 under the Securities Act of
1933, as amended (the "Securities Act") with respect to shares of Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document filed as an exhibit to the Registration Statement are qualified
in all respects by such reference. For further information with respect to the
Company
61
<PAGE>
and the Common Stock, reference is hereby made to the Registration Statement
and to the exhibits and schedules thereto, which may be inspected without
charge at the principal office of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the
Commission: the New York Regional Office located at 7 World Trade Center,
Suite 1300, New York, New York 10048 and the Chicago Regional Office located
at the Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of this material also may be obtained from the
Commission's Public Reference Section at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent public accountants
and quarterly reports for the first three quarters of each fiscal year
containing unaudited consolidated financial information.
62
<PAGE>
CUBIST PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
Balance Sheets as of December 31, 1994 and 1995, March 31, 1996
(unaudited) and March 31, 1996 Pro forma (unaudited).................... F-3
Statements of Operations for the years ended December 31, 1993, 1994 and
1995 and for the (unaudited) three month periods ended March 31, 1995
and 1996................................................................ F-4
Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and for the (unaudited) three month periods ended March 31, 1995
and 1996................................................................ F-5
Statements of Changes in Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and for the (unaudited) three month
period ended March 31, 1996............................................. F-6
Notes to Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE>
This is the form of the opinion which will be issued upon effectiveness of the
stock split described in Note M to the financial statements.
/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 25, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Cubist Pharmaceuticals, Inc.:
We have audited the accompanying balance sheets of Cubist Pharmaceuticals,
Inc. as of December 31, 1995 and 1994, and the related statements of
operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cubist Pharmaceuticals,
Inc. as of December 31, 1995 and 1994, and the results of its operations and
cash flows for each of the three years in the period ended December 31, 1995
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company has suffered recurring losses from
operations and has a net accumulated deficit that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note B. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Boston, Massachusetts
January 12, 1996, except as to the information
in Notes L and M, for which the date is , 1996
F-2
<PAGE>
CUBIST PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
MARCH 31, PRO FORMA
1994 1995 1996 MARCH 31, 1996
----------- ------------ ------------ --------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents.......... $ 1,220,983 $ 2,049,555 $ 2,192,057 $ 6,192,057
Short-term investments
..................... -- 1,006,569 -- --
Accounts receivable... -- 988,000 -- --
Prepaid expenses and
other current
assets............... 82,709 66,996 55,070 55,070
----------- ------------ ------------ ------------
Total current assets.. 1,303,692 4,111,120 2,247,127 6,247,127
Property and equipment.. 3,282,436 3,834,953 3,947,485 3,947,485
Less: Accumulated
depreciation and
amortization......... (486,246) (1,056,802) (1,209,734) (1,209,734)
----------- ------------ ------------ ------------
Property and
equipment, net....... 2,796,190 2,778,151 2,737,751 2,737,751
Other assets............ 150,181 158,571 163,571 163,571
----------- ------------ ------------ ------------
Total assets........ $ 4,250,063 $ 7,047,842 $ 5,148,449 $ 9,148,449
=========== ============ ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable...... $ 375,270 $ 124,856 $ 149,466 $ 149,466
Accrued expenses...... 647,353 189,663 264,974 264,974
Current portion of
long-term debt....... 96,997 168,565 173,672 173,672
Current portion of
capital lease
obligations.......... 276,062 413,223 433,288 433,288
----------- ------------ ------------ ------------
Total current
liabilities........ 1,395,682 896,307 1,021,400 1,021,400
Long-term debt, net of
current portion........ 346,943 479,745 434,364 434,364
Long-term capital lease
obligation, net of
current portion........ 684,587 777,017 668,988 668,988
Venture capital bridge
loan payable........... 1,000,000 -- -- --
----------- ------------ ------------ ------------
Total liabilities... 3,427,212 2,153,069 2,124,752 2,124,752
----------- ------------ ------------ ------------
Commitments (Note I)
Stockholders' Equity:
Preferred Stock non-
cumulative;
convertible--$.001 par
value; authorized
43,000,000 shares;
issued 1994 19,733,370
shares issued 1995 and
March 31, 1996
34,751,183 shares; and
no shares issued pro
forma.................. 19,733 34,751 34,751 --
Common Stock--$.001 par
value; authorized
52,000,000 shares;
issued 1994 910,027
shares; issued 1995
1,016,662 shares;
issued March 31, 1996
1,010,844 shares and
6,377,713 shares pro
forma.................. 910 1,017 1,011 6,378
Additional paid-in
capital................ 7,338,075 16,790,878 16,793,035 20,822,419
Accumulated deficit..... (6,535,867) (11,931,873) (13,805,100) (13,805,100)
----------- ------------ ------------ ------------
Total stockholders'
equity............. 822,851 4,894,773 3,023,697 7,023,697
----------- ------------ ------------ ------------
Total liabilities
and stockholders'
equity............. $ 4,250,063 $ 7,047,842 $ 5,148,449 $ 9,148,449
=========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
CUBIST PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Sponsored research
revenues............... $ -- $ -- $ 1,271,333 $ -- $ 53,667
Operating expenses:
Research and
development.......... 1,169,168 3,309,161 4,964,876 1,148,158 1,523,259
General and
administrative....... 546,843 1,448,928 1,708,513 547,715 376,665
----------- ----------- ----------- ----------- -----------
Total operating
expenses........... 1,716,011 4,758,089 6,673,389 1,695,873 1,899,924
Interest income......... 45,028 113,338 239,030 24,864 25,044
Interest expense........ (16,911) (168,284) (232,980) (49,960) (52,014)
----------- ----------- ----------- ----------- -----------
Net loss.............. $(1,687,894) $(4,813,035) $(5,396,006) $(1,720,969) $(1,873,227)
=========== =========== =========== =========== ===========
Pro forma net loss per
share (Note B)......... $ (0.86) $ (0.28)
=========== ===========
Pro forma weighted
average shares used in
computing pro forma net
loss per share (Note
B)..................... 6,265,043 6,796,988
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
CUBIST PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $(1,687,894) $(4,813,035) $(5,396,006) $(1,720,969) $(1,873,227)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 130,269 355,977 570,556 132,753 152,932
Changes in assets and
liabilities:
Accounts receivable.. -- -- (988,000) -- 988,000
Prepaid expenses and
other current
assets.............. (69,669) (12,688) 15,713 (80,882) 11,926
Other assets......... (58,112) -- (8,390) -- --
Accounts payable and
accrued expenses.... 294,930 716,018 (708,104) (534,108) 99,921
----------- ----------- ----------- ----------- -----------
Total adjustments... 297,418 1,059,307 (1,118,225) (482,237) 1,252,779
----------- ----------- ----------- ----------- -----------
Net cash used in
operating activities... (1,390,476) (3,753,728) (6,514,231) (2,203,206) (620,448)
Cash flows from
investing activities:
Purchase of equipment.. (86,612) (150,726) -- (59,782) (112,532)
Leasehold
improvements.......... (1,183,692) (688,329) (99,325) (64,936) --
Purchase of short-term
investments........... (2,612,158) -- (3,942,610) -- --
Redemption of short-
term investments...... -- 2,612,158 2,936,041 -- 1,006,569
Redemption of long-term
investments........... (511,934) 511,934 -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided
by/(used in) investing
activities............. (4,394,396) 2,285,037 (1,105,894) (124,718) 894,037
Cash flows from
financing activities:
Issuance of stock...... 6,709,690 148,314 9,467,928 5,650,603 2,151
Proceeds from venture
capital bridge loan... -- 1,000,000 -- -- --
Repayment of venture
capital bridge loan... -- -- (1,000,000) (1,000,000) --
Proceeds from long-term
debt.................. 543,393 -- 345,500 318,095 --
Repayments of long-term
debt.................. (13,373) (86,080) (141,130) -- (40,274)
Proceeds from capital
lease financing....... -- -- 94,671 -- --
Principal payments of
capital lease
obligations........... -- (212,428) (318,272) (59,158) (87,964)
Deposits relating to
capital lease
obligations........... (42,760) (5,001) -- (10,090) (5,000)
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities... 7,196,950 844,805 8,448,697 4,899,450 (131,087)
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............ 1,412,078 (623,886) 828,572 2,571,526 142,502
Cash and cash
equivalents at
beginning of year...... 432,791 1,844,869 1,220,983 1,220,983 2,049,555
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
year................... $ 1,844,869 $ 1,220,983 $ 2,049,555 $ 3,792,509 $ 2,192,057
=========== =========== =========== =========== ===========
Supplemental disclosures
of cash flow
information:
Cash paid during the
year for interest..... $ 16,911 $ 168,284 $ 232,980 $ 49,960 $ 52,014
Capital lease
obligations entered
into.................. $ 916,926 $ 256,151 $ 547,862 $ 57,750 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
CUBIST PHARMACEUTICALS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
# OF SHARES # OF SHARES # OF SHARES # OF SHARES $
PREFERRED A PREFERRED B PREFERRED C COMMON $ PREF A $ PREF B $ PREF C COMMON
----------- ----------- ----------- ----------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/92
Balance......... 5,000,000 -- -- 444,898 $5,000 -- -- $ 445
--------- ---------- ---------- ------- ------ ------- ----- ------
Common Stock
Issued to
Consultants..... 78,571 79
Series B
Preferred Stock
par $.001 at
$.50 share...... 14,270,000 $14,270
Notes Receivable
Preferred
Stock...........
MIT Agreement
2% outstanding.. 23,170 23
Exercise of
Common Stock
Options......... 223
Net Loss........
--------- ---------- ---------- ------- ------ ------- ----- ------
12/31/93
Balance......... 5,000,000 14,270,000 -- 546,862 $5,000 $14,270 -- $ 547
========= ========== ========== ======= ====== ======= ===== ======
Series B
Preferred Stock
par $.001 at
$.50 share...... 463,370 463
Common Stock par
$.007 at $.07
and $.35 share.. 60,714 61
Exercise of
Common Stock
Options......... 302,451 302
Notes Receivable
Preferred Series
B...............
Notes Receivable
Common Stock....
Issuance of
Stock Options...
Amortization of
Deferred
Compensation....
Net Loss........
--------- ---------- ---------- ------- ------ ------- ----- ------
12/31/94
Balance......... 5,000,000 14,733,370 -- 910,027 $5,000 $14,733 -- $ 910
========= ========== ========== ======= ====== ======= ===== ======
<CAPTION>
$
ADDITIONAL PAID-IN CAPITAL
------------------------------------
$ $
ISSUANCE OF NOTES DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES RECEIVABLE COMPENSATION DEFICIT EQUITY
----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
12/31/92
Balance......... $ 495,269 -- -- $ (34,938) $ 465,776
----------- ----------- ------------ ------------ -------------
Common Stock
Issued to
Consultants..... 471 550
Series B
Preferred Stock
par $.001 at
$.50 share...... 7,120,730 7,135,000
Notes Receivable
Preferred
Stock........... $(435,000) (435,000)
MIT Agreement
2% outstanding.. 9,115 9,138
Exercise of
Common Stock
Options......... 2 2
Net Loss........ (1,687,894) (1,687,894)
----------- ----------- ------------ ------------ -------------
12/31/93
Balance......... $7,625,587 $(435,000) -- ($1,722,832) $5,487,572
=========== =========== ============ ============ =============
Series B
Preferred Stock
par $.001 at
$.50 share...... 231,221 231,684
Common Stock par
$.007 at $.07
and $.35 share.. 21,189 21,250
Exercise of
Common Stock
Options......... 86,485 86,787
Notes Receivable
Preferred Series
B............... (131,685) (131,685)
Notes Receivable
Common Stock.... (65,842) (65,842)
Issuance of
Stock Options... 17,150 $(17,150)
Amortization of
Deferred
Compensation.... 6,120 6,120
Net Loss........ (4,813,035) (4,813,035)
----------- ----------- ------------ ------------ -------------
12/31/94
Balance......... $7,981,632 $(632,527) $(11,030) $(6,535,867) $ 822,851
=========== =========== ============ ============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
CUBIST PHARMACEUTICALS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
# OF SHARES # OF SHARES # OF SHARES # OF SHARES $
PREFERRED A PREFERRED B PREFERRED C COMMON $ PREF A $ PREF B $ PREF C COMMON
----------- ----------- ----------- ----------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Series C
Preferred Stock
par $.001 at
$.60 share...... 15,017,813 $15,018
Series C
Preferred Stock
Offering
Expenses........
Common Stock par
$.007 at $.35
and $.42 share.. 114,082 114
Exercise of
Common Stock
Options......... 785 1
Repurchase of
Common Stock.... (8,232) (8)
Repayment of
Notes Receivable
Preferred Series
B Notes
Receivable
Preferred Series
B...............
Notes Receivable
Common Stock....
Forgiveness of
Promissory
Notes...........
Issuance of
Stock Options...
Amortization of
Deferred
Compensation....
Net Loss
--------- ---------- ---------- --------- ------ ------- ------- ------
12/31/95
Balance......... 5,000,000 14,733,370 15,017,813 1,016,662 $5,000 $14,733 $15,018 $1,017
========= ========== ========== ========= ====== ======= ======= ======
Exercise of
Common Stock
Options......... 14,557 14
Repurchase of
Common Stock.... (20,375) (20)
Amortization of
Deferred
Compensation....
Net Loss........
--------- ---------- ---------- --------- ------ ------- ------- ------
3/31/96 Balance
(unaudited)..... 5,000,000 14,733,370 15,017,813 1,010,844 $5,000 $14,733 $15,018 $1,011
========= ========== ========== ========= ====== ======= ======= ======
<CAPTION>
$
ADDITIONAL PAID-IN CAPITAL
-------------------------------------
$ $
ISSUANCE OF NOTES DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES RECEIVABLE COMPENSATION DEFICIT EQUITY
------------ ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Series C
Preferred Stock
par $.001 at
$.60 share...... 8,995,670 9,010,688
Series C
Preferred Stock
Offering
Expenses........ (45,787) (45,787)
Common Stock par
$.007 at $.35
and $.42 share.. 47,274 47,388
Exercise of
Common Stock
Options......... 274 275
Repurchase of
Common Stock.... (2,873) (2,881)
Repayment of
Notes Receivable
Preferred Series
B Notes
Receivable
Preferred Series
B............... 435,000 435,000
Notes Receivable
Common Stock.... (4,989) (4,989)
Forgiveness of
Promissory
Notes........... 23,615 23,615
Issuance of
Stock Options... 28,020 (28,020)
Amortization of
Deferred
Compensation.... 4,619 4,619
Net Loss (5,396,006) (5,396,006)
------------ ----------- ------------ ------------- -------------
12/31/95
Balance......... $17,004,210 $(178,901) $(34,431) $(11,931,873) $4,894,773
============ =========== ============ ============= =============
Exercise of
Common Stock
Options......... 5,999 6,013
Repurchase of
Common Stock.... (8,486) (8,506)
Amortization of
Deferred
Compensation.... 4,644 4,644
Net Loss........ (1,873,227) (1,873,227)
------------ ----------- ------------ ------------- -------------
3/31/96 Balance
(unaudited)..... $17,001,723 $(178,901) $(29,787) $(13,805,100) $3,023,697
============ =========== ============ ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
A. NATURE OF BUSINESS
Cubist Pharmaceuticals, Inc. ("Cubist" or the "Company") is a
biopharmaceutical company founded in May 1992 and is engaged in the research,
development and commercialization of novel classes of antiinfective drugs to
treat infectious diseases caused by bacteria and fungi, primarily those
resistant to existing antiinfective drugs. Cubist has established multiple
technology licenses and collaborations, has established a network of advisors
and collaborators and is located in Cambridge, Massachusetts. Prior to 1995,
the Company operated as a development stage enterprise, devoting substantially
all of its efforts to establishing the new business and carrying on research
and development activities.
B. ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are stated on an accrual basis. These
financial statements have been prepared on the going-concern basis. At
December 31, 1995, the Company had an accumulated deficit of $11,931,873 and
for the year ended December 31, 1995, negative cash flows from operations of
$6,514,231. The Company's viability as a going concern is dependent upon
securing additional capital and, ultimately, on the future profitability of
the Company. As discussed in Note F, the Company has recently reached an
agreement with Pfizer Inc ("Pfizer") whereby Pfizer will fund certain research
and development activities of the Company. This agreement may also result in
an additional equity contribution by Pfizer. The Company is pursuing other,
similar opportunities which may lead to additional sponsored research and/or
equity financing. Management will also consider raising additional rounds of
equity financing from existing and potential investors from time to time. In
the long term, the Company expects this strategy will provide sufficient
future cash resources to meet the Company's needs. If the Company is
unsuccessful in its efforts to raise additional capital in the short term, it
may be unable to meet its obligations, making it necessary to undertake other
actions which may affect the carrying value of assets and liabilities stated
in these financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities, of
disclosure of contingent assets and liabilities at the date of the financial
statements, and of the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents consist of short-term interest-bearing instruments (U.S.
Government treasuries and money market accounts) with original maturities of
three months or less. These investments are carried at cost which approximates
market value.
Short-term Investments
Short-term investments, with an original maturity of more than three months
and less than one year when purchased, consisted entirely of U.S. Government
agency securities at December 31, 1995. Short-term investments, all of which
are held to maturity, are stated at amortized cost, which approximates market
value.
F-8
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
Pro Forma Balance Sheet (Unaudited)
Upon the closing of the Company's initial public offering, all of the
outstanding shares of Series A, B, C, and D Convertible preferred stock (the
"Preferred Stock") will automatically convert into 5,366,869 shares of common
stock. The unaudited pro forma presentation of the balance sheet has been
prepared reflecting the sale of Series D Convertible Preferred Stock to
Bristol-Myers Squibb Company ("Bristol-Myers Squibb") in June of 1996 and
assumes the conversion of all the Preferred Stock into Common Stock on March
31, 1996.
Pro Forma Net Loss Per Common Share (Unaudited)
The pro forma net loss per common share is computed based upon the weighted
average number of common shares and common equivalent shares (using the
treasury stock method) outstanding after certain adjustments described below.
Common equivalent shares are not included in the per share calculations where
the effect of their inclusion would be anti-dilutive, except that, in
accordance with Securities and Exchange Commission Staff Accounting Bulletin
No. 83, all common and common equivalent shares issued during the twelve-month
period prior to the filing of the initial public offering, even when anti-
dilutive, have been included in the calculation as if they were outstanding
for all periods, using the treasury stock method and the expected initial
public offering price of $12.00 per share. The pro forma net loss per common
share gives effect to the mandatory conversion of all outstanding shares of
Preferred Stock into 5,366,869 shares of Common Stock upon the closing of this
offering.
Historical Net Loss Per Common Share
Net loss per common share on a historical basis is computed in the same
manner as pro forma net loss per common share, except that Series A, B, C and
D Preferred Stock are not assumed to be converted. Net loss per common share
on a historical basis is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net loss to common
stockholders........... $(1,687,894) $(4,813,035) $(5,396,006) $(1,720,969) $(1,873,227)
Net loss per common
share.................. (1.29) (3.30) (2.97) (0.97) (1.02)
Weighted average number
of common and common
equivalent shares
outstanding............ 1,309,709 1,460,584 1,814,317 1,769,281 1,832,534
</TABLE>
Fully diluted net loss per common share is the same as primary net loss per
common share.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related
assets, generally three years for computer equipment and five years for
laboratory equipment, furniture and fixtures. Leasehold improvements are
stated at cost and are amortized over the lesser of the life of the lease or
their estimated useful lives. The leasehold improvements are also utilized as
collateral up to a value of $648,310, which relates to the balance of long-
term debt. Maintenance and repairs are charged to expense as incurred, while
major betterments are capitalized. When assets are retired or otherwise
disposed of, the assets and related allowances for depreciation and
amortization are eliminated from the accounts and any resulting gain or loss
is reflected in income.
F-9
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
Research and Development
All research and development costs are expensed as incurred.
Income Taxes
Research and experimentation and other tax credits, when utilized, will be
recorded using the flow-through method of accounting as a reduction of the
current provision for federal and state income taxes.
Reclassification
Certain amounts in the 1994 financial statements have been reclassified to
conform to the current year presentation.
Interim Financial Statements
The balance sheet as of March 31, 1996, the statement of operations and cash
flows for the three months ended March 31, 1996 and 1995 and the statement of
changes in stockholder's equity for the three months ended March 31, 1996 are
unaudited, have been prepared on a basis substantially consistent with the
audited financial statements and, in the opinion of management, include all
adjustments (consisting of normal, recurring adjustments) necessary for a fair
presentation of results for these interim periods. The results for the three
months ended March 31, 1996 are not necessarily indicative of results to be
expected for the entire year, although the Company expects to incur a
significant loss for the year ending December 31, 1996.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." This standard is effective for financial statements for
fiscal years beginning after December 15, 1995. The Company's analysis of this
new standard indicates that it will not have a material effect on the
Company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which encourages companies to
recognize compensation expense in the statement of operations based on the
fair value of the underlying common stock at the date the awards are granted.
However, it will permit continued accounting under APB Opinion 25, "Accounting
for Stock Issued to Employees," accompanied by a disclosure of the pro forma
effects on net income/(loss) and earnings per share had the new accounting
rules been applied. The statement is effective for fiscal year 1996. The
Company has determined that it will elect the disclosure-only alternative
permitted under SFAS No. 123. The Company will be required to disclose pro
forma net income and pro forma earnings per share in the footnotes using the
fair value based method beginning in 1996 with comparable disclosures for
1995. The Company has not determined the impact of the pro forma adjustments
to its net income or earnings per share.
C. PROPERTY AND EQUIPMENT
At December 31, property and equipment consisted of:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Leasehold improvements............................... $1,967,156 $2,066,480
Laboratory equipment................................. 930,254 1,319,606
Furniture and fixtures............................... 216,921 226,891
Computer equipment................................... 168,105 221,976
---------- ----------
3,282,436 3,834,953
Less accumulated depreciation and amortization....... (486,246) (1,056,802)
---------- ----------
Property and equipment, net.......................... $2,796,190 $2,778,151
========== ==========
</TABLE>
F-10
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
D. ACCRUED EXPENSES
At December 31, accrued expenses consisted of:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Payroll and benefits...................................... $ 53,824 $ 57,723
Vacation.................................................. 41,863 40,255
Construction.............................................. 488,000 --
Legal, audit and patent................................... 63,666 80,185
Utilities................................................. -- 11,500
-------- --------
Total accrued expenses.................................... $647,353 $189,663
======== ========
</TABLE>
E. LICENSE AGREEMENT
The Company has entered into two agreements with the Massachusetts Institute
of Technology ("MIT"), pursuant to which MIT has granted the Company exclusive
worldwide licenses to certain patent rights owned by MIT. The Company has the
right to sell or license worldwide any product or process derived from these
patent rights. In return for these licenses, the Company has paid to MIT
license issue fees of $50,000 and $75,000, respectively. The Company also has
paid license maintenance fees of $25,000 in total each year commencing January
1, 1994. In addition, the Company issued shares of common stock equal to 2% of
the outstanding common and preferred shares at the completion of the Series B
round of financing and will pay royalties from future sales. License fees are
expensed as incurred.
F. COLLABORATIVE RESEARCH AGREEMENT
On December 15, 1995, the Company entered into a collaborative research
agreement with Pfizer. Under the terms of the agreement, Pfizer is required to
pay the Company a technology licensing fee upon execution and research support
payments. These payments are recognized as income earned under the terms of
the agreement. In addition, Pfizer will reimburse the Company for expenses
related to the screening of Pfizer compounds against the Company's targets and
certain milestone payments. These payments are recognized as revenue when the
related expenses are incurred. The Company has included in sponsored research
revenues the technology licensing fee and certain research and development
revenues in accordance with the agreement during 1995. Pfizer also has an
option to initiate a drug discovery program using compounds from the drug
screening program. Upon initiation of a drug discovery program, Pfizer is
obligated to purchase $5,000,000 of the Company's Preferred Stock.
G. STOCKHOLDERS' EQUITY
Preferred Stock
The Company's Preferred Stock is convertible to Common Stock at a rate of 1
common share to 7 preferred shares (refer to footnote M) at the option of the
shareholder or upon the first public offering where proceeds exceed
$15,000,000 and the per share price exceeds $10.92. No shares of Common Stock
have been reserved for conversion. The Company has also granted warrants to
purchase 240,500 shares of Series B Convertible Preferred Stock at a purchase
price of $0.50, 92,500 shares of Series C Convertible Preferred Stock at a
purchase price of $0.60 and 33,333 shares of Series C Convertible Preferred
Stock at a purchase price of $0.90 per share. These warrants expire on either
the fifth anniversary of the closing of an initial public offering of the
Company's Common Stock or on August 30, 2003, February 28, 2005 and February
26, 2006, respectively, whichever is earlier.
F-11
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
Common Stock
As of December 31, 1995, 1,016,662 shares of Common Stock were issued to
employees, scientific founders and consultants of the Company. Certain of
these shares issued are subject to repurchase, at the Company's option, at the
original issuance price in accordance with vesting provisions upon termination
of the relationship. At December 31, 1995, 306,350 shares remain subject to
repurchase.
Notes Receivable from Related Parties
The Company has accepted promissory notes from the Chief Executive Officer
in consideration for the Preferred Stock and Common Stock options issued to
him. The aggregate amount of these notes is $178,901 and is reflected in
stockholders' equity as a reduction to paid-in capital. These notes have an
annual interest rate of 4% and fall due between July 21, 1996 and November 28,
1997.
H. STOCK OPTIONS
The Company has a stock option plan under which options to purchase 571,428
shares of its Common Stock may be granted to employees, directors, officers or
consultants. The options are granted at fair market value on the date of the
grant as determined by the Board of Directors, vest ratably over a four-year
period and expire ten years from the date of grant. In addition, the Company
has issued to certain consultants and directors nonqualified stock options to
purchase 73,428 shares of its Common Stock. During 1995 and 1994, the Company
has allowed employees and consultants to exercise their full grants to take
advantage of certain favorable tax benefits. The Company has reserved the
right to repurchase any unearned shares at the original purchase price if the
employee or consultant does not fulfill their vesting requirement.
From inception to December 31, 1995, the Company granted options for 380,857
shares (net of cancellations and repurchased shares) under its stock option
plan at prices ranging from $0.07 to $0.42 per share, of which options for
255,371 shares were exercised at prices ranging from $0.07 to $0.42. There
were 25,617 employee shares exercisable at year-end (32,303 shares at December
31, 1994). The Company has granted options for 73,428 shares to consultants
and directors outside of its stock option plan, of which 39,857 options were
exercised since inception. Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
SHARES OPTION PRICE
------- ------------
<S> <C> <C>
Outstanding at December 31, 1993........................ 124,571 $.07-$.35
Granted............................................... 227,335 $.07-$.35
Exercised............................................. 302,451 $.07-$.35
Cancelled............................................. 7,241 $.07-$.35
------- ---------
Outstanding at December 31, 1994........................ 42,214 $.07-$.35
Granted............................................... 121,442 $.07-$.42
Exercised............................................. 785 $.07-$.35
Cancelled............................................. 3,814 $.07-$.35
------- ---------
Outstanding at December 31, 1995........................ 159,057 $.07-$.42
Granted............................................... 82,721 $ .42
Exercised............................................. 26,435 $.35-$.42
Cancelled............................................. 4,285 $ .35
------- ---------
Outstanding at March 31, 1996 (unaudited)............... 211,058 $.07-$.42
======= =========
</TABLE>
During 1995, 8,232 shares of previously exercised options were repurchased
because vesting schedules were not fulfilled. These options were originally
exercised during 1994.
F-12
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
I. LEASE COMMITMENTS
The Company leases its facilities under an operating lease agreement which
expires on September 15, 2003 and is renewable at the Company's option for one
additional five-year period. Under the terms of the lease, the Company is
obligated to pay its prorated share of common operating expenses and real
estate taxes as well as base rents. In addition, the Company entered into an
amendment to the agreement with the landlord under which the landlord provided
financing to the Company for a portion of the buildout cost ($543,393) at an
interest rate of 12% per year payable in equal monthly installments of $19,773
over five years through October 1998, and $7,685 thereafter through February
2000. At December 31, 1995, the outstanding principal balance was $347,070.
The Company also provided a security deposit of $100,000 upon execution of the
lease. The security deposit bears interest in a segregated account, and is
partially refundable ($79,000 plus interest) upon the fifth anniversary, and
fully refundable plus interest within thirty days after the expiration of the
lease, provided no event of default has occurred. The Company has also
financed an additional $345,500 during the first quarter of 1995 relating to a
6,510 square foot facility expansion completed during the first week of
January 1995. This additional debt is payable over five years with an annual
interest rate of 12%. No additional security deposit was required. At December
31, 1995, the outstanding principal balance was $301,240.
The Company leases certain laboratory equipment under long-term capital
leases. The cost of this equipment included in fixed assets was $1,720,940 at
the end of 1995 and $1,173,078 at the end of 1994, with associated accumulated
depreciation of $627,366 at December 31, 1995 and $302,621 at December 31,
1994. The Company has an option to purchase all of the leased equipment at a
price to be negotiated at lease end. Future lease payments for non-cancelable
leases for the respective years ended December 31 are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES CAPITAL LEASES
---------------- --------------
<S> <C> <C>
1996 $ 148,615 $ 520,060
1997 148,615 520,060
1998 157,676 220,969
1999 179,680 105,568
2000 179,680 --
2001 and thereafter 486,444 --
---------- ----------
Total minimum lease payments $1,300,710 1,366,657
---------- ----------
Less amount representing interest payments 176,417
----------
Present value of minimum lease payments 1,190,240
Less current portion 413,223
----------
Long-term obligation $ 777,017
==========
</TABLE>
Lease payments under operating leases were $207,898 in fiscal year 1995 and
$269,991 in fiscal year 1994.
J. EMPLOYEE BENEFITS
The Company instituted a 401(k) savings plan in 1993, in which substantially
all of its permanent employees are eligible to participate. Participants may
contribute up to 15% of their annual compensation to the plan, subject to
certain limitations. The Company contributes a matching amount of up to 1.5%
of a participant's total compensation or $500 annually, whichever is less. The
Company contributed $14,072 during 1995 and $9,524 during 1994.
F-13
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
K. INCOME TAXES
The Company follows the liability method of accounting for income taxes in
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes," whereby a deferred tax
liability is measured by the enacted tax rates which will be in effect when
any differences between the financial statements and tax basis of assets
reverse. The deferred tax liability can be reduced by net operating losses
being carried forward for tax purposes.
At December 31, 1995, the Company had available federal and state net
operating loss carryforwards of approximately $11,678,000. The federal and
state net operating loss and tax credit carryforwards begin to expire in the
years 2007 and 1997, respectively. Research and experimentation tax credits of
approximately $325,000 begin to expire in 2008. The net operating loss
carryforwards may be subject to an annual limitation in any given year in the
event of certain occurrences, including significant changes in ownership. The
Company has established a valuation reserve against the deferred tax benefit
arising from these carryforwards due to the uncertainty of earning sufficient
taxable income to receive the benefit and accordingly has not given
recognition to these tax benefits in these financial statements. These
carryforwards are also subject to review by the Internal Revenue Service.
L. SUBSEQUENT EVENTS
Collaborative Agreements
In June 1996, the Company entered into a collaborative research agreement
with Bristol-Myers Squibb. Under the terms of the agreement, Bristol-Myers
Squibb purchased from the Company $4,000,000 of the Company's Preferred Stock
upon execution of the agreement, and has agreed to make payments to the
Company upon the achievement of certain milestones. These milestone payments
are recognized as income as earned under the terms of the agreement. In
addition, Bristol-Myers Squibb will reimburse the Company for research and
development expenses relating to the production of certain targets and also
for expenses relating to the screening of Bristol-Myers Squibb compounds
against the Company's targets over three years, with an option to fund a
fourth year. These payments are recognized as revenue when the related
expenses are incurred.
In June 1996, the Company entered into a collaborative research agreement
with Merck & Co., Inc. ("Merck"). Under the terms of the agreement, Merck will
pay the Company a technology licensing fee upon execution and certain
milestone payments. These payments are recognized as income as earned under
the terms of the agreement. In addition, Merck will reimburse the Company for
research and development expenses relating to the production of certain
targets; for expenses relating to the screening of Merck compounds against the
Company's targets; and for expenses relating to compound optimization. These
payments are recognized as revenue when the related expenses are incurred.
Common Stock Option Grants
On May 28, 1996, the Company granted 214,285 incentive stock options to
certain employees of the Company at a purchase price of $1.96 per share. In
addition, the Company issued 42,857 shares of non-qualified options at an
exercise price of $1.96 per share to directors of the Company. In addition, in
June, the Company increased the options available for grant under the Amended
and Restated 1993 Stock Option Plan to 1,500,000 shares.
F-14
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
Warrants
During February 1996, the Company issued a warrant exercisable for 33,333
shares of Series C Convertible Preferred Stock (convertible to Common Stock
upon the closing of the Company's initial public offering) to Comdisco, Inc. in
conjunction with a $500,000 increase of the Company's equipment lease line over
1996.
M. STOCK SPLIT
In July 1996, the Company effected a 1-for-7 reverse common stock split.
Accordingly, all share and per share amounts have been adjusted to reflect the
stock split as though it had occurred at the beginning of the initial period
presented.
F-15
<PAGE>
INHIBITION OF AMINOACYL - TRNA SYNTHETASE
Amino Acid Inhibitor
Aminoacyl - tRNA Synthetase
tRNA
Charged tRNA Inhibited
Synthetase
Protein Synthesis Inhibition of Protein
Synthesis
Binding of an amino acid
to the aminoacyl -tRNA Binding of an inhibitor to
synthetase leads to the the aminoacyl - tRNA
formation of charged synthetase alters the
tRNA and protein synthetase structure,
synthesis. blocks amino acid binding
and prevents the formation
of charged tRNA, thereby
inhibiting protein
synthesis.
- --------------------------------------------------------------------------------
AMINOACYL - TRNA SYNTHETASE TARGETS FOR DRUG DISCOVERY
S.
aureus
E.
faecalis
C.
albicans
H.
influenzae
S.
pneumoniae
E. coli
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Aminoacyl - tRNA Synthetases
Elevated cubes represent certain screening leads that exhibit significant
inhibitory activity against specific aminoacyl - tRNA synthetase targets.
Glutamine - tRNA synthetase, shown in black, is not present in certain
pathogens.
<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 in
connection with the offer made by this Prospectus and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Company or the Underwriter. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that the information herein is correct as of any time subsequent to the date
of this Prospectus.
--------------
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Financial Data.................................................. 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 21
Management............................................................... 45
Certain Transactions..................................................... 51
Principal Stockholders................................................... 53
Description of Capital Stock............................................. 55
Shares Eligible for Future Sale.......................................... 58
Underwriting............................................................. 60
Legal Matters............................................................ 61
Experts.................................................................. 61
Additional Information................................................... 61
Index to Financial Statements............................................ F-1
</TABLE>
Until , 1996 (25 days after the date of the Prospectus), all dealers
effecting transactions in the registered securities, 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]
CUBIST PHARMACEUTICALS, INC.
COMMON STOCK
--------------------
PROSPECTUS
, 1996
--------------------
UBS SECURITIES
HAMBRECHT & QUIST
PACIFIC GROWTH EQUITIES, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses of the Registrant in connection with the issuance and distribution
of the securities being registered, other than the underwriting discount, are
estimated as follows:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee............................................... $ 12,888
NASD Fees.......................................................... 4,238
Nasdaq National Market Listing Fees................................ 39,696
Printing and Engraving Expenses.................................... 100,000
Legal Fees and Expenses............................................ 225,000
Accountants' Fees and Expenses..................................... 125,000
Expenses of Qualification Under State Securities Laws, Including
Attorneys' Fees................................................... 20,000
Transfer Agent and Registrar's Fees................................ 10,000
Miscellaneous Costs................................................ 63,178
--------
Total.......................................................... $600,000
========
</TABLE>
- --------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify its officers and directors and certain other persons
to the extent and under the circumstances set forth therein.
The Restated Certificate of Incorporation and the Amended and Restated By-
Laws of the Company, copies of which are filed herein as Exhibit 3.3 and 3.4,
provide for advancement of expenses and indemnification of officers and
directors of the Registrant and certain other persons against liabilities and
expenses incurred by any of them in certain stated proceedings and under
certain stated conditions to the fullest extent permissible under Delaware
law.
Section 9 of the Underwriting Agreement between the Registrant and the
Underwriters, a copy of which is filed herein as Exhibit 1.1, will provide for
indemnification by the Registrant of the Underwriters and each person, if any,
who controls any Underwriter, against certain liabilities and expenses, as
stated therein, which may include liabilities under the Securities Act of
1933. The Underwriting Agreement also provides that the Underwriters shall
similarly indemnify the Registrant, its directors, officers and controlling
persons, as set forth therein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Described below is information regarding all unregistered securities of the
Company sold by the Company within the past three years. The share and per
share amounts set forth below have been adjusted to reflect the Company's one
for seven reverse stock split to occur prior to the consummation of this
Offering.
Between incorporation (May 1992) and June 1996, the Company has issued and
sold an aggregate of approximately 455,924 shares of its Common Stock, at
prices ranging from $0.007 to $0.42 per share, with an aggregate offering
price of approximately $149,328 to certain of its officers, employees and
consultants. The offers and sales of these shares were made in reliance upon
Rule 701 promulgated under the Securities Act and are deemed to be exempt
transactions as sales of an issuer's securities pursuant to a written plan or
contract relating to the compensation of such individuals and upon Section
4(2) of the Securities Act as transactions not involving any public offering.
II-1
<PAGE>
From its incorporation (May 1992) to June 1996, the Registrant has entered
into stock option agreements with certain employees, officers, directors and
consultants to the Company covering approximately 844,253 shares of its Common
Stock pursuant to the Registrant's Amended and Restated 1993 Stock Option Plan.
The purchase price under the options is $0.007 to $5.95 per share based on the
fair market value of the Common Stock on the date of grant. These grants and
sales were made in reliance upon Rule 701 under the Securities Act and are
deemed to be exempt transactions as sales of an issuer's securities pursuant to
a written contract relating to the compensation of such individuals.
In August 1993, the Registrant issued and sold an aggregate of 14,270,000
shares of Series B Convertible Preferred Stock (convertible into 2,038,571
shares of Common Stock) at a purchase price of $0.50 per share ($3.50 per share
on an as-converted basis), to a group of investors. The issuance and sales of
such shares of Series B Convertible Preferred Stock were made in reliance upon
Rule 506 of Regulation D promulgated under the Securities Act and Section 4(2)
of the Securities Act.
In August 1993, the Registrant issued a warrant for the purchase of 240,500
shares of Series B Convertible Preferred Stock (convertible into 34,357 shares
of Common Stock) at an exercise price of $0.50 per share to Comdisco ($3.50 per
share on an as-converted basis). In January 1994, the Company issued and sold
an aggregate of 200,000 shares of Series B Convertible Preferred Stock
(convertible into 28,571 shares of Common Stock) at a purchase price of $0.50
per share ($3.50 per share on an as-converted basis) to Comdisco, Inc. The
issuance and sale of such warrant and shares for the purchase of Series B
Convertible Preferred Stock were made in reliance upon Section 4(2) of the
Securities Act.
In January 1994, the Registrant issued and sold 39,496 shares of Common Stock
to the Massachusetts Institute of Technology ("MIT") pursuant to a License
Agreement between MIT and the Company. The issuance and sale of such shares of
Common Stock were made in reliance upon Section 4(2) of the Securities Act.
In July 1994, the Registrant issued and sold 263,370 shares of Series B
Preferred Stock (convertible into 37,624 shares of Common Stock) at a purchase
price of $0.50 per share ($3.50 per share on an as-converted basis) to Dr.
Scott M. Rocklage, President, Chief Executive Officer and a director of the
Company. The issuance and sale of such shares of Series B Preferred Stock were
made in reliance upon Section 4(2) of the Securities Act.
In December 1994, the Registrant issued $1,000,000 of Convertible Demand
Promissory Notes (the "Notes") to a group of investors. The Notes were issued
in reliance upon Section 4(2) of the Securities Act. The entire amount of
indebtedness was converted to 1,684,644 shares of Series C Convertible
Preferred Stock (convertible into approximately 240,663 shares of Common Stock)
in connection with an offering of Series C Convertible Preferred Stock in
February 1995.
In February 1995, the Registrant issued and sold an aggregate of 7,744,000
shares of Series C Convertible Preferred Stock (convertible into approximately
1,106,285 shares of Common Stock) to a group of investors, at a purchase price
of $0.60 per share ($4.20 per share on an as-converted basis). In addition, the
Registrant issued a warrant to Comdisco, Inc. to purchase 92,500 shares
(convertible into 13,214 shares of Common Stock) at an exercise price of $0.60
per share ($4.20 per share on an as-converted basis). The issuance and sales of
such shares of Series C Convertible Preferred Stock were made in reliance upon
Rule 506 of Regulation D promulgated under the Securities Act and Section 4(2)
of the Securities Act.
In May 1995, the Registrant issued and sold an aggregate of 5,589,169 shares
of Series C Convertible Preferred Stock (convertible into approximately 798,452
shares of Common Stock) at a purchase price of $0.60 per share ($4.20 per share
on an as-converted basis) to a group of investors. In addition, the Registrant
issued options to each of Dr. Schimmel and Dr. Rebek, to purchase 120,000
shares of Series C Convertible Preferred Stock (convertible into 17,142 shares
of Common Stock) at an exercise price of $0.60 per share ($4.20 per share on an
as-converted basis). The issuance and sales of such shares of and options for
Series C Convertible Preferred Stock were made in reliance upon Rule 506 of
Regulation D promulgated under the Securities Act and Section 4(2) of the
Securities Act.
II-2
<PAGE>
In February 1996, the Registrant issued a warrant to Comdisco, Inc. for up
to 33,333 shares of Series C Convertible Preferred Stock (convertible into
4,761 shares of Common Stock) at an exercise price of $0.90 per share ($6.30
per share on an as-converted basis). The issuance and sale of such shares of
Series C Convertible Preferred Stock were made in reliance upon Section 4(2)
of the Securities Act.
In June 1996, the Registrant issued 2,816,902 shares of Series D Convertible
Preferred Stock (convertible into 402,414 shares of Common Stock) to Bristol-
Myers Squibb Company at a purchase price of $1.42 per share ($9.94 per share
on an as-converted basis). The issuance and sale of such shares of Series D
Convertible Preferred Stock were made in reliance upon Section 4(2) of the
Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
1.1 Proposed Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant.
3.2 Form of Certificate of Amendment to the Restated Certificate of
Incorporation of the Registrant (to be filed with the Secretary of
State of the State of Delaware prior to the effectiveness of the
Registration Statement).
3.3 Form of Restated Certificate of Incorporation of the Registrant (to
be filed with the Secretary of State of the State of Delaware upon
the closing of the Offering).
3.4 Amended and Restated By-Laws of the Registrant, as amended to date.
*4.1 Specimen certificate for shares of Common Stock.
4.2 Description of Capital Stock (contained in the Restated Certificate
of Incorporation of the Corporation of the Registrant, filed as
Exhibit 3.3).
*5.1 Opinion of Bingham, Dana & Gould LLP, with respect to the legality of
the shares being registered.
**10.1 (a) License Agreement between the Registrant and the Massachusetts
Institute of Technology, dated November 4, 1992, as amended by the
First Amendment, dated January 20, 1995, and the Second Amendment,
dated May 17, 1995.
(b) Patent License Agreement between the Registrant and the
Massachusetts Institute of Technology, dated July 21, 1994.
**10.2 License Agreement between the Registrant and the Board of Trustees of
the Leland Stanford Junior University, dated April 1, 1994.
10.3 Employment Agreement between the Registrant and Scott M. Rocklage,
dated June 20, 1994.
10.4 Consulting Agreement between the Registrant and Paul R. Schimmel,
dated May 1, 1992.
10.5 Consulting Agreement between the Registrant and Julius Rebek, Jr.,
dated May 1, 1992.
*10.6 Amended and Restated 1993 Stock Option Plan.
**10.7 Collaborative Research Agreement between the Registrant and Pfizer
Inc, dated December 15, 1995.
**10.8 Collaborative Research and License Agreement between the Registrant
and Merck & Co., Inc., dated June 13, 1996.
**10.9 Collaborative Research and License Agreement between the Registrant
and Bristol-Myers Squibb Company and the Registrant, dated June 25,
1996.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
**10.10 Supply and Services Agreement, dated as of November 1, 1995, by and
between Terrapin Technologies, Inc. and the Registrant.
10.11 Screening Agreement, dated November 28, 1995, between the Registrant
and Monsanto Company.
**10.12 Letter Agreement, dated January 18, 1996, between Pharm-Eco
Laboratories, Inc. and the Registrant.
10.13 Agreement with ArQule, Inc., dated June 4, 1996.
10.14 Lease Agreement between Registrant and Harry F. Stimpson III, trustee
under the will of Harry F. Stimpson dated April 30, 1993, regarding
24 Emily Street, Cambridge, MA., as amended by the First Amendment to
Lease, dated September 19, 1994.
10.15 Form of Employee Confidentiality and Non Disclosure Agreement.
10.16 Master Lease Agreement between the Registrant and Comdisco, Inc.,
dated as of August 30, 1993, as amended on February 7, 1995, and as
further amended on February 26, 1996.
10.17 Series B Convertible Preferred Stock Purchase Warrant between the
Registrant and Comdisco, Inc., dated August 30, 1993.
10.18 Series C Convertible Preferred Stock Purchase Warrants between the
Registrant and Comdisco, Inc., dated February 28, 1995 and February
26, 1996.
10.19 Form of Series C Convertible Preferred Stock Purchase Option issued
to each of Dr. Paul Schimmel and Dr. Julius Rebek, Jr. in May, 1995.
10.20 Amended and Restated Shareholders' Rights Agreement by and among the
Registrant and the parties signatory thereto.
11 Computation of Income Per Share.
*23.1 Consent of Bingham, Dana & Gould LLP (included in Exhibit 5).
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Hamilton, Brook, Smith & Reynolds, P.C.
24.1 Power of Attorney (included in signature page to Registration
Statement).
27 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Confidential Treatment requested as to certain portions.
(b) Financial Statement Schedules:
All financial statement schedules have been omitted because either they are
not required, are not applicable, or the information is otherwise set forth in
the Financial Statements and Notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions described in Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
The undersigned registrant hereby undertakes:
(1) To provide the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.
(2) That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(3) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT, CUBIST PHARMACEUTICALS, INC., CERTIFIES THAT IT HAS REASONABLE
GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-
1 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CAMBRIDGE,
COMMONWEALTH OF MASSACHUSETTS, ON THIS 25TH DAY OF JUNE, 1996.
Cubist Pharmaceuticals, Inc.
/s/ Scott M. Rocklage
By: _________________________________
SCOTT M. ROCKLAGE
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby appoint each of Scott M.
Rocklage and Thomas A. Shea severally, acting alone and without the other, his
true and lawful attorney-in-fact with the authority to execute in the name of
each such person, any and all amendments (including without limitation, post-
effective amendments) to this Registration Statement on Form S-1, to sign any
and all additional registration statements relating to the same offering of
securities as this Registration Statement that are filed pursuant to Rule
462(b) of the Securities Act, and to file such registration statements with
the Securities and Exchange Commission, together with any exhibits thereto and
other documents therewith, necessary or advisable to enable the registrant to
comply with the Securities Act, and any rules, regulations and requirements of
the Securities and Exchange Commission in respect thereof, which amendments
may make such other changes in the Registration Statement as the aforesaid
attorney-in-fact executing the same deems appropriate.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
/s/ Scott M. Rocklage President, Chief June 25, 1996
- ------------------------------------- Executive Officer
SCOTT M. ROCKLAGE and Director
(Principal
Executive Officer)
/s/ Thomas A. Shea Treasurer (Principal June 25, 1996
- ------------------------------------- Financial and
THOMAS A. SHEA Accounting Officer)
/s/ John K. Clarke Chairman of the June 25, 1996
- ------------------------------------- Board of Directors
JOHN K. CLARKE
II-6
<PAGE>
SIGNATURE TITLE DATE
/s/ Barry Bloom Director June 25, 1996
- -------------------------------------
BARRY BLOOM
/s/ George Conrades Director June 25, 1996
- -------------------------------------
GEORGE CONRADES
/s/ Ellen M. Feeney Director June 25, 1996
- -------------------------------------
ELLEN M. FEENEY
/s/ Terrance G. McGuire Director June 25, 1996
- -------------------------------------
TERRANCE G. MCGUIRE
/s/ Julius Rebek, Jr Director June 25, 1996
- -------------------------------------
JULIUS REBEK, JR
/s/ Paul R. Schimmel Director June 25, 1996
- -------------------------------------
PAUL R. SCHIMMEL
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S> <C>
1.1 Proposed Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant.
3.2 Form of Certificate of Amendment to the Restated Certificate of
Incorporation of the Registrant (to be filed with the Secretary
of State of the State of Delaware prior to the effectiveness of
the Registration Statement).
3.3 Form of Restated Certificate of Incorporation of the Registrant
(to be filed with the Secretary of State of the State of
Delaware upon the closing of the Offering).
3.4 Amended and Restated By-Laws of the Registrant, as amended to
date.
*4.1 Specimen certificate for shares of Common Stock.
4.2 Description of Capital Stock (contained in the Restated
Certificate of Incorporation of the Corporation of the
Registrant, filed as Exhibit 3.3).
*5.1 Opinion of Bingham, Dana & Gould LLP, with respect to the
legality of the shares being registered.
**10.1 (a) License Agreement between the Registrant and the
Massachusetts Institute of Technology, dated November 4, 1992,
as amended by the First Amendment, dated January 20, 1995, and
the Second Amendment, dated May 17, 1995.
(b) Patent License Agreement between the Registrant and the
Massachusetts Institute of Technology, dated July 21, 1994.
**10.2 License Agreement between the Registrant and the Board of
Trustees of the Leland Stanford Junior University, dated April
1, 1994.
10.3 Employment Agreement between the Registrant and Scott M.
Rocklage, dated June 20, 1994.
10.4 Consulting Agreement between the Registrant and Paul R.
Schimmel, dated May 1, 1992.
10.5 Consulting Agreement between the Registrant and Julius Rebek,
Jr., dated May 1, 1992.
*10.6 Amended and Restated 1993 Stock Option Plan.
**10.7 Collaborative Research Agreement between the Registrant and
Pfizer Inc, dated December 15, 1995.
**10.8 Collaborative Research and License Agreement between the
Registrant and Merck & Co., Inc., dated June 13, 1996.
**10.9 Collaborative Research and License Agreement between the
Registrant and Bristol-Myers Squibb Company and the Registrant,
dated June 25, 1996.
**10.10 Supply and Services Agreement, dated as of November 1, 1995, by
and between Terrapin Technologies, Inc. and the Registrant.
10.11 Screening Agreement, dated November 28, 1995, between the
Registrant and Monsanto Company.
**10.12 Letter Agreement, dated January 18, 1996, between Pharm-Eco
Laboratories, Inc. and the Registrant.
10.13 Agreement with ArQule, Inc., dated June 4, 1996.
10.14 Lease Agreement between Registrant and Harry F. Stimpson III,
trustee under the will, of Harry F. Stimpson dated April 30,
1993, regarding 24 Emily Street, Cambridge, MA., as amended by
the First Amendment to Lease, dated September 19, 1994.
10.15 Form of Employee Confidentiality and Non Disclosure Agreement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
10.16 Master Lease Agreement between the Registrant and Comdisco, Inc.,
dated as of August 30, 1993, as amended on February 7, 1995, and as
further amended on February 26, 1996.
10.17 Series B Convertible Preferred Stock Purchase Warrant between the
Registrant and Comdisco, Inc., dated August 30, 1993.
10.18 Series C Convertible Preferred Stock Purchase Warrants between the
Registrant and Comdisco, Inc., dated February 28, 1995 and February
26, 1996.
10.19 Form of Series C Convertible Preferred Stock Purchase Option issued
to each of Dr. Paul Schimmel and Dr. Julius Rebek, Jr. in May, 1995.
10.20 Amended and Restated Shareholders' Rights Agreement by and among the
Registrant and the parties signatory thereto.
11 Computation of Income Per Share.
*23.1 Consent of Bingham, Dana & Gould LLP (included in Exhibit 5).
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Hamilton, Brook, Smith & Reynolds, P.C.
24.1 Power of Attorney (included in signature page to Registration
Statement).
27 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment
**Confidential Treatment requested as to certain portions.
<PAGE>
H&D Draft of 6/11/96
[ ] Shares
CUBIST PHARMACEUTICALS, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
June __, 1996
UBS Securities LLC
Hambrecht & Quist LLC
Pacific Growth Equities, Inc.
As Representatives of the Several Underwriters
c/o UBS Securities LLC
299 Park Avenue
New York, NY 10171
Ladies and Gentlemen:
Cubist Pharmaceuticals, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell [ ] shares (the "Firm Shares") of its authorized
but unissued Common Stock, $.001 par value per share (the "Common Stock"), to
the several underwriters listed on Schedule A to this Agreement (collectively,
----------
the "Underwriters"). The Company also proposes to grant to the Underwriters an
option to purchase up to [ ] additional shares (the "Option Shares")
of Common Stock on the terms and for the purposes set forth in Section 3(c).
The Firm Shares and the Option Shares are hereinafter collectively referred to
as the "Shares."
The Company wishes to confirm as follows its agreements with you (the
"Representatives") and the other Underwriters on whose behalf you are acting in
connection with the several purchases by the Underwriters of the Shares.
1. Registration Statement. A registration statement on Form S-1
(File No. 333-[ ]) including a prospectus relating to the Shares and each
amendment thereto has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses subject
-1-
<PAGE>
to completion and such abbreviated registration statements pursuant to Rule
462(b) of the Rules and Regulations as may have been required prior to the date
hereof have been similarly prepared and filed with the Commission; and the
Company will file such additional amendments to such registration statement,
such amended prospectuses subject to completion and such abbreviated
registration statements as may hereafter be required. There have been delivered
to you three signed copies of such registration statement and amendments of each
related prospectus subject to completion and of any abbreviated registration
statement pursuant to Rule 462(b) of the Rules and Regulations, together with
three copies of each exhibit filed therewith. Conformed copies of such
registration statement and amendments (but without exhibits) and of the related
preliminary prospectus have been delivered to you in such reasonable quantities
as you have requested for each of the Underwriters. If such registration
statement has not become effective, a further amendment or amendments to such
registration statement, including a form of final prospectus, necessary to
permit such registration statement to become effective will be filed promptly by
the Company with the Commission. If such registration statement has become
effective, a final prospectus containing all Rule 430A Information (as
hereinafter defined) will be filed by the Company with the Commission in
accordance with Rule 424(b) of the Rules and Regulations on or before the second
business day after the date hereof (or such earlier time as may be required by
the Rules and Regulations).
The term "Registration Statement" as used in this Agreement shall mean
such registration statement (including all exhibits and financial statements and
all documents incorporated by reference therein) at the time such registration
statement becomes or became effective and, in the event any post-effective
amendment thereto becomes effective prior to the Closing Date (as hereinafter
defined), shall also mean such registration statement as so amended; provided,
however, that such term shall include all Rule 430A Information or information
included in a term sheet pursuant to Rule 434 of the Rules and Regulations and
in each case deemed to be included in such registration statement at the time
such registration statement becomes effective as provided by Rule 430A or Rule
434(d) of the Rules and Regulations and shall also mean any registration
statement filed pursuant to Rule 462(b) of the Rules and Regulations with
respect to the Shares. The term "Preliminary Prospectus" shall mean any
preliminary prospectus referred to in the preceding paragraph and any
preliminary prospectus included in the Registration Statement at the time it
becomes effective that omits Rule 430A Information. The term "Prospectus" as
used in this Agreement shall mean the prospectus relating to the Shares in the
form in which it is first filed with the Commission pursuant to Rule 424(b) of
the Rules and Regulations or, if no filing pursuant to Rule 424(b) of the Rules
and Regulations is required, shall mean the form of final prospectus included in
the Registration Statement at the time such registration statement becomes
effective provided, however, that if in reliance on Rule 434 of the Rules and
-------- -------
Regulations and with the consent of UBS Securities LLC, on behalf of the several
Underwriters, the Company shall have provided to the Underwriters a term sheet
pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
term "Prospectus" shall mean the "prospectus subject to completion" (as defined
in Rule 434(g) of the Rules and Regulations) last provided to the Underwriters
by the Company and circulated by the Underwriters to all prospective purchasers
of the Shares (including the
-2-
<PAGE>
information deemed to be a part of the Registration Statement at the time it
became effective pursuant to Rule 434(d) of the Rules and Regulations).
Notwithstanding the foregoing, if any revised prospectus shall be provided to
the Underwriters by the Company for use in connection with the offering of the
Shares that differs from the prospectus referred to in the immediately preceding
sentence (whether or not such revised prospectus is required to be filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations), the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first provided to the Underwriters for such use. For purposes of this
Agreement, all references to the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement to any of the
foregoing shall, if applicable, be deemed to include the copy filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR"). If in reliance on Rule 434 of the Rules and Regulations and
with the consent of UBS Securities LLC, on behalf of the several Underwriters,
the Company shall have provided to the Underwriters a term sheet pursuant to
Rule 434(b) or (c), as applicable, prior to the time that a confirmation is sent
or given for purposes of Section 2(10)(a) of the Act, the Prospectus and the
term sheet, together, will not be materially different from the prospectus in
the Registration Statement. The term "Rule 430A Information" means information
with respect to the Shares and the offering thereof permitted to be omitted from
the Registration Statement when it becomes effective pursuant to Rule 430A of
the Rules and Regulations. The term "Offering Memorandum" as used in this
Agreement shall mean the offering memorandum consisting of the Prospectus and
any Canadian wrap-around used in connection with the offering of the Shares in
Canada.
2. Representations and Warranties of the Company. The
Company hereby represents and warrants as follows:
(a) The Company has not received, and has no notice of, any
order of the Commission preventing or suspending the use of any Preliminary
Prospectus, or any institution of proceedings for that purpose, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the Rules and Regulations. When the
Registration Statement became or becomes, as the case may be, effective (the
"Effective Date") and at all times subsequent thereto up to and at the Closing
Date (as hereinafter defined), any later date on which Option Shares are to be
purchased (the "Option Closing Date") and when any post-effective amendment to
the Registration Statement becomes effective or any amendment or supplement to
the Prospectus is filed with the Commission, (i) the Registration Statement and
Prospectus, and any amendments or supplements thereto, will contain all
statements which are required to be stated therein by, and will comply with the
requirements of, the Act and the Rules and Regulations, (ii) each Preliminary
Prospectus and Prospectus, and any supplement thereto, delivered to the
Underwriters for use in connection with the offering of Shares contemplated
hereunder will be identical, if applicable, to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T, and (iii) none of the Registration Statement, the
Prospectus, the Offering Memorandum or any amendment or supplement thereto, will
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
-3-
<PAGE>
not misleading. The foregoing representations and warranties in this Section
2(a) do not apply to any statements or omissions made in reliance on and in
conformity with the information contained in the section of the Prospectus
entitled "Underwriting" (except for the sixth paragraph thereof) and the
information in the last paragraph on the front cover page of the Prospectus. The
Company has not distributed any offering material in connection with the
offering or sale of the Shares other than the Registration Statement, the
Preliminary Prospectus, the Prospectus, the Offering Memorandum or any other
materials, if any, permitted by the Act and applicable Canadian securities
legislation.
(b) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with full corporate power and authority to own, lease and operate its
properties and conduct its business as described in the Registration Statement.
The Company is duly qualified to do business as a foreign corporation in good
standing in each jurisdiction where the ownership or leasing of its properties
or the conduct of its business requires such qualification, except where the
failure to so qualify would not have a material adverse effect on the business,
properties, financial condition or results of operations of the Company (a
"Material Adverse Effect"). The Company has no subsidiaries (as defined in the
Rules and Regulations). The Company does not own, directly or indirectly, any
shares of stock or any other equity or long-term debt securities of any
corporation or have any equity interest in any firm, partnership, joint venture,
association or other entity. Complete and correct copies of the certificate of
incorporation and of the bylaws of the Company and all amendments thereto have
been delivered to the Representatives, and except as set forth in the exhibits
to the Registration Statement no changes therein will be made subsequent to the
date hereof and prior to the Closing Date or, if later, the Option Closing Date.
(c) The Company has full power and authority (corporate and
otherwise) to enter into this Agreement and to perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement on the part of the
Company, enforceable against the Company in accordance with its terms, except as
rights to indemnity and contribution hereunder may be limited by applicable laws
or equitable principles and except as enforcement hereof may be limited by
applicable bankruptcy, insolvency, moratorium, fraudulent conveyance,
reorganization or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles. The performance of this Agreement
by the Company and the consummation by the Company of the transactions herein
contemplated will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, (i) any material indenture,
mortgage, deed of trust, loan agreement, bond, debenture, note agreement or
other evidence of indebtedness, or any lease, contract or other agreement or
instrument to which the Company is a party or by which its properties are bound,
(ii) the certificate of incorporation or bylaws of the Company or (iii) any law,
order, rule, regulation, writ, injunction or decree of any court or governmental
agency or body to which the Company is subject. The Company is not required to
obtain or make (as the case may be) any consent, approval, authorization, order,
designation or filing by or with any court or regulatory, administrative or
other governmental agency or body as a requirement for the consummation by
-4-
<PAGE>
the Company of the transactions herein contemplated, except such as may be
required under the Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or under state securities or blue sky ("Blue Sky") laws or under
the rules and regulations of the National Association of Securities Dealers,
Inc. ("NASD") or under applicable Canadian securities law.
(d) There is not pending or, to the Company's knowledge,
threatened, any action, suit, claim, proceeding or investigation against the
Company or any of its officers or any of its properties, assets or rights before
any court or governmental agency or body or otherwise which might result in a
Material Adverse Effect or have a material adverse effect on the Company's
properties, assets or rights, or prevent consummation of the transactions
contemplated hereby. There are no statutes, rules, regulations, agreements,
contracts, leases or documents that are required to be described in the
Prospectus, or to be filed as exhibits to the Registration Statement by the Act
or by the Rules and Regulations that have not been accurately described in all
material respects in the Prospectus or filed as exhibits to the Registration
Statement.
(e) All outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws, were
not issued in violation of any preemptive right, resale right, right of first
refusal or similar right. The authorized and outstanding capital stock of the
Company conforms in all material respects to the description thereof contained
in the Registration Statement, the Offering Memorandum and the Prospectus (and
such description correctly states the substance of the provisions of the
instruments defining the capital stock of the Company). The Shares have been
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment therefor
in accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable and will be sold free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest. Except as set
forth in the Prospectus, no preemptive right, co-sale right, registration right,
right of first refusal or other similar rights of securityholders exists with
respect to any of the Shares or the issue and sale thereof other than those that
have lapsed or been expressly waived prior to the date hereof. No holder of
securities of the Company has the right to cause the Company to include such
holder's securities in the Registration Statement. No further approval or
authorization of any security holder, the Board of Directors or any duly
appointed committee thereof or others is required for the issuance and sale or
transfer of the Shares, except as may be required under the Act, the Exchange
Act or under state securities or Blue Sky laws. Except as disclosed in or
contemplated by the Prospectus, the Offering Memorandum and the financial
statements of the Company, and the related notes thereto, included in the
Prospectus, and the Offering Memorandum, the Company does not have outstanding
any options or warrants to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's stock option and other plans or arrangements, and the options
or other rights granted and exercised thereunder, set forth in the Prospectus
and the Offering Memorandum accurately and fairly presents, in all material
respects
-5-
<PAGE>
the information required to be shown with respect to such plans, arrangements,
options and rights.
(f) Coopers & Lybrand L.L.P. (the "Accountants") , who have
examined the financial statements, together with the related schedules and
notes, of the Company filed with the Commission as a part of the Registration
Statement, which are included in the Prospectus, are independent public
accountants within the meaning of the Act and the Rules and Regulations. The
financial statements of the Company, together with the related schedules and
notes, forming part of the Registration Statement, the Offering Memorandum and
the Prospectus, fairly present the financial position and the results of
operations of the Company at the respective dates and for the respective periods
to which they apply. All financial statements, together with the related
schedules and notes, filed with the Commission as part of the Registration
Statement have been prepared in accordance with generally accepted accounting
principles as in effect in the United States consistently applied throughout the
periods involved except as may be otherwise stated in the Registration
Statement. The selected and summary financial and statistical data included in
the Registration Statement present fairly the information shown therein and have
been compiled on a basis consistent with the financial statements presented
therein. No other financial statements or schedules are required by the Act or
the Rules and Regulations to be included in the Registration Statement.
(g) Subsequent to the respective dates as of which information
is given in the Registration Statement, the Offering Memorandum and the
Prospectus, there has not been (i) any material adverse change, or any
development which, in the Company's reasonable judgment, is likely to cause a
material adverse change, in the business, properties or assets described or
referred to in the Registration Statement, or the results of operations,
condition (financial or otherwise), business or operations of the Company, (ii)
any transaction which is material to the Company, except transactions in the
ordinary course of business, (iii) any obligation, direct or contingent, which
is material to the Company, and which has been incurred by the Company, except
obligations incurred in the ordinary course of business, (iv) any change in the
capital stock or outstanding indebtedness of the Company, (v) any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company or (vi) any loss or damage (whether or not insured) to the property of
the Company which has been sustained or will have been sustained which is
material to the Company. The Company does not have any material contingent
obligation which is not disclosed in the Registration Statement.
(h) Except as set forth in the Prospectus and the Offering
Memorandum, (i) the Company has good and marketable title to all material
properties and assets described in the Prospectus and the Offering Memorandum as
owned by it, free and clear of any pledge, lien, security interest, charge,
encumbrance, claim, equitable interest, or restriction, (ii) the agreements to
which the Company is a party described in the Prospectus and the Offering
Memorandum are valid agreements, enforceable against the Company in accordance
with their terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws relating to or affecting creditors' rights generally or
-6-
<PAGE>
by general equitable principles, and, to the Company's knowledge, the other
contracting party or parties thereto are not in material breach or default under
any of such agreements and (iii) the Company has valid and enforceable leases
for the properties described in the Prospectus and the Offering Memorandum as
leased by it, and such leases conform in all material respects to the
description thereof, if any, set forth in the Registration Statement. Except as
set forth in the Prospectus and the Offering Memorandum, the Company owns or
leases all such properties as are necessary to its operations as now conducted
or proposed to be conducted.
(i) The Company now holds and at the Closing Date and any later
Option Closing Date, as the case may be, will hold, all licenses, certificates,
approvals and permits from all state, United States, foreign and other
regulatory authorities, including but not limited to the United States Food and
Drug Administration (the "FDA") and any foreign regulatory authorities
performing functions similar to those performed by the FDA, that are material to
the conduct of the business of the Company (as such business is currently
conducted), except for such licenses, certificates, approvals and permits the
failure of which to hold would not have a Material Adverse Effect, all of which
are valid and in full force and effect (and there is no proceeding pending or,
to the knowledge of the Company, threatened which may cause any such license,
certificate, approval or permit to be withdrawn, cancelled, suspended or not
renewed). The Company is not in violation of its certificate of incorporation or
bylaws, or, except for defaults or violations which would not have a Material
Adverse Effect, in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture, mortgage, loan
agreement, joint venture or other agreement or instrument to which it is a party
or by which it or any of its properties are bound, or in violation of any law,
order, rule, regulation, writ, injunction or decree of any court or governmental
agency or body, including, but not limited to, the FDA. All of the descriptions
in the Registration Statement and Prospectus of the legal and governmental
proceedings by or before the FDA or any foreign, state or local government body
exercising comparable authority are true, complete and accurate in all material
respects.
(j) The Company has filed on a timely basis all necessary
federal, state and foreign income, franchise and other tax returns and has paid
all taxes shown thereon as due, and the Company has no knowledge of any tax
deficiency which has been or might be asserted against the Company which might
have a Material Adverse Effect. All material tax liabilities are adequately
provided for within the financial statements of the Company.
(k) The Company maintains insurance of the types and in the
amounts adequate for its business and consistent with insurance coverage
maintained by similar companies in similar businesses, including, but not
limited to, insurance covering clinical trial liability, product liability and
real and personal property owned or leased against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.
(l) The Company is not involved in any labor dispute or
disturbance nor, to
-7-
<PAGE>
the knowledge of the Company, is any such dispute or disturbance
threatened. No collective bargaining agreement exists with any of the Company's
employees and, to the best of the Company's knowledge, no such agreement is
imminent.
(m) Except as described in the Prospectus and the Offering
Memorandum), the Company owns or possesses adequate licenses or other rights to
use all patents, patent applications, trademarks, trademark applications,
service marks, service mark applications, tradenames, copyrights, manufacturing
processes, formulae, trade secrets, know-how, franchises, and other material
intangible property and assets (collectively, "Intellectual Property") necessary
to the conduct of its business as conducted and as proposed to be conducted as
described in the Prospectus and the Offering Memorandum. The Company has no
knowledge of any facts which would preclude it from having rights to its patent
applications referenced in the Prospectus and the Offering Memorandum. The
Company has no knowledge that it lacks or will be unable to obtain any rights or
licenses to use any of the Intellectual Property necessary to conduct the
business now conducted or proposed to be conducted by it as described in the
Prospectus and the Offering Memorandum, except as described in the Prospectus
and the Offering Memorandum. The Prospectus and the Offering Memorandum fairly
and accurately describe the Company's rights with respect to the Intellectual
Property. The Company has not received any notice of infringement or of conflict
with rights or claims of others with respect to any Intellectual Property. The
Company is not aware of any asserted rights or patents of others which are
infringed upon by potential products or processes referred to in the Prospectus
and the Offering Memorandum in such a manner as to materially and adversely
affect the Company, except as described in the Prospectus and the Offering
Memorandum. The Company has duly and properly filed or caused to be filed with
the United States Patent and Trademark Office (the "PTO") and applicable foreign
and international patent authorities all patent applications described or
referred to in the Prospectus, and believes it has complied with the PTO's duty
of candor and disclosure for each of the United States patent applications
described or referred to in the Prospectus; the Company is unaware of any facts
which would preclude the grant of a patent from each of the patent applications
described or referred to in the Prospectus; and the Company has no knowledge of
any facts which would preclude it from having clear title to its patent
applications described or referred to in the Prospectus.
(n) The Company is conducting its business in compliance with
all of the laws, rules and regulations of the jurisdictions in which it is
conducting business, including, but not limited to, the laws, rules and
regulations administered or promulgated by the FDA.
(o) The Company is not an "investment company," or a "promoter"
or "principal underwriter" for a registered investment company, as such terms
are defined in the Investment Company Act of 1940, as amended.
(p) The Company has not incurred any liability for a fee,
commission, or other compensation on account of the employment of a broker or
finder in connection with the transactions contemplated by this Agreement other
than the underwriting discounts and
-8-
<PAGE>
commissions contemplated hereby.
(q) The Company is (i) in compliance with any and all applicable
United States, state and local and foreign environmental laws, rules,
regulations, treaties, statutes and codes promulgated by any and all
governmental authorities relating to the protection of human health and safety,
the environment or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) has received all permits, licenses or other
approvals required of it under applicable Environmental Laws to conduct its
business as currently conducted, and (iii) is in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permit
licenses or other approvals would not, individually or in the aggregate, have a
Material Adverse Effect. No action, proceeding, revocation proceeding, writ,
injunction or claim is pending or threatened relating to the Environmental Laws
or to the Company's activities involving Hazardous Materials. "Hazardous
Materials" means any material or substance (i) that is prohibited or regulated
by any environmental law, rule, regulation, order, treaty, statute or code
promulgated by any governmental authority, or any amendment or modification
thereto, or (ii) that has been designated or regulated by any governmental
authority as radioactive, toxic, hazardous or otherwise a danger to health,
reproduction or the environment.
(r) The Company has not engaged in the generation, use,
manufacture, transportation or storage of any Hazardous Materials on any of the
Company's properties or former properties, except where such use, manufacture,
transportation or storage is in compliance with Environmental Laws. No Hazardous
Materials have been treated or disposed of on any of the Company's properties or
on properties formerly owned or leased by the Company during the time of such
ownership or lease, except in compliance with Environmental Laws. No spills,
discharges, releases, deposits, emplacements, leaks or disposal of any Hazardous
Materials have occurred on or under or have emanated from any of the Company's
properties or former properties.
(s) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets and
reasonable and appropriate action is taken with respect to any differences.
(t) The Company has not at any time during the last five years
(i) made any unlawful contribution to any candidate for foreign office, or
failed to disclose fully any contribution in violation of law, or (ii) made any
payment to any foreign, United States or state governmental officer or official,
or other person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States.
-9-
<PAGE>
(u) The Common Stock is, or will be concurrent with the
effectiveness of the Registration Statement, registered pursuant to Section
12(g) of the Exchange Act. The Shares have been duly authorized for quotation on
the National Association of Securities Dealers, Inc. Automated Quotation System
National Market System ("Nasdaq National Market"), subject to notice of
issuance. The Company has taken no action designed to, or likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act or delisting the Common Stock from the Nasdaq National Market, nor has the
Company received any notification that the Commission or the Nasdaq National
Market is contemplating terminating such registration or listing.
(v) Neither the Company nor, to its knowledge, any of its
officers, directors or affiliates has taken, and at the Closing Date and at any
later Option Closing Date, neither the Company nor, to its knowledge, any of its
officers, directors or affiliates will have taken, directly or indirectly, any
action which has constituted, or might reasonably be expected to constitute, the
stabilization or manipulation of the price of sale or resale of the Shares.
(w) The Company has not distributed and will not distribute
prior to the later of (i) the Closing Date or any Option Closing Date, as the
case may be, and (ii) completion of the distribution of the Shares, any offering
material in connection with the offering and sale of the Shares other than any
Preliminary Prospectus, the Prospectus, the Offering Memorandum, the
Registration Statement and other materials, if any, permitted by the Act.
(x) The Company has timely and properly filed with the
Commission all reports and other documents required to have been filed by it
with the Commission pursuant to the Act and the Rules and Regulations. True and
complete copies of all such reports and other documents have been delivered to
you.
(y) The Company has complied with all provisions of Section
517.075, Florida statutes, relating to doing business with the Government of
Cuba or with any person or affiliate located in Cuba.
3. Purchase of the Shares by the Underwriters.
(a) On the basis of the representations and warranties and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell the Firm Shares to the several Underwriters, and each of the
Underwriters agrees to purchase from the Company the respective aggregate number
of Firm Shares set forth opposite its name on Schedule A, plus such additional
----------
number of Firm Shares which such Underwriter may become obligated to purchase
pursuant to Section 3(b) hereof. The price at which such Firm Shares shall be
sold by the Company and purchased by the several Underwriters shall be $_____
per share. In making this Agreement, each Underwriter is contracting severally
and not jointly; except as provided in paragraphs (b) and (c) of this Section 3,
the agreement of each Underwriter is to purchase only
-10-
<PAGE>
the respective number of Firm Shares specified on Schedule A.
----------
(b) If for any reason one or more of the Underwriters shall
fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 10 hereof) to
purchase and pay for the number of Shares agreed to be purchased by such
Underwriter or Underwriters, the non-defaulting Underwriters shall have the
right within twenty-four (24) hours after such default to purchase, or procure
one or more other Underwriters to purchase, in such proportions as may be agreed
upon between you and such purchasing Underwriter or Underwriters and upon the
terms herein set forth, all or any part of the Shares which such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such Shares
and portion, the number of Shares which each non-defaulting Underwriter is
otherwise obligated to purchase under this Agreement shall be automatically
increased on a pro rata basis (as adjusted by you in such manner as you deem
advisable to avoid fractional shares) to absorb the remaining shares and portion
which the defaulting Underwriter or Underwriters agreed to purchase; provided,
however, that the non-defaulting Underwriters shall not be obligated to purchase
the Shares and portion which the defaulting Underwriter or Underwriters agreed
to purchase if the aggregate number of such Shares exceeds 10% of the total
number of Shares which all Underwriters agreed to purchase hereunder. If the
total number of Shares which the defaulting Underwriter or Underwriters agreed
to purchase shall not be purchased or absorbed in accordance with the two
preceding sentences, the Company shall have the right, within twenty-four (24)
hours next succeeding the 24-hour period referred to above, to make arrangements
with other underwriters or purchasers reasonably satisfactory to you for
purchase of such Shares and portion on the terms herein set forth. In any such
case, either you or the Company shall have the right to postpone the Closing
Date determined as provided in Section 5 hereof for not more than seven business
days after the date originally fixed as the Closing Date pursuant to said
Section 5 in order that any necessary changes in the Registration Statement, the
Offering Memorandum, the Prospectus or any other documents or arrangements may
be made. If the aggregate number of Shares which the defaulting Underwriter or
Underwriters agreed to purchase exceeds 10% of the total number of Shares which
all Underwriters agreed to purchase hereunder, and if neither the non-defaulting
Underwriters nor the Company shall make arrangements within the 24-hour periods
stated above for the purchase of all the Shares which the defaulting Underwriter
or Underwriters agreed to purchase hereunder, this Agreement shall be terminated
without further act or deed and without any liability on the part of the Company
to any non-defaulting Underwriter and without any liability on the part of any
non-defaulting Underwriter to the Company. Nothing in this paragraph (b), and no
action taken hereunder, shall relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Company grants an option to the several Underwriters to purchase all or any
portion of the Option Shares from the Company at the same price per share as the
Underwriters shall pay for the Firm Shares. Said option may be
-11-
<PAGE>
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time (but not more
than once) on or before the 30th day after the date of this Agreement upon
written or telegraphic notice by you to the Company setting forth the aggregate
number of shares of the Option Shares as to which the several Underwriters are
exercising the option. Delivery of certificates for the shares of Option Shares,
and payment therefor, shall be made as provided in Section 5 hereof. Each
Underwriter will purchase such percentage of the Option Shares as is equal to
the percentage of Firm Shares that such Underwriter is purchasing, the exact
number of shares to be adjusted by you in such manner as you deem advisable to
avoid fractional shares.
-12-
<PAGE>
4. Offering by Underwriters.
(a) The terms of the initial public offering of the Shares in
the United States by the Underwriters shall be as set forth in the Prospectus.
The terms of the private placement of the Shares in Canada by the Underwriters
shall be as set forth in the Offering Memorandum. The Underwriters may from time
to time change the public offering and private placement prices after the
closing of the initial public offering and the private placement, respectively,
and increase or decrease the concessions and discounts to dealers as they may
determine.
(b) You, on behalf of the Underwriters, represent and warrant
that (i) the information set forth in the last paragraph on the front cover page
and under the caption "Underwriting" in the Registration Statement, the Offering
Memorandum, any Preliminary Prospectus and the Prospectus relating to the Shares
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriters to the Company for inclusion in the
Registration Statement, the Offering Memorandum, any Preliminary Prospectus, and
the Prospectus, and that the statements made therein are correct and do not omit
to state any material fact required to be stated therein or necessary to make
the statements made therein in light of the circumstances under which they were
made not misleading, and (ii) the Underwriters have not distributed and will not
distribute prior to the Closing Date or on any Option Closing Date, as the case
may be, any offering material in connection with the offering and sale of the
shares other than the Preliminary Prospectus, the Prospectus, the Registration
Statement, the Offering Memorandum and other materials permitted by the Act and
applicable Canadian securities law.
5. Delivery of and Payment for the Shares.
(a) Delivery of certificates for the Firm Shares and the Option
Shares (if the option granted pursuant to Section 3(c) hereof shall have been
exercised not later than 1:00 p.m., New York time, on the date at least two
business days preceding the Closing Date), and payment therefor, shall be made
at the office of Bingham, Dana & Gould LLP, 150 Federal Street, Boston, MA 02110
at 9:00 a.m., New York time, on the [fourth] business day after the date of this
Agreement, or at such time on such other day, not later than seven full business
days after such [fourth] business day, as shall be agreed upon in writing by the
Company and you (the "Closing Date").
(b) If the option granted pursuant to Section 3(c) hereof shall
be exercised after 1:00 p.m., New York time, on the date two business days
preceding the Closing Date, and on or before the 30th day after the date of this
Agreement, delivery of certificates for the Option Shares, and payment therefor,
shall be made at the office of Bingham, Dana & Gould LLP, 150 Federal Street,
Boston, MA 02110 at 9:00 a.m., New York time, on the third business day after
the exercise of such option.
(c) Payment for the Shares purchased from the Company shall be
made to the
-13-
<PAGE>
Company or its order, by either a same day funds check or Federal Funds wire
transfer. Such payment shall be made upon delivery of certificates for the
Shares to you for the respective accounts of the several Underwriters against
receipt therefor signed by you. Certificates for the Shares to be delivered to
you shall be registered in such name or names and shall be in such denominations
as you may request at least three business days before the Closing Date, in the
case of the Firm Shares, and at least two business days prior to the Option
Closing Date, in the case of the Option Shares. Such certificates will be made
available to the Underwriters for inspection, checking and packaging at a
location in New York, New York, designated by the Underwriters not less than one
full business day prior to the Closing Date or, in the case of the Option
Shares, by 3:00 p.m., New York time, on the business day preceding the Option
Closing Date.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later Option Closing Date. Any such
payment by you shall not relieve such Underwriter from any of its obligations
hereunder.
(d) If the Representatives so elect, delivery of the Firm Shares
and any Option Shares may be made by credit through full fast transfer to the
accounts at the Depository Trust Company designated by the Representatives.
6. Further Agreements of the Company. The Company
covenants and agrees as follows:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best efforts
to cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; it
will notify you, promptly after it shall receive notice thereof, of the time
when the Registration Statement or any subsequent amendment to the Registration
Statement or abbreviated registration statement has become effective or any
supplement to the Prospectus or abbreviated registration statement has been
filed. If the Company omitted information from the Registration Statement at the
time it was originally declared effective in reliance upon Rule 430A(a), the
Company will provide evidence satisfactory to you that the Prospectus contains
such information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to such Registration
Statement as originally declared effective which is declared effective by the
Commission; if the Company files a term sheet pursuant to Rule 434 of the Rules
and Regulations, the Company will provide evidence satisfactory to you that the
Prospectus and term sheet meeting the requirements of Rule 434(b) or (c), as
applicable, of the Rules and Regulations, have been filed, within the time
period prescribed, with the Commission pursuant to subparagraph (7) of Rule
424(b) of the Rules and Regulations.
-14-
<PAGE>
If for any reason the filing of the final form of Prospectus is required under
Rule 424(b)(3) of the Rules and Regulations, it will provide evidence
satisfactory to you that the Prospectus contains such information and has been
filed with the Commission within the time period prescribed. The Company will
notify you promptly of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for additional
information. Promptly upon your request, it will prepare and file with the
Commission any amendments or supplements to the Registration Statement or
Prospectus which, in the reasonable opinion of counsel to the several
Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters. The Company
will promptly prepare and file with the Commission, and promptly notify you of
the filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. In the event of any such amendments or
supplements made or required to be made to the Registration Statement, the
Prospectus or any amendments or supplements thereto, the Company shall promptly
prepare an Offering Memorandum containing such amendment or supplement and
provide the same forthwith to the Underwriters. In case any Underwriter is
required to deliver a prospectus within the nine-month period referred to in
Section 10(a)(3) of the Act in connection with the sale of the Shares, the
Company will prepare promptly upon request, but at the expense of such
Underwriter, such amendment or amendments to the Registration Statement and such
prospectus or prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act. The Company will file no amendment
or supplement to the Registration Statement or Prospectus that shall not
previously have been submitted to you a reasonable time prior to the proposed
filing thereof or to which you shall reasonably object in writing or which is
not in compliance with the Act and Rules and Regulations or the provisions of
this Agreement.
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the Commission suspending the effectiveness of the Registration Statement or the
use of the Prospectus or of the initiation or threat of any proceeding for that
purpose; and it will promptly use its best efforts to prevent the issuance of
any such stop order or to obtain its withdrawal at the earliest possible moment
if such stop order should be issued.
(c) The Company will cooperate with you in endeavoring to
qualify the Shares for offering and sale under the securities laws of such
jurisdictions as you may designate and to continue such qualifications in effect
for so long as may be required for purposes of the distribution of the Shares,
except that the Company shall not be required in connection therewith or as a
condition thereof to qualify as a foreign corporation, or to execute a general
consent to service of process in any jurisdiction, or to make any undertaking
with respect to the conduct of its business. In each jurisdiction in which the
Shares shall have been qualified, the Company will
-15-
<PAGE>
make and file such statements, reports and other documents in each year as are
or may be reasonably required by the laws of such jurisdictions so as to
continue such qualifications in effect for so long a period as you may
reasonably request for distribution of the Shares, or as otherwise may be
required by law.
(d) The Company will furnish to you, as soon as available,
copies of the Registration Statement (three of which will be signed and which
will include all exhibits), each Preliminary Prospectus, the Prospectus, the
Offering Memorandum and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, all in such quantities as you may from time to time reasonably request.
If applicable, the copies of the Registration Statement, any Preliminary
Prospectus or Prospectus and each amendment or supplement thereto furnished to
the Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(e) The Company will make generally available to its
stockholders as soon as practicable, but in any event not later than the 45th
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and covering a twelve-month period beginning after the effective
date of the Registration Statement, and will advise you in writing when such
statement has been made available.
(f) During a period of five years after the date hereof, the
Company, as soon as practicable after the end of each respective period, will
furnish to its stockholders annual reports (including financial statements
audited by independent certified public accountants) and will furnish to its
stockholders unaudited quarterly reports of operations for each of the first
three quarters of the fiscal year, and will, upon request, furnish to you and
the other several Underwriters hereunder (i) concurrently with making such
reports available to its stockholders, statements of operations of the Company
for each of the first three quarters in the form made available to the Company's
stockholders; (ii) concurrently with the furnishing thereof to its stockholders,
a balance sheet of the Company as of the end of such fiscal year, together with
statements of operations, of stockholders' equity and of cash flow of the
Company for such fiscal year, accompanied by a copy of the certificate or report
thereon of nationally recognized independent certified public accountants; (iii)
concurrently with the furnishing of such reports to its stockholders, copies of
all reports (financial or other) mailed to stockholders; (iv) as soon as they
are available, copies of all reports and financial statements furnished to or
filed with the Commission, any securities exchange or the Nasdaq National Market
by the Company (except for documents for which confidential treatment is
requested); and (v) every material press release and every material news item or
article in respect of the Company or its affairs which was generally released to
stockholders or prepared for general release by the Company. During such five-
year period, if the Company shall have any active subsidiaries, the foregoing
financial statements shall be on a consolidated basis to the extent that the
accounts of the Company are consolidated with
-16-
<PAGE>
any subsidiaries, and shall be accompanied by similar financial statements for
any significant subsidiary that is not so consolidated.
(g) Prior to or simultaneously with the execution and delivery
of this Agreement, the Company will obtain agreement from each beneficial owner
of the Company's Common Stock listed on Schedule B to this Agreement providing
----------
that such person will not, for a period of 180 days after the date of the
Prospectus, without the prior written consent of UBS Securities LLC, directly or
indirectly, offer to sell, sell, hypothecate, contract to sell, grant any option
to purchase, or otherwise dispose of, any shares of Common Stock beneficially
owned as of the date such lockup agreement is executed (including, without
limitation, shares of Common Stock which may be deemed to be beneficially owned
in accordance with the Rules and Regulations and shares of Common Stock which
may be issued upon exercise of a stock option or warrant) or any securities
convertible into or exercisable or exchangeable for such Common Stock except,
(a) by operation of law or (b) pursuant to a bona fide gift to any person or
other entity which agrees in writing to be bound by this restriction. Each such
person or entity shall also agree and consent to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of shares of
Common Stock held by such person or entity, except in compliance with the
foregoing restriction.
(h) The Company shall not, during the 180 days following the
effective date of the Registration Statement, except with the prior written
consent of UBS Securities LLC, file a registration statement covering any of its
shares of capital stock, including a registration statement onForm S-8 with
respect to shares of stock issuable under any of the Company's stock option
plans or stock purchase plans.
(i) The Company shall not, during the 180 days following the
effective date of the Registration Statement, except with the prior written
consent of UBS Securities LLC, issue, sell, offer or agree to sell, grant,
distribute or otherwise dispose of, directly or indirectly, any shares of Common
Stock, or any options, rights or warrants with respect to shares of Common
Stock, or any securities convertible into or exchangeable for Common Stock,
other than (i) the sale of Shares hereunder, (ii) the grant of options or the
issuance of shares of Common Stock under the Company's stock option plans or
stock purchase plan, as the case may be, existing on the date hereof, (iii) the
issuance of shares of Common Stock upon exercise of the currently outstanding
options or warrants described in the Registration Statement.
(j) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus and the Offering Memorandum and will file a Form or
Forms SR in conformity with the requirements of the Act and the Rules and
Regulations.
(k) The Company will maintain a Transfer Agent and, if necessary
under the jurisdiction of incorporation of the Company, a Registrar (which may
be the same entity as the Transfer Agent) for its Common Stock.
-17-
<PAGE>
(1) The Company will use its best efforts to maintain listing of
its shares of Common Stock on the Nasdaq National Market.
(m) The Company is familiar with the Investment Company Act of
1940, as amended, and the rules and regulations thereunder, and has in the past
conducted its affairs, and will in the future conduct its affairs, in such a
manner so as to ensure that the Company was not and will not be an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
(n) If at any time during the 180-day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
reasonable opinion the market price of the Common Stock has been or is likely to
be materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth above
consult with you in good faith regarding the necessity of disseminating a press
release or other public statement responding to or commenting on such rumor,
publication or event and, if the Company in its reasonable judgment determines
that such a press release or other public statement is appropriate, the
substance of any press release or other public statement.
7. Expenses.
The Company agrees with each Underwriter that:
(a) The Company will pay and bear all costs, fees and expenses
in connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), the Offering
Memorandum (including fees relating to the filing of reports in Canada),
Preliminary Prospectuses and the Prospectus and any amendments or supplements
thereto; the reproduction of this Agreement, the Agreement Among Underwriters,
the Selected Dealer Agreement, the Preliminary Blue Sky Memoranda and any
Supplemental Blue Sky Memoranda and any instruments related to any of the
foregoing; the issuance and delivery of the Shares hereunder to the several
Underwriters, including transfer taxes, if any; the cost of all stock
certificates representing the Shares and Transfer Agents' and Registrars' fees;
the fees and disbursements of corporate, patent and regulatory counsel for the
Company; all fees and other charges of the Company's independent public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), the Offering
Memorandum, Preliminary Prospectuses and the Prospectus, and any amendments or
supplements to any of the foregoing; NASD filing fees and expenses incident to
securing any required review and the cost of qualifying the Shares under the
laws of such jurisdictions within the United States as you may designate
(including filing fees and fees and disbursements of Underwriters' Counsel in
connection with such NASD filings and Blue Sky qualifications); listing
application fees of the Nasdaq National Market; and all other expenses directly
incurred by the Company in connection
-18-
<PAGE>
with the performance of its obligations hereunder.
(b) If the transactions contemplated hereby are not consummated
by reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or to fulfill any
condition of the Underwriters' obligations hereunder, the Company will, in
addition to paying the expenses described in clause (a) above, reimburse the
several Underwriters for all out-of-pocket expenses (including reasonable fees
and disbursements of Underwriters' Counsel) incurred by the Underwriters in
reviewing the Registration Statement and the Prospectus and in preparing the
Offering Memorandum and in otherwise investigating, preparing to market or
marketing the Shares. The Company will in no event be liable to any of the
several Underwriters for any loss of anticipated profits from the sale by them
of the Shares.
8. Conditions of Underwriters' Obligations.
The obligations of the several Underwriters to purchase and pay for
the Shares, as provided herein, shall be subject to the accuracy, as of the date
hereof and the Closing Date and any later Option Closing Date, as the case may
be, of the representations and warranties of the Company herein, to the
performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become effective not
later than 9:00 a.m., New York City time, on the date following the date of this
Agreement, or such later time or date as shall be consented to in writing by
you. If the filing of the Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b) and Rule 430A of the Rules and Regulations, the
Prospectus shall have been filed in the manner and within the time period
required by Rule 424(b) and Rule 430A of the Rules and Regulations. No stop
order suspending the effectiveness of the Registration Statement shall have been
issued and no proceeding for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the reasonable satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement, the Offering
Memorandum and the Prospectus, and the registration, authorization, issue, sale
and delivery of the Shares shall have been reasonably satisfactory to
Underwriters' Counsel, and such counsel shall have been furnished with such
papers and information as they may reasonably have requested to enable them to
pass upon the matters referred to in this subsection.
(c) You shall have received, at no cost to you, on the Closing
Date and on any later Option Closing Date, as the case may be, the opinions of
(i) Bingham, Dana & Gould LLP, corporate counsel to the Company and (ii)
Hamilton, Brook, Smith & Reynolds, P.C., patent counsel to the Company, dated
the Closing Date or such later Option Closing Date, in the forms
-19-
<PAGE>
attached hereto on Appendix A, addressed to the Underwriters and with reproduced
----------
copies of signed counterparts thereof for each of the Representatives.
(d) You shall have received from Hale and Dorr, Underwriters'
Counsel, an opinion or opinions, dated the Closing Date or on any later Option
Closing Date, as the case may be, in form and substance reasonably satisfactory
to you, with respect to the sufficiency of all corporate proceedings undertaken
by the Company and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the Company
shall have furnished to such counsel such documents as it may have reasonably
requested for the purpose of enabling it to pass upon such matters.
(e) You shall have received on the Closing Date and on any later
Option Closing Date, as the case may be, a letter from the Accountants addressed
to the Company and the Underwriters, dated the Closing Date or such later Option
Closing Date, as the case may be, confirming that it is an independent certified
public accountant with respect to the Company within the meaning of the Act and
the Rules and Regulations thereunder and based upon the procedures described in
its letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more than
three days prior to the Closing Date or any such later Option Closing Date, as
the case may be, (i) confirming that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later Option
Closing Date, as the case may be; and (ii) setting forth any revisions and
additions to the statements and conclusions set forth in the Original Letter
that are necessary to reflect any changes in the facts described in the Original
Letter since the date of such letter, or to reflect the availability of more
recent financial statements, data or information. The letter shall not disclose
any change, or any development involving a prospective change, in or affecting
the business or properties of the Company which, in your reasonable judgment,
makes it impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus. In addition, you shall have received
from the Accountants a letter addressed to the Company and made available to you
for the use of the Underwriters stating that its review of the Company's system
of internal accounting controls, to the extent it deemed necessary in
establishing the scope of its latest examination of the Company's financial
statements, did not disclose any weaknesses in internal controls that it
considered to be material weaknesses. All such letters shall be in a form
reasonably satisfactory to the Representatives and their counsel.
(f) You shall have received on the Closing Date and on any later
Option Closing Date, as the case may be, a certificate of the President and the
Chief Financial Officer of the Company, dated the Closing Date or such later
date, to the effect that as of such date (and you shall be satisfied that as of
such date):
(i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of the
Closing Date or any later Option Closing Date, as the case may
be; and the Company has complied with all of the agreements and
satisfied all of the conditions on its part to be performed
-20-
<PAGE>
or satisfied at or prior to the Closing Date or any later Option
Closing Date, as the case may be;
(ii) The Registration Statement has become effective under
the Act and no stop order suspending the effectiveness of the
Registration Statement or preventing or suspending the use of
the Prospectus has been issued, and no proceedings for that
purpose have been instituted or are pending or, to the best of
their knowledge, threatened under the Act;
(iii) They have carefully reviewed the Registration
Statement, the Offering Memorandum and the Prospectus; and, when
the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus and any amendments or
supplements thereto contained all statements and information
required to be included therein or necessary to make the
statements therein not misleading; and when the Registration
Statement became effective, and at all times subsequent thereto
up to the delivery of such certificate, none of the Registration
Statement, the Prospectus or the Offering Memorandum nor any
amendment or supplement thereto included any untrue statement of
a material fact or omitted to state any material fact required
to be stated therein or necessary to make the statements therein
not misleading; and, since the effective date of the
Registration Statement, there has occurred no event required to
be set forth in an amended or supplemented Prospectus or
Offering Memorandum that has not been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement, the Offering
Memorandum and the Prospectus, there has not been (A) any
material adverse change in the properties or assets described or
referred to in the Registration Statement, the Offering
Memorandum and the Prospectus or in the condition (financial or
otherwise) operations, business or prospects of the Company, (B)
any transaction which is material to the Company, except
transactions entered into in the ordinary course of business,
(C) any obligation, direct or contingent, incurred by the
Company, which is material to the Company, (D) any change in the
capital stock or outstanding indebtedness of the Company which
is material to the Company, (E) any dividend or distribution of
any kind declared, paid or made on the capital stock of the
Company or (F) any loss or damage (whether or not insured) to
the property of the Company which has been sustained or will
have been sustained which is material to the Company.
(g) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request as to the accuracy of
the representations and warranties of the Company herein, as to the performance
by the Company of its obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the
-21-
<PAGE>
Underwriters hereunder.
(h) The Firm Shares and the Option Shares, if any, shall have
been approved for designation upon notice of issuance on the Nasdaq National
Market.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
9. Indemnification and Contribution.
(a) Subject to the provisions of paragraph (d) below, the
Company agrees to indemnify and hold harmless each Underwriter and each person
(including each partner or officer thereof) who controls any Underwriter within
the meaning of Section 15 of the Act from and against any and all losses,
claims, damages or liabilities, joint or several, to which such indemnified
parties or any of them may become subject under the Act, the Exchange Act, or
the common law or otherwise, and the Company agrees to reimburse each such
Underwriter and controlling person for any legal or other out-of-pocket expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any breach of any representation,
warranty, agreement or covenant of the Company herein contained, (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any 462(b)
registration statement) or in the Offering Memorandum or any post-effective
amendment thereto (including any 462(b) registration statement), or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (iii) any
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or in the Offering Memorandum or the omission or alleged omission to
state therein a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
provided, however, that (1) the indemnity agreements of the Company contained in
this paragraph (a) shall not apply to any such losses, claims, damages,
liabilities or expenses if such statement or omission is contained in the
section of the Prospectus entitled "Underwriting" (except for the sixth
paragraph thereof) or the last paragraph of text on the cover page of the
Prospectus or in the section of the Offering Memorandum entitled "Representation
by Purchasers," and (2) the indemnity agreement contained in this paragraph (a)
with respect to any Preliminary Prospectus or Offering Memorandum shall not
inure to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages, liabilities or expenses purchased the Shares which is
the subject thereof (or to the benefit of any person controlling such
-22-
<PAGE>
Underwriter) if at or prior to the written confirmation of the sale of such
Shares a copy of the Prospectus (or the Prospectus as amended or supplemented
or, in the case of purchasers resident in Ontario, Canada, the revised Offering
Memorandum) was not sent or delivered to such person (excluding any documents
incorporated therein by reference) and the untrue statement or omission of a
material fact contained in such Preliminary Prospectus was corrected in the
Prospectus (or the Prospectus as amended or supplemented or, in the case of
purchasers resident in Ontario, Canada, the revised Offering Memorandum) unless
the failure is the result of noncompliance by the Company with paragraph (a) of
Section 6 hereof. The indemnity agreements of the Company contained in this
paragraph (a) and the representations and warranties of the Company contained in
Section 2 hereof shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any indemnified party and shall
survive the delivery of any payment for the Shares.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its executive officers, each of its directors,
each other Underwriter and each person (including each partner or officer
thereof) who controls the Company or any such other Underwriter within the
meaning of Section 15 of the Act, from and against any and all losses, claims,
damages or liabilities, joint or several, to which such indemnified parties or
any of them may become subject under the Act, the Exchange Act, or the common
law or otherwise and to reimburse each of them for any legal or other expenses
including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any breach of any representation,
warranty, agreement or covenant of such Underwriter herein contained, (ii) any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or in the Offering Memorandum or any post-
effective amendment thereto (including any 462(b) registration statement) or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(iii) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus or the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto) or in the Offering Memorandum or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that in the cases of clauses (ii) and
(iii) above, such statement or omission is contained in the Section of the
Prospectus entitled "Underwriting" (except for the sixth paragraph thereof) or
the last paragraph on the cover page of the Prospectus or in the section of the
Offering Memorandum entitled "Representations by Purchasers." The indemnity
agreement of each Underwriter contained in this paragraph (b) shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any indemnified party and shall survive the delivery of and
payment for the Shares.
-23-
<PAGE>
(c) Each party indemnified under the provision of paragraphs (a)
and (b) of this Section 9 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against it, in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (a "Notice") of such service or
notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be available
to any party who shall fail so to give the Notice if the party to whom such
Notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which the Notice would have related and was prejudiced by the
failure to give the Notice, but the omission so to notify such indemnifying
party or parties of any such service or notification shall not relieve such
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of such
indemnity agreement. Any indemnifying party shall be entitled at its own expense
to participate in the defense of any action, suit or proceeding against, or
investigation or inquiry of, an indemnified party. Any indemnifying party shall
be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (the "Notice of Defense") to the indemnified
party, to assume (alone or in conjunction with any other indemnifying party or
parties) the entire defense of such action, suit, investigation, inquiry or
proceeding, in which event such defense shall be conducted, at the expense of
the indemnifying party or parties, by counsel chosen by such indemnifying party
or parties and reasonably satisfactory to the indemnified party or parties;
provided, however, that (i) if the indemnified party or parties reasonably
determine that there may be a conflict between the positions of the indemnifying
party or parties and of the indemnified party or parties in conducting the
defense of such action, suit, investigation, inquiry or proceeding or that there
may be legal defenses available to such indemnified party or parties different
from or in addition to those available to the indemnifying party or parties,
then counsel for the indemnified party or parties shall be entitled to conduct
the defense to the extent reasonably determined by such counsel to be necessary
to protect the interests of the indemnified party or parties and (ii) in any
event, the indemnified party or parties shall be entitled, at its or their own
expense to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense. It is understood that the indemnifying parties
shall not, in respect of the legal defenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (a) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all of the Underwriters and each person, if
any, who controls any Underwriter within the meaning of Section 15 of the Act,
and (b) the fees and expenses of more than one separate firm (in addition to any
local counsel) for the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act. If, within a reasonable time after receipt
of the Notice, an indemnifying party gives a Notice of Defense and the counsel
chosen by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable under paragraphs (a) through (c) of this Section 9 for any legal or other
expenses subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding,
except that (A) the indemnifying party or
-24-
<PAGE>
parties shall bear the legal and other expenses incurred in connection with the
conduct of the defense as referred to in clause (i) of the proviso to the
preceding sentence and (B) the indemnifying party or parties shall bear such
other expenses as it or they have authorized to be incurred by the indemnified
party or parties. If, within a reasonable time after receipt of the Notice, no
Notice of Defense has been given, the indemnifying party or parties shall be
responsible for any legal or other expenses incurred by the indemnified party or
parties in connection with the defense of the action, suit, investigation,
inquiry or proceeding. The indemnifying party or parties shall not be liable for
any settlement of any proceeding effected without its or their written consent,
provided such consent has not been unreasonably withheld.
(d) If the indemnification provided for in this Section 9 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 9, 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 the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 9 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party 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 each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions 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, shall be deemed to
be in the same respective proportions as the total net proceeds from the
offering of the Shares received by the Company and the total underwriting
discount received by the Underwriters, as set forth in the table on the cover
page of the Prospectus, bear to the aggregate public offering price of the
Shares. Relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by each indemnifying party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) 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 in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparation to defend or defense against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Shares purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution
-25-
<PAGE>
from any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this paragraph (d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 9).
(e) The Company will not, without the prior written consent of
each Underwriter, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding in respect of
which indemnification may be sought hereunder (whether or not such Underwriter
or any person who controls such Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act is a party to such claim, action, suit
or proceeding) unless such settlement, compromise or consent includes an
unconditional release of such Underwriter and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.
(f) The parties to this Agreement hereby acknowledge that they
are sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof, including without limitation the
provisions of this Section 9 and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 9 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act, or in the Offering Memorandum as required by Canadian securities law.
10. Termination. This Agreement may be terminated by you at any time on
or prior to the Closing Date or on or prior to any later Option Closing Date, as
the case may be, (i) if the Company shall have failed, refused or been unable,
at or prior to the Closing Date, or on or prior to any later Option Closing
Date, as the case may be, to perform any agreement on its part to be performed,
or because any other condition of the Underwriters' obligations hereunder
required to be fulfilled by the Company is not fulfilled, or (ii) if trading on
the New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market shall have been suspended, or minimum or maximum prices for trading shall
have been fixed, or maximum ranges for prices for securities shall have been
required on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market, by such trading exchanges or by order of the Commission
or any other governmental authority having jurisdiction, or if a banking
moratorium shall have been declared by federal or New York authorities, or (iii)
if the Company shall have sustained a loss by strike, fire, flood, accident or
other calamity of such character as to have a Material Adverse Effect regardless
of whether or not such loss shall have been insured, or (iv) if
-26-
<PAGE>
there shall have been a material adverse change in the general political or
economic conditions or financial markets in the United States as in the judgment
of the Representatives makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if there shall have occurred
an outbreak or escalation of hostilities between the United States and any
foreign power or of any other insurrection or armed conflict involving the
United States or other national or international calamity, hostilities or crisis
or the declaration by the United States of a national emergency which, in the
judgment of the Representatives, adversely affects the marketability of the
Shares, or (vi) if since the respective dates as of which information is given
in the Registration Statement, the Offering Memorandum and the Prospectus, there
shall have occurred any material adverse change or any development involving a
prospective material adverse change in or affecting the condition, financial or
otherwise, of the Company or the business affairs, management, or business
prospects of the Company, whether or not arising in the ordinary course of
business, or (vii) if any foreign, federal or state statute, regulation, rule or
order of any court or other governmental authority shall have been enacted,
published, decreed or otherwise promulgated which in the judgment of the
Representatives materially and adversely affects or will materially and
adversely affect the business or operations of the Company, or trading in the
Common Stock shall have been suspended, or (viii) there shall have occurred a
material adverse decline in the value of securities generally on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market or
(ix) action shall be taken by any foreign, federal, state or local government or
agency in respect of its monetary or fiscal affairs which, in the judgment of
the Representatives, has a material adverse effect on the securities markets in
the United States. If this Agreement shall be terminated in accordance with this
Section 10, there shall be no liability of the Company to the Underwriters and
no liability of the Underwriters to the Company; provided, however, that in the
event of any such termination the Company agrees to indemnify and hold harmless
the Underwriters from all costs or expenses incident to the performance of the
obligations of the Company under this Agreement, including all costs and
expenses referred to in Section 7, 9 and 11 hereof.
If you elect to terminate this Agreement as provided in this Section
10, the Company shall be notified promptly by you by telephone, telecopy or
telegram, confirmed by letter.
11. Reimbursement of Certain Expenses.
(a) In addition to their other obligations under Section 9 of
this Agreement, the Company hereby agrees to reimburse on a quarterly basis the
Underwriters for all reasonable legal and other expenses incurred in connection
with investigating or defending any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in paragraph (a) of Section 9 of this
Agreement, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the obligations under this Section 11 and the
possibility that such payments might later be held to be improper; provided,
however, that (i) to the extent any such payment is ultimately held to be
improper, the persons receiving such payments shall promptly refund them and
(ii) such persons shall provide to the Company, upon request, reasonable
assurances of their ability to effect any
-27-
<PAGE>
refund, when and if due.
(b) In addition to their other obligations under Section 9 of
this Agreement, the Underwriters hereby agree to reimburse on a quarterly basis
the Company for all reasonable legal and other expenses incurred in connection
with investigating or defending any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in paragraph (b) of Section 9 of this
Agreement, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the obligations under this Section 11 and the
possibility that such payments might later be held to be improper; provided,
however, that (i) to the extent any such payment is ultimately held to be
improper, the Company shall promptly refund it and (ii) the Company shall
provide to the Underwriter, upon request, reasonable assurances of its ability
to effect any refund, when and if due.
12. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of the Company and the several Underwriters and, with
respect to the provisions of Section 9 hereof, the several parties (in addition
to the Company and the several Underwriters) indemnified under the provisions of
said Section 9, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give to
any other person, firm or corporation any legal or equitable remedy or claim
under or in respect of this Agreement or any provision herein contained. The
term "successors and assigns" as herein used shall not include any purchaser, as
such purchaser, of any of the Shares from any of the several Underwriters.
13. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to UBS Securities LLC, 299 Park Avenue, New
York, NY 10171, Attention: Mr. Richard Messina, with a copy to Steven D. Singer,
Esq., Hale and Dorr, 60 State Street, Boston, Massachusetts 02109; and if to the
Company, shall be mailed, telegraphed or delivered to it at its office, at 24
Emily Street, Cambridge, Massachusetts 02139, Attention: President, with a copy
to Justin P. Morreale, Esq., Bingham, Dana & Gould LLP, 150 Federal Street,
Boston, Massachusetts 02110. All notices given by telegraph shall be promptly
confirmed by letter.
14. Miscellaneous. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and effect
regardless of (i) any investigation made by or on behalf of any Underwriter or
controlling person thereof, or by or on behalf of the Company or its respective
directors or officers, and (ii) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
You will act as Representatives of the several Underwriters in all
dealings with the Company under this Agreement, and any action under or in
respect of this Agreement taken by you jointly or by UBS Securities LLC, as
Representatives, will be binding upon all of the
-28-
<PAGE>
Underwriters.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York.
[INTENTIONALLY LEFT BLANK]
-29-
<PAGE>
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement among the Company
and the several underwriters in accordance with its terms.
Very truly yours,
CUBIST PHARMACEUTICALS, INC.
By:___________________________________
Scott M. Rocklage
President and Chief Executive Officer
The foregoing Agreement
is hereby confirmed and
accepted as of the date
first above written.
UBS SECURITIES LLC
HAMBRECHT & QUIST LLC
PACIFIC GROWTH EQUITIES, INC.
By: UBS SECURITIES LLC
By: ___________________________
Title:
Acting on behalf of the several
Underwriters, including themselves,
named on Schedule A hereto.
----------
-30-
<PAGE>
SCHEDULE A
UNDERWRITERS
Number of
Shares to
Underwriters be Purchased
------------ ------------
UBS Securities LLC.............................
Hambrecht & Quist LLC..........................
Pacific Growth Equities, Inc...................
Total [_______________]
<PAGE>
SCHEDULE B
Lock-Up Agreements
------------------
NAME SHARES
- ---- ------
<PAGE>
APPENDIX A
----------
1. Opinion of Bingham, Dana & Gould LLP
------------------------------------
Bingham, Dana & Gould LLP shall opine to the effect that:
(A) The Company has been duly organized and is validly existing as
a corporation, and is in good standing under, the laws of the State of Delaware;
(B) The Company has the corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus; the Company is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to so qualify would not have a Material
Adverse Effect;
(C) The Company does not own or control, directly or indirectly,
any corporation, association or other entity.
(D) The authorized capital stock of the Company consists of
[_____] shares of _______ Stock, of which there are outstanding ___ shares, and
__ shares of Common Stock, $.001 par value, of which there are outstanding ____
shares (including the Firm Shares plus the number of Option Shares issued on the
date hereof) [and such additional number of shares, if any, as may have been
issued after __ and prior to the Closing Date, pursuant to ________]; the
authorized shares of the Company's Common Stock have been duly authorized; the
issued and outstanding shares of the Company's capital stock have been duly
authorized and validly issued and are fully paid and nonassessable, and have not
been issued in violation of any preemptive right, co-sale right, registration
right, right of first refusal or other similar right known to such counsel;
(E) The Shares to be issued by the Company pursuant to this
Agreement have been duly authorized and will be, upon issuance and delivery
against payment therefor in accordance with the terms hereof, validly issued,
fully paid and nonassessable, and, to the knowledge of such counsel, the
shareholders of the Company do not have any preemptive right, co-sale right,
registration right, right of first refusal or other similar right, which rights
have not previously been waived, in connection with the purchase or sale of any
of the Shares;
(F) The Company has full corporate power and authority to enter
into this Agreement and to issue, sell and deliver to the Underwriters the Firm
Shares or the Option Shares, as the case may be, to be issued and sold by it
hereunder;
(G) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed and
delivered by the Company and is a valid and binding agreement of the Company,
enforceable in accordance with its terms (standard
-33-
<PAGE>
exceptions permitted);
(H) The Registration Statement has become effective under the Act
and, to such counsel's knowledge, no stop order suspending the effectiveness of
the Registration Statement or suspending or preventing the use of the Prospectus
has been issued and no proceedings for that purpose have been instituted or are
pending or threatened under the Act; any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) of the Rules and Regulations has
been made in the manner and within the time period required by such Rule 424(b);
(I) The Registration Statement, all Preliminary Prospectuses, the
Prospectus, and each amendment or supplement thereto (other than the financial
statements, financial data and supporting schedules included therein, as to
which such counsel need express no opinion), comply as to form in all material
respects with the requirements of the Act and the applicable Rules and
Regulations and to such counsel's knowledge, there are no agreements, contracts,
leases or documents of a character required to be described in, or filed as an
exhibit to, the Registration Statement which are not described or filed as
required by the Act and the applicable Rules and Regulations;
(J) The terms and provisions of the capital stock of the Company
conform to the description thereof contained in the Registration Statement and
the Prospectus, and the information in the Prospectus under the caption
"Description of Capital Stock," to the extent that it constitutes matters of law
or legal conclusions, has been reviewed by such counsel and is correct, and the
form of certificate evidencing the Common Stock complies with the applicable
provisions of Delaware law;
(K) The statements in the Registration Statement and the
Prospectus summarizing statutes, rules and regulations, including the Delaware
General Corporation Law [but excluding statutes, rules and regulations described
under FDA and patent sections] and the description of the certificate of
incorporation and bylaws are accurate and fairly and correctly present the
information required to be presented by the Act or the Rules and Regulations in
all material respects; and such counsel does not know of any statutes, rules or
regulations required to be described in the Registration Statement or the
Prospectus that are not described or referred to therein as required;
(L) The statements under the captions "Business -- Collaborative
Agreements," "Shares Eligible for Future Sale," "Management -- 1996 Directors'
Stock Option Plan," "Management -- Employment Agreement," "Management -- Amended
and Restated 1993 Stock Option Plan," "Management -- Compensation Committee
Interlocks," "Certain Transactions," and "Description of Capital Stock" in the
Prospectus, insofar as such statements constitute a summary of documents
referred to therein or matters of law, are accurate summaries and fairly and
correctly present, in all material respects, the information called for with
respect to such documents and matters of law; provided that such counsel shall
be entitled to rely on
-34-
<PAGE>
representations of the Company with respect to certain factual matters contained
in such statements, and provided further that such counsel shall state that
nothing has come to the attention of such counsel which leads them to believe
that such representations are not true and correct in all material respects;
(M) The information required to be set forth in the Registration
Statement in answer to Items 9, 10 (insofar as it relates to such counsel) and
11(c) of Form S-1 is to the best of such counsel's knowledge accurately and
adequately set forth therein in all material respects or no response is required
with respect to such Items;
(N) The execution, delivery and performance of this Agreement and
the consummation of the transactions therein contemplated do not and will not
(a) conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the certificate of incorporation or bylaws of the
Company, any agreement or document filed as an exhibit to the Registration
Statement, or any statute, rule or regulation applicable to the Company (except
that no opinion need be expressed with respect to compliance with federal and
state securities laws) or (b) to the knowledge of such counsel, result in the
creation or imposition of any lien or encumbrance upon any of the assets of the
Company pursuant to the terms or provisions of, or result in a breach or
violation of any of the terms or provisions of, or constitute a default or
result in the acceleration of any obligation under, any indenture, mortgage,
deed of trust, loan agreement, bond, debenture, note agreement, other evidence
of indebtedness, lease, contract or other agreement or instrument to which the
Company is a party or by which its property is bound or (c) to the knowledge of
such counsel, conflict with or result in a violation or breach of, or constitute
a default under, any applicable license, authorization, approval, permit,
judgment, franchise, order, writ or decree of any court or governmental agency
or body;
(O) The Company has the corporate power and authority to own or
lease all of the assets owned or leased by it and to conduct its business, in
each case as described in the Registration Statement and the Prospectus, except
where failure to have such power and authority would not have a Material Adverse
Effect, and has all licenses, permits, consents, orders, approvals and
authorizations of any federal or state government authority that are necessary
to conduct its business as described in the Registration Statement and the
Prospectus, except where failure to have such licenses, permits, consents,
orders, approvals and authorizations would not have a Material Adverse Effect.
(P) No authorization, approval, consent, order, designation or
declaration of or filing by or with any governmental authority or agency is
necessary in connection with the execution and delivery of this Agreement by the
Company and the consummation of the transactions therein contemplated except
such as may have been obtained under the Act and the Rules and Regulations or
such as may be required under state securities or Blue Sky laws or by the bylaws
and rules of the NASD in connection with the purchase and distribution of the
Shares by the Underwriters;
(Q) The Company is not in violation of its certificate of
incorporation or
-35-
<PAGE>
bylaws, and to the best of such counsel's knowledge, the Company is not in
breach of or in default with respect to any provision of any agreement,
mortgage, deed of trust, lease, franchise, license, indenture, permit or other
instrument by which it or any of its properties may be bound or affected, except
where such default would not materially adversely affect the Company and, to the
best of such counsel's knowledge, the Company is in compliance with all laws,
rules, regulations, judgments, decrees, orders and statutes of any court or
jurisdiction to which it is subject, except where noncompliance would not
materially adversely affect the Company;
(R) To such counsel's knowledge, there are no pending or
threatened actions, suits, claims, proceedings or investigations that, if
successful, would have a Material Adverse Effect or would limit, revoke, cancel,
suspend, or cause not to be renewed any existing license, certificate,
registration, approval or permit, known to such counsel, from any state,
federal, or regulatory authority that is material to the conduct of the business
of the Company as presently conducted, or that is of a character otherwise
required to be disclosed in the Registration Statement or the Prospectus under
the Act or the applicable Rules and Regulations;
(S) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of shares of Common Stock or
other securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration Statement
and Prospectus, all holders of securities of the Company having registration
rights with respect to shares of Common Stock or other securities have, with
respect to the offering contemplated hereby, waived such rights or such rights
have otherwise been waived or such rights have expired by reason of lapse of
time following notification of the Company's intent to file the Registration
Statement.
(T) No transfer taxes are required to be paid in connection with
the sale or delivery to the Underwriters of the Firm Shares or the Option
Shares;
(U) Such counsel has read the description of the Company's
business in the Prospectus and the statements in the Prospectus under the
caption "Business--Government Regulation" (the "FDA Portion") and, to the best
of such counsel's knowledge, (i) the statements included in the FDA Portion,
insofar as such statements summarize provisions of applicable FDA statutes and
regulations, are accurate in all material respects and (ii) the FDA statutes and
regulations summarized in the FDA Portion are the FDA statutes and regulations
that are material to the Company's business as described in the Prospectus.
(V) The Company will not, upon consummation of the transactions
contemplated by this Agreement, be an "investment company," or a "promoter" or
"principal underwriter" for, a "registered investment company," as such terms
are defined in the Investment Company Act of 1940, as amended;
In addition, such counsel shall include a statement to the effect
that such counsel has participated in conferences with officials and other
representatives of the Company, the Representatives, Underwriters' Counsel and
the independent public accountants of the Company,
<PAGE>
at which conferences the contents of the Registration Statement and the
Prospectus and related matters were discussed, and although they have not
verified the accuracy or completeness of the statements contained in the
Registration Statement or the Prospectus, nothing has come to the attention of
such counsel which caused them to believe that, at the time the Registration
Statement became effective the Registration Statement (except as to financial
statements, financial and statistical data and supporting schedules contained
therein, as to which such counsel need express no opinion) contained any 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 at
the Closing Date or any later Option Closing Date, as the case may be, the
Registration Statement or the Prospectus (except as aforesaid) contained any
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, in light of
the circumstances under which they were made, not misleading.
Counsel rendering the foregoing may rely (i) as to questions of
law not involving the laws of the State of Delaware, the United States or the
General Corporation Law of the State of Delaware upon opinions of local counsel,
and (ii) as to questions of fact upon representations or certificates of
officers of the Company and of governmental officials, as the case may be, in
which case its opinion is to state that it is so doing and that it has no actual
knowledge of any material misstatement or inaccuracy in such opinions,
representations or certificates, and that they believe that they and the
Underwriters are justified in relying on such opinions or certificates. Copies
of any opinion, representation or certificate so relied upon shall be delivered
to you, as Representatives of the Underwriters, and to Underwriters' Counsel.
2. Opinion of Hamilton, Brook, Smith & Reynolds, P.C.
--------------------------------------------------
Hamilton, Brook, Smith & Reynolds, P.C. shall indicate that they
served as counsel to the Company with respect to its patents and proprietary
rights, and shall opine that:
The statements in the Registration Statement and the Prospectus
under the captions "Risk Factors -- Uncertainty of Patents and Proprietary
Rights," "Business -- Aminoacyl-tRNA Synthetase Program," "Business --
Ribonuclease Program," "Business -- Glutamine Amidotransferase Program" and
"Business --Patents and Proprietary Technology," insofar as such statements
constitute a summary of documents referred to therein or matters of law, are
accurate summaries and fairly correctly present, in all material respects, the
information called for with respect to such documents and matters; provided,
however, that we have relied on representations of the Company with respect to
the factual matters contained in such statements, that nothing has come to our
attention which leads us to believe that such representations are not true and
correct in all material respects.
To the best of such counsel's knowledge and belief, other than
proceedings (except interference proceedings) of the Patent and Trademark
Office, there are no legal or governmental proceedings pending relating to
patent rights, trade secrets, trademarks,
<PAGE>
service marks or other proprietary information or materials of the Company, and
to the best of such counsel's knowledge and belief, no such proceedings are
threatened or contemplated by governmental authorities or others.
Such counsel does not know of any material contracts or other
material documents relating to the Company's patents, patent applications, trade
secrets, trademarks, trademark applications, service marks or other proprietary
information or materials, other than those filed as an exhibit to the
Registration Statement or required to be described in the Registration Statement
or the Prospectus, that are not filed or described as required.
To the best of such counsel's knowledge, the Company has not
received any notice of infringement or of conflict with rights or claims of
others with respect to any patents, trade secrets, trademarks, service marks, or
other proprietary information or materials of others which could result in any
material, adverse effect upon the Company, and to the best of such counsel's
knowledge and belief, there are no infringements by others of any of the
Company's patents, trade secrets, trademarks, service marks, or other
proprietary information or materials which in such counsel's judgment could
affect materially the use thereof by the Company, and no claim or claims in any
patent application owned or licensed to the Company would be infringed by the
activities of others if such claim or claims were issued. Except as described in
the Prospectus, such counsel is not aware of any patent applications of others
which, if issued in the form available to such counsel, would be infringed by
the activities or proposed activities of the Company, as described in the
Prospectus. Such counsel is not aware of any valid patents of others which are
infringed by specific products or processes referred to in the Prospectus in
such a manner as to materially and adversely affect the Company.
Such counsel has no knowledge of any facts which would preclude
the Company from having valid license rights or clear title to the patents
referenced in the Prospectus. Such counsel has no knowledge that the Company
lacks or will be unable to obtain any rights or licenses to use all patents and
other material intangible property and assets necessary to conduct the business
now conducted or proposed to be conducted by the Company as described in the
Prospectus, except as described in the Prospectus. Counsel is unaware of any
facts which form a basis for a finding of unenforceability or invalidity of any
of the Company's patents and other material intangible property and assets.
Subject to any disclosure to the contrary in the Prospectus, such
counsel is not aware of any material fact with respect to the patent
applications of the Company presently on file that (a) would preclude the
issuance of patents with respect to such applications or (b) would lead such
counsel to conclude that such patents, when issued, would not be valid and
enforceable in accordance with applicable regulations.
Such counsel may advise you that, in rendering their opinion, they
have relied on certain factual representations of the Company and that they have
not independently verified the accuracy and completeness of such
representations.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
CUBIST PHARMACEUTICALS, INC.
FIRST: The name of the corporation is:
-----
Cubist Pharmaceuticals, Inc.
SECOND: The address of its registered office in the State of Delaware is
------
1013 Centre Road, in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is Corporation Service Company.
THIRD: 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 the State of Delaware.
FOURTH: The total number of shares of capital stock which the corporation
------
shall have authority to issue is as follows:
<TABLE>
<CAPTION>
Without
Par Value With Par Aggregate
Class of Stock No. of Value No. of Par Value Amount
Shares Shares
- --------------------------- ------------ --------------- ----------- -----------
<S> <C> <C> <C> <C>
Common None 2,500,000 $.001 $2,500.00
Preferred None 10,000 $.001 $ 10.00
</TABLE>
PREFERRED STOCK, $.001 PAR
---------------- ---------
The shares of Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized to establish and designate
the different series and to fix and determine the voting powers, full or
limited, or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions thereof, as shall be stated in a resolution or resolutions
providing for the issue of such series adopted by the Board of Directors, which
powers, preferences, rights, qualifications, limitations and restrictions need
not be uniform among series. Any of the voting powers, designations,
preferences, rights and qualifications, limitations or restrictions of any such
series of stock may be made dependent upon facts
<PAGE>
-2-
ascertainable outside the resolution or resolutions providing for the issue of
such stock adopted by the Board of Directors, provided that the manner in which
such facts shall operate upon the voting powers, designations, preferences,
rights and qualifications, limitations or restrictions of such series of stock
is clearly and expressly set forth in the resolution or resolutions providing
for the issue of such series adopted by the Board of Directors.
Any resolution or resolutions adopted by the Board of Directors pursuant to the
authority vested in them by this Article Fourth shall be set forth in a
certificate of designations along with the number of shares of stock of such
series as to which the resolution or resolutions shall apply and such
certificate shall be executed, acknowledged, filed, recorded, and shall become
effective, in accordance with (S)103 of the General Corporation Law of the State
of Delaware. Unless otherwise provided in any such resolution or resolutions,
the number of shares of stock of any such series to which such resolution or
resolutions apply may be increased (but not above the total number of authorized
shares of the class) or decreased (but not below the number of shares thereof
then outstanding) by a certificate likewise executed, acknowledged, filed and
recorded, setting forth a statement that a specified increase or decrease
therein has been authorized and directed by a resolution or resolutions likewise
adopted by the Board of Directors. In case the number of such shares shall be
decreased, the number of shares so specified in the certificate shall resume the
status which they had prior to the adoption of the first resolution or
resolutions. When no shares of any such class or series are outstanding, either
because none were issued or because none remain outstanding, a certificate
setting forth a resolution or resolutions adopted by the Board of Directors that
none of the authorized shares of such class or series are outstanding, and that
none will be issued subject to the certificate of designations previously filed
with respect to such class or series, may be executed, acknowledged, filed and
recorded in the same manner as previously described and it shall have the effect
of eliminating from the certificate of incorporation all matters set forth in
the certificate of designations with respect to such class or series of stock.
If no shares of any such class or series established by a resolution or
resolutions adopted by the Board of Directors have been issued, the voting
powers, designations, preferences and relative, participating, optional or other
rights, if any, with the qualifications, limitations or restrictions thereof,
may be amended by a resolution or resolutions adopted by the Board of Directors.
In the event of any such amendment, a certificate which (l) states that no
shares of such class or series have been issued, (2) sets forth the copy of the
amending resolution or resolutions and (3) if the designation of such class or
series is being changed, indicates the original designation and the new
designation, shall be executed,
<PAGE>
-3-
acknowledged, filed, recorded, and shall become effective, in accordance with
(S)l03 of the General Corporation Law of the State of Delaware.
FIFTH: The name and mailing address of the sole incorporator is as
-----
follows:
NAME MAILING ADDRESS
---- ------- -------
Justin P. Morreale c/o Bingham, Dana & Gould
150 Federal Street
Boston, Massachusetts 02110
SIXTH: The following provisions are inserted for the management of the
-----
business and for the conduct of the affairs of the corporation and for defining
and regulating the powers of the corporation and its directors and stockholders
and are in furtherance and not in limitation of the powers conferred upon the
corporation by statute:
(a) The election of directors need not be by written ballot.
(b) The Board of Directors shall have the power and authority:
(1) to adopt, amend or repeal by-laws of the corporation, subject only
to such limitation, if any, as may be from time to time imposed by law or by the
by-laws; and
(2) to the full extent permitted or not prohibited by law, and without
the consent of or other action by the stockholders, to authorize or create
mortgages, pledges or other liens or
encumbrances upon any or all of the assets, real, personal or mixed, and
franchises of the corporation, including after-acquired property, and to
exercise all of the powers of the corporation in connection therewith; and
(3) subject to any provision of the by-laws, to determine whether, to
what extent, at what times and places and under what conditions and regulations
the accounts, books and papers of the corporation (other than the stock ledger),
or any of them, shall be open to the inspection of the stockholders, and no
stockholder shall have any right to inspect any account, book or paper of the
corporation except as conferred by statute or authorized by the by-laws or by
the Board of Directors.
SEVENTH: No director of the corporation shall be personally liable to
-------
the corporation or to any of its stockholders for monetary damages for breach
<PAGE>
-4-
of fiduciary duty as a director, notwithstanding any provision of law imposing
such liability; provided, however, that to the extent required from time to time
by applicable law, this Article Seventh shall not eliminate or limit the
liability of a director, to the extent such liability is provided by applicable
law, (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
Title 8 of the Delaware Code, or (iv) for any transaction from which the
director derived an improper personal benefit. No amendment to or repeal of this
Article Seventh shall apply to or have any effect on the liability or alleged
liability of any director for or with respect to any acts or omissions of such
director occurring prior to the effective date of such amendment or repeal.
THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this certificate, hereby declaring and certifying
that this is my act and deed and the facts stated herein are true, and
accordingly have hereunto set my hand this day of May, 1992.
__________________________
Justin P. Morreale
<PAGE>
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
CUBIST PHARMACEUTICALS, INC.
CUBIST PHARMACEUTICALS, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies that:
FIRST. The Restated Certificate of Incorporation of the
Corporation is hereby amended by deleting in its entirety Articles FOURTH,
FIFTH, SIXTH and SEVENTH thereof and by substituting in lieu thereof the
following new Articles FOURTH, FIFTH, SIXTH, SEVENTH, EIGHTH, NINETH, TENTH and
ELEVENTH:
"FOURTH. The total number of shares of all classes of stock that the
Corporation shall have authority to issue is 95,000,000, consisting solely
of:
25,000,000 shares of common stock, $.001 par value per share ("Common
Stock"); and
43,000,000 shares of preferred stock, $.001 par value per share
("Preferred Stock"), of which
5,000,000 shares of Preferred Stock have been designated as Series A
Convertible Preferred Stock, $.001 par value per share ("Series A Preferred
Stock");
14,973,870 shares of Preferred Stock have been designated as Series B
Convertible Preferred Stock, $.001 par value per share ("Series B Preferred
Stock");
15,383,646 shares of Preferred Stock have been designated as Series C
Convertible Preferred Stock, $.001 par value per share ("Series C Preferred
Stock"); and
2,816,902 shares of Preferred Stock have been designated as Series D
Convertible Preferred Stock, $.001 par value per share ("Series D Preferred
Stock").
<PAGE>
- 2 -
At such time as no shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or
Parity Preferred Stock (as defined in Section 1 below) are issued and
outstanding, including without limitation because all of such shares have
been converted into shares of Common Stock in accordance with this Restated
Certificate of Incorporation, all authorized shares of each such class and
series of stock, automatically and without further actions, shall be
reclassified as authorized but unissued shares of undesignated Preferred
Stock of no particular class or series, and any and all of such shares may
thereafter be issued by the Board of Directors of the Company in one or
more series, and the terms of any such series may be determined by the
Board of Directors, as provided in Section 3 below.
The following is a statement of the powers, designations, preferences,
privileges, and relative, participating, optional, and other special rights
of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Parity Preferred Stock and
Common Stock, respectively:
1. DEFINITIONS. The following terms shall have the respective
-----------
meanings provided therefor below in this Section 1:
"Applicable Adjustment Price" shall mean (i) with respect to the
---------- ---------- -----
Series A Preferred Stock, the Series A Adjustment Price, (ii) with respect
to the Series B Preferred Stock, the Series B Adjustment Price, (iii) with
respect to the Series C Preferred Stock, the Series C Adjustment Price,
(iv) with respect to the Series D Preferred Stock, the Series D Adjustment
Price and (v) with respect to each series of Parity Preferred Stock, the
Parity Preferred Stock Adjustment Price applicable to such series of Parity
Preferred Stock.
"Applicable Conversion Rate" shall mean (i) with respect to the Series
---------- ---------- ----
A Preferred Stock, the Series A Conversion Rate, (ii) with respect to the
Series B Preferred Stock, the Series B Conversion Rate, (iii) with respect
to the Series C Preferred Stock, the Series C Conversation Rate, (iv) with
respect to the Series D Preferred Stock, the Series D Conversion Rate and
(v) with respect to each series of Parity Preferred Stock, the Parity
Preferred Stock Conversion Rate applicable to such series of Parity
Preferred Stock.
<PAGE>
- 3 -
"Conversion Rates" shall mean, collectively, the Series A Conversion
---------- -----
Rate, the Series B Conversion Rate, the Series C Conversion Rate, the
Series D Conversion Rate and the Parity Preferred Stock Conversion Rate
applicable to each series of Parity Preferred Stock.
"Convertible Securities" shall have the meaning provided therefor in
----------- ----------
Section 2.4(e)(i) hereof.
"Designated Preferred Stock" shall mean the Series A Preferred Stock,
---------- --------- -----
the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock and the Parity Preferred Stock.
"Original Issuance Price Per Share" shall mean (i) with respect to the
-------- -------- ----- --- -----
Series A Preferred Stock, $0.10 per share, subject to Proportional
Adjustment, (ii) with respect to the Series B Preferred Stock, $0.50 per
share, subject to Proportional Adjustment, (iii) with respect to the Series
C Preferred Stock, $0.60 per share, subject to Proportional Adjustment,
(iv) with respect to the Series D Preferred Stock, $1.42 per share, subject
to Proportional Adjustment, and (v) with respect to each series of Parity
Preferred Stock, the original issuance price of the first share issued of
such series of Parity Preferred Stock, subject to Proportional Adjustment.
"Parity Preferred Stock" shall mean any and all series of Preferred
------ --------- -----
Stock ranking pari passu with the Series A Preferred Stock, the Series B
---- -----
Preferred Stock, the Series C Preferred Stock and the Series D Preferred
Stock, as to dividends and liquidation preference.
"Parity Preferred Stock Adjustment Price" shall mean, at the relevant
------ --------- ----- ---------- -----
time of reference thereto, the quotient obtained by dividing (i) the
Original Issuance Price Per Share for such Series of Parity Preferred Stock
(without giving effect to any Proportional Adjustment to such Original
Issuance Price Per Share) by (ii) the Parity Preferred Stock Conversion
Rate in effect at such time for such series of Parity Preferred Stock.
"Parity Preferred Stock Conversion Rate" shall mean the rate at which
------ --------- ----- ---------- ----
outstanding shares of such series of Parity Preferred Stock may be
converted into shares of Common Stock, which rate shall be subject to
adjustment from time to time pursuant to Section 2.4(e) hereof.
<PAGE>
- 4 -
"Proportional Adjustment" shall mean a proportional or other equitable
------------ ----------
adjustment made to the Original Issuance Price Per Share of each series of
Designated Preferred Stock upon the occurrence of a stock split, reverse
stock split, stock dividend, stock combination, reclassification or other
similar change with respect to such series of Designated Preferred Stock.
"Permitted Shares" shall mean, collectively, (a) any shares of Common
--------- ------
Stock or Convertible Securities issued or issuable to employees or
consultants, or to persons who were to become employees or consultants, of
the Corporation pursuant to stock option, stock incentive, stock
appreciation, stock bonus or compensation rights plans or any other
employee benefit plans presently in effect or which may hereafter be
adopted by the Corporation, or pursuant to stock option, employment,
consulting, restricted stock or other agreements or arrangements of any
kind, provided, however, that in no event shall the number of such shares
-------- -------
of Common Stock referred to in this clause (a) exceed [twenty percent
(20%)] of the sum of the shares of Common Stock issued and outstanding from
time to time and the shares of Common Stock issuable upon conversion of all
series of Designated Preferred Stock; (b) up to 276,484 shares of Common
Stock issuable by the Corporation to The Massachusetts Institute of
Technology ("MIT") pursuant to that certain License Agreement, which became
effective as of November 17, 1992, between the Corporation and MIT; (c) the
issuance of up to 125,833 shares of Series C Preferred Stock upon exercise
of warrants issued to Comdisco, Inc.; (d) the issuance of up to 240,000
shares of Series C Preferred Stock upon exercise of outstanding options
issued to Julius Rebek, Jr. and Paul R. Schimmel; (e) the issuance of up to
240,500 shares of Series B Preferred Stock issuable upon exercise of
warrants issued to Comdisco, Inc.; and (f) any shares of Common Stock or
Convertible Securities issued or issuable upon conversion of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock, Parity Preferred Stock or any other Convertible
Securities.
"Series A Adjustment Price" shall mean, at the relevant time of
------ - ---------- -----
reference thereto, the quotient obtained by dividing (i) $0.10 by (ii) the
Series A Conversion Rate in effect at such time.
"Series A Conversion Rate" shall mean the rate at which outstanding
------ - ---------- ----
shares of Series A Preferred Stock may be converted
<PAGE>
- 5 -
into shares of Common Stock, which rate, on the Series D Original Issuance
Date, shall be equal to 1 share of Common Stock for each share of Series A
Preferred Stock and thereafter shall be subject to adjustment from time to
time pursuant to Section 2.4(e) hereof.
"Series B Adjustment Price" shall mean, at the relevant time of
------ - ---------- -----
reference thereto, the quotient obtained by dividing (i) $0.50 by (ii) the
Series B Conversion Rate in effect at such time.
"Series B Conversion Rate" shall mean the rate at which outstanding
------ - ---------- ----
shares of Series B Preferred Stock may be converted into shares of Common
Stock, which rate, on the Series D Original Issuance Date, shall be equal
to 1 share of Common Stock for each share of Series B Preferred Stock and
thereafter shall be subject to adjustment from time to time pursuant to
Section 2.4(e) hereof.
"Series C Adjustment Price" shall mean, at the relevant time of
------ - ---------- -----
reference thereto, the quotient obtained by dividing (i) $0.60 by (ii) the
Series C Conversion Rate in effect at such time.
"Series C Conversion Rate" shall mean the rate at which outstanding
------ - ---------- ----
shares of Series C Preferred Stock may be converted into shares of Common
Stock, which rate, on the Series D Original Issuance Date, shall be equal
to 1 share of Common Stock for each share of Series C Preferred Stock and
thereafter shall be subject to adjustment from time to time pursuant to
Section 2.4(e) hereof.
"Series D Adjustment Price" shall mean, at the relevant time of
------ - ---------- -----
reference thereto, the quotient obtained by dividing (i) $1.42 by (ii) the
Series D Conversion Rate in effect at such time.
"Series D Conversion Rate" shall mean the rate at which outstanding
------ - ---------- ----
shares of Series D Preferred Stock may be converted into shares of Common
Stock, which rate, on the Series D Original Issuance Date, shall be equal
to 1 share of Common Stock for each share of Series D Preferred Stock and
thereafter shall be subject to adjustment from time to time pursuant to
Section 2.4(e) hereof.
"Series D Original Issuance Date" shall mean the date of issuance by
------ - -------- -------- ----
the Corporation of the first share of Series D Preferred Stock.
<PAGE>
- 6 -
2. SERIES A PREFERRED STOCK, SERIES B PREFERRED STOCK, SERIES C PREFERRED
----------------------------------------------------------------------
STOCK, SERIES D PREFERRED STOCK AND PARITY PREFERRED STOCK
----------------------------------------------------------
2.1. Voting. Except as may be otherwise provided in this Restated
------
Certificate of Incorporation or by law, each series of the Designated
Preferred Stock shall vote together with all other classes and series of
stock of the Corporation as a single class on all actions to be taken by
the stockholders of the Corporation. Each share of Designated Preferred
Stock shall entitle the holder thereof to such number of votes per share on
each such action as shall equal the number of shares of Common Stock
(including fractions of a share) into which such share of Designated
Preferred Stock is then convertible. The different series of Designated
Preferred Stock shall not be construed to constitute different classes of
stock for the purposes of voting by classes unless expressly so provided in
this Restated Certificate of Incorporation.
2.2. Dividends. The holders of any series of Designated Preferred
---------
Stock shall be entitled to receive, for each share of such series of
Designated Preferred Stock, dividends if, when and as declared by the Board
of Directors out of funds legally available therefor; provided, however,
-------- -------
that, so long as any shares of such series of Designated Preferred Stock
shall be outstanding, the Corporation shall not declare or pay any dividend
upon any shares of any other series of Designated Preferred Stock or Common
Stock, unless the Corporation shall first pay, or simultaneously therewith
declare and set apart a sum sufficient for the payment of, a dividend upon
all of the outstanding shares of such series of Designated Preferred Stock
in a per share amount, computed on an as-converted basis in the manner
provided in the sentence below, equal to the per share amount of the
dividend upon Common Stock or such other series of Designated Preferred
Stock (computed on an as-converted basis in the manner provided in the
sentence below), as the case may be. For purposes hereof, the per share
amount of any dividend paid or payable upon outstanding shares of any
series of Designated Preferred Stock shall be deemed equal to the amount
obtained by dividing the dividend paid or payable upon each of such
outstanding shares of such series of Designated Preferred Stock by the
number of shares of Common Stock into which each such outstanding share of
such series of Designated Preferred Stock shall then be convertible.
<PAGE>
- 7 -
2.3. Liquidation Preference.
----------- ----------
(a) Preference. In the event of any liquidation, dissolution or
----------
winding up of the affairs of the Corporation, voluntarily or involuntarily,
the holders of outstanding shares of any series of Designated Preferred
Stock shall be entitled to receive pro rata, prior to any distribution to
the holders of the Common Stock or any other stock ranking junior to such
series of Designated Preferred Stock (collectively, "Junior Stock") but
pari passu with the rights of holders of outstanding shares of each other
---- -----
series of Designated Preferred Stock to receive their respective
liquidation preference pursuant to this Section 2.3(a), a preferential
amount with respect to each share of such series of Designated Preferred
Stock equal to the sum of (i) the Original Issuance Price Per Share for
such series of Designated Preferred Stock and (ii) all dividends and
distributions, if any, then declared and unpaid on account of such share.
If upon such liquidation, dissolution or winding up, the assets of the
Corporation are insufficient (after payment of the liquidation preference
of any class or series of preferred stock ranking senior on liquidation to
the Designated Preferred Stock) to provide for the payment in full of the
liquidation preference payable with respect to each outstanding share of
each series of Designated Preferred Stock, such assets as are available
shall be paid out pro rata among the outstanding shares of all series of
Designated Preferred Stock in proportion to the respective amounts that
would be payable in respect of such shares if the liquidation preference
payable with respect to each outstanding share of each series of Designated
Preferred Stock were paid in full. After payment or setting apart for
payment of the liquidation preference payable with respect to each
outstanding share of each series of Designated Preferred Stock, the
remaining assets of the Corporation, if any, shall be distributed among the
holders of the Junior Stock.
(b) Merger or Acquisition. A consolidation or merger of the
------ -- -----------
Corporation with or into any other corporation or corporations (other than
a merger in which the holders of capital stock of the Corporation
immediately prior to the merger directly or indirectly beneficially own a
majority of the capital stock of the surviving corporation immediately
after the merger), or a sale of all or substantially all of the assets of
the Corporation, shall be deemed to be a liquidation, dissolution or
winding up within the meaning of this Section 2.3.
<PAGE>
- 8 -
2.4. Conversion of Designated Preferred Stock.
---------- -- --------------------------
The holders of outstanding shares of any series of Designated
Preferred Stock shall have conversion rights in accordance with the
following provisions:
(a) Right to Convert. Outstanding shares of each series of Designated
----- -- -------
Preferred Stock may, at the option of the holder thereof, be converted into
shares of Common Stock of the Corporation (as such shares of Common Stock
may be constituted on the conversion date) at any time and from time to
time at the Applicable Conversion Rate for such series of Designated
Preferred Stock.
(b) Mechanics of Conversion. The holder of a share or shares of any
-----------------------
series of Designated Preferred Stock may exercise the conversion right as
to any thereof by delivering to the Corporation during regular business
hours, at the principal executive offices of the Corporation or at the
corporate trust office of any transfer agent of the Corporation for the
shares of such series of Designated Preferred Stock or at such other place
as may be designated by the Corporation, the certificate or certificates
for the shares to be converted, duly endorsed or assigned in blank or to
the Corporation (if required by it), accompanied by written notice stating
that the holder elects to convert such shares and stating the name or names
(with addresses) in which the certificate or certificates for Common Stock
are to be issued and by payment of any tax which may be payable in respect
of any transfer involved in the issuance and delivery of shares in any name
other than that of the holder of record on the books of the Corporation of
the shares of such series of Designated Preferred Stock converted.
Conversion shall be deemed to have been effected on the date such delivery
is made, and such date is referred to herein as the "Conversion Date". As
promptly as practicable after conversion, the Corporation shall issue and
deliver to or upon the written order of such holder, at such office or
other place designated by the Corporation, a certificate or certificates
for the number of full shares of Common Stock to which such holder is
entitled and a check or cash in respect of any fraction of a share as
provided below. The person in whose name the certificate or certificates
for Common Stock are to be issued shall be deemed to have become a
shareholder of record on the Conversion Date unless the transfer books of
the Corporation are closed on that date, in which event he shall be deemed
to have become a shareholder of record on the next succeeding date on which
the transfer books are open, but the Applicable Conversion Rate for the
shares of the
<PAGE>
- 9 -
series of Designated Preferred Stock converted shall be that in effect on
the Conversion Date. No payment or adjustment shall be made upon any
conversion on account of any dividends declared but unpaid on the shares of
any series of Designated Preferred Stock surrendered for conversion or on
account of any dividends on the shares of Common Stock issued upon such
conversion.
(c) Mandatory Conversion. All outstanding shares of each series of
--------------------
Designated Preferred Stock shall be deemed automatically converted into
shares of Common Stock at the Applicable Conversion Rate for such series of
Designated Preferred Stock upon the occurrence of a closing of a public
offering for the account of the Corporation of the Common Stock of the
Corporation or securities convertible into or exchangeable for shares of
Common Stock of the Corporation, (I) where the holders of sixty percent in
voting power of the shares of such series of Designated Preferred Stock
then outstanding, voting, consenting or otherwise acting as a single class
separate from the holders of all other series or classes of capital stock
of the Company, elect in writing or at a duly called meeting of
stockholders of the Corporation to effect such automatic conversion, or
(II) where the aggregate sales price of the securities included in such
public offering and in all other public offerings for the account of the
Corporation of Common Stock or securities convertible into or exchangeable
for shares of Common Stock of the Corporation closed prior thereto (before
deduction of any underwriting commissions, discounts or commissions or
expenses of sale) is at least $15,000,000 and where in such public offering
the price per share of Common Stock (or, if securities convertible into or
exchangeable for Common Stock have been sold, the aggregate sales price of
such securities plus the aggregate consideration payable to the Corporation
upon the conversion or exchange of such securities into shares of Common
Stock divided by the total number of shares of Common Stock into which such
securities are convertible or exchangeable) is not less than (i) if such
closing occurs on or prior to the first anniversary of the Series D
Original Issuance Date, the amount obtained by dividing $1.56 by the
Applicable Conversion Rate for such series of Designated Preferred Stock,
as in effect prior to the closing of such public offering, or (ii) if such
closing occurs after the first anniversary of the Series D Original
Issuance Date, the amount obtained by dividing $1.85 by the Applicable
Conversion Rate for such series of Designated Preferred Stock, as in effect
prior to the closing of such public offering. On or after the date of the
closing of such public offering, and in any event within ten days after
receipt of notice, by mail, postage prepaid from the Corporation of the
<PAGE>
- 10 -
occurrence thereof, each holder of shares of any series of Designated
Preferred Stock shall surrender such holder's certificates evidencing such
shares at the principal executive offices of the Corporation or at the
corporate trust office of any transfer agent for the shares of such series
of Designated Preferred Stock or at such other place as may be designated
by the Corporation, and shall thereupon be entitled to receive certificates
evidencing the number of shares of Common Stock into which such shares of
such series of Designated Preferred Stock shall have been converted. On the
date of the closing of such public offering, each holder of shares of any
series of Designated Preferred Stock shall be deemed to have become a
holder of record of the shares of Common Stock issuable upon conversion
thereof, notwithstanding that the certificates representing such shares of
such series of Designated Preferred Stock shall not have been surrendered
as provided above, that notice from the Corporation shall not have been
received by any holder of shares of Designated Preferred Stock, or that the
certificates evidencing such shares of Common Stock shall not then be
actually delivered to such person.
(d) Fractional Shares. The Corporation shall not be required to
-----------------
issue any fraction of a share upon conversion of any share or shares of any
series of Designated Preferred Stock. If more than one share of any series
of Designated Preferred Stock shall be surrendered for conversion at one
time by the same holder, the number of full shares of Common Stock issuable
upon conversion thereof shall be computed on the basis of the total number
of shares of such series of Designated Preferred Stock so surrendered. If
any fractional interest in a share of Common Stock would be deliverable
upon conversion, the Corporation shall make an adjustment therefor in cash.
Adjustment in cash shall be made on the basis of the current market price
of one share of Common Stock on the Conversion Date. A determination of the
current market price made in good faith by the Board of Directors for the
purposes of this Section 2.4(d) or Section 2.4(e)(iv) hereof shall be
conclusive and binding upon all the shareholders of the Corporation.
(e) Conversion Rate Adjustments. The Conversion Rates shall be
---------------------------
subject to the following adjustments:
(i) If the Corporation shall pay to the holders of its Common Stock a
dividend in shares of Common Stock or in securities convertible into its
Common Stock (the "Convertible Securities"), each of the Conversion Rates,
as in effect immediately
<PAGE>
- 11 -
prior to the record date fixed for the determination of the holders of
Common Stock entitled to such dividend, shall be increased, effective at
the opening of business on the full business day next following such record
date, by multiplying such Conversion Rate by a fraction, the numerator of
which is the number of shares of Common Stock issued and outstanding on
such record date plus the number of shares of Common Stock issued, or
issuable upon conversion of the Convertible Securities issued, in payment
of such dividend and the denominator of which is the number of shares of
Common Stock issued and outstanding on such record date.
(ii) If the Corporation shall split the outstanding shares of its
Common Stock into a greater number of shares or combine the outstanding
shares of its Common Stock into a smaller number of shares, each of the
Conversion Rates, as in effect immediately prior to such action, shall be
increased in the case of a split or decreased in the case of a combination,
effective at the opening of business on the full business day next
following the day such action becomes effective, so that each holder of
shares of any series of Designated Preferred Stock thereafter surrendered
for conversion shall be entitled to receive the number of shares of Common
Stock which such holder would have been entitled to receive as a result of
such split or combination if such shares of such series of Designated
Preferred Stock had been converted immediately prior to the date such split
or combination, as the case may be, became effective.
(iii) If the Corporation shall issue or sell options, warrants or
rights to subscribe for or purchase shares of its Common Stock, other than
Permitted Shares, at a price per share (plus the consideration per share of
Common Stock, if any, received for such options, warrants or rights) less
than the Applicable Adjustment Price with respect to any series of
Designated Preferred Stock, as in effect immediately prior to such issuance
or sale, or to subscribe for or purchase any Convertible Securities at a
price per share (plus the consideration per share of Convertible
Securities, if any, received for such options, warrants or rights) which
when divided by the conversion rate applicable to those Convertible
Securities is less than the Applicable Adjustment Price with respect to any
series of Designated Preferred Stock, as in effect immediately prior to
such issuance or sale, the Applicable Conversion Rate with respect to such
series of Designated Preferred Stock, as in effect immediately prior to
such issuance or sale, shall be increased, effective at the opening of
business on the first full business day next following such issuance or
sale, to an amount determined by multiplying such
<PAGE>
- 12 -
Applicable Conversion Rate by a fraction the numerator of which is the
number of shares of Common Stock of the Corporation outstanding immediately
prior to said date plus the number of shares of Common Stock issuable on
exercise of such options, warrants or rights (or, in the case of
Convertible Securities, the number of shares of Common Stock into which the
Convertible Securities issuable on exercise of such options, warrants or
rights would then be convertible) and the denominator of which is the
number of shares of Common Stock outstanding immediately prior to said date
plus the number of shares of Common Stock of the Corporation which the
aggregate subscription or purchase price for the total number of such
shares issuable on exercise of such options, warrants or rights (including
the consideration, if any, received by the Corporation for such options,
warrants or rights) would purchase at the Applicable Adjustment Price with
respect to such series of Designated Preferred Stock, as in effect
immediately prior to such issuance or sale. On the expiration of such
options, warrants or rights, the Applicable Conversion Rate with respect to
any then outstanding shares of such series of Designated Preferred Stock
shall forthwith be readjusted to the Applicable Conversion Rate for such
series of Designated Preferred Stock which would have obtained at the time
of such expiration if the adjustment made at the time such options,
warrants or rights were issued or sold had been made upon the basis of the
issuance of only the number of shares of Common Stock or Convertible
Securities actually issued upon the exercise of such options, warrants or
rights, but such readjustment shall not affect any conversion theretofore
made.
(iv) If the Corporation shall distribute to the holders of its
Common Stock any evidences of its indebtedness, or any options, warrants or
rights to subscribe for any security other than its Common Stock or
Convertible Securities, or any other assets (excluding dividends and
distributions in cash to the extent permitted by law), the Applicable
Conversion Rate with respect to each series of Designated Preferred Stock
in effect immediately prior to the record date fixed for the determination
of the holders of Common Stock entitled to such distribution shall be
increased, effective at the opening of business on the next following full
business day, to an amount determined by multiplying such Applicable
Conversion Rate by a fraction the numerator of which is the current market
price of one share of Common Stock on such record date (determined in
accordance with the provisions of Section 2.4(d) hereof) and the
denominator of which is such current market price less the fair market
value (as determined by an independent
<PAGE>
- 13 -
appraiser selected with the approval of at least seventy percent (70%) of
the members of the Board of Directors of the Corporation then in office,
whose determination, in the absence of fraud, shall be conclusive) of the
amount of evidences of indebtedness, options, rights, warrants or other
assets (excluding cash dividends and distributions, as aforesaid) so
distributed which is applicable to one share of Common Stock.
(v) If the Corporation shall issue shares of its Common Stock or
Convertible Securities other than Permitted Shares and other than pursuant
to a transaction described in Sections 2.4(e)(i) - 2,4(e)(iv) hereof, at a
price per share of less than the Applicable Adjustment Price with respect
to any series of Designated Preferred Stock, as in effect immediately prior
to such issuance, (or, in the case of Convertible Securities, at a price
per share which when divided by the conversion rate applicable thereto is
less than the Applicable Adjustment Price with respect to any series of
Designated Preferred Stock, as in effect immediately prior to such
issuance), the Applicable Conversion Rate with respect to such series of
Designated Preferred Stock, as in effect immediately prior to such
issuance, shall be increased, effective at the opening of business on the
next following full business day, to an amount determined by multiplying
such Applicable Conversion Rate by a fraction the numerator of which is the
number of shares of Common Stock of the Corporation outstanding immediately
prior to such issuance plus the number of additional shares of Common Stock
to be so issued (or, in the case of Convertible Securities, the number of
additional shares of Common Stock into which the Convertible Securities to
be so issued would be convertible) and the denominator of which is the
number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock of the Corporation which
the aggregate purchase price for the total number of additional shares of
Common Stock or Convertible Securities to be so issued would purchase at
the Applicable Adjustment Price with respect to such series of Designated
Preferred Stock, as in effect immediately prior to such issuance.
No adjustment of the Applicable Conversion Rate with respect to any series
of Designated Preferred Stock, as provided in this Section 2.4(e), shall be
made by reason of the issuance of shares of Common Stock or Convertible
Securities of the Corporation, or options, warrants or rights to subscribe
therefor, for cash, property or services, except as provided in Sections
2.4(e)(iii) and 2.4(e)(v)
<PAGE>
- 14 -
hereof. To the extent that any shares of Common Stock or Convertible
Securities of the Corporation, or options, warrants or rights to subscribe
therefor, shall be issued for a cash consideration, the consideration
received by the Corporation therefor shall be deemed to be the amount of
the cash received by the Corporation therefor without deduction therefrom
of any expenses incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Corporation in connection therewith. In
the case of the issuance of Common Stock or Convertible Securities, or
options, warrants or rights to subscribe therefor, for a consideration all
or part of which shall be property received or services performed, the
value of such property or services for the purposes of Sections 2.4(e)(iii)
and 2.4(e)(v) hereof shall be determined, irrespective of the accounting
treatment thereof and without deduction therefrom of any reasonable
expenses incurred or any underwriting commissions, discounts or concessions
paid or allowed by the Corporation in connection therewith, by at least
seventy percent (70%) of the members of the Board of Directors of the
Corporation then in office, whose determination, in the absence of fraud,
shall be conclusive. Notwithstanding anything in this Restated Certificate
of Incorporation to the contrary, any adjustment, pursuant to the
provisions of this Section 2.4(e), to the Applicable Conversion Rate with
respect to any series of Designated Preferred Stock may be waived by the
holders of sixty percent in voting power of the shares of such series of
Designated Preferred Stock then outstanding, voting, consenting or
otherwise acting as a single class separate from the holders of all other
series or classes of capital stock of the Company.
(f) Adjustment for Mergers, Consolidations, Etc. In case of any
-------------------------------------------
reclassification or change of the outstanding shares of Common Stock of the
Corporation (except a split or combination of shares) or in case of any
consolidation or merger to which the Corporation is a party (except a
merger in which the Corporation is the surviving corporation and which does
not result in any reclassification of or change in the outstanding Common
Stock of the Corporation, except a split or combination of shares as to
which Section 2.4(e)(ii) is applicable) or in case of any sale or
conveyance to another corporation of all or substantially all of the
property of the Corporation, effective provision shall be made by the
Corporation or by the successor or purchasing corporation so that (A) each
holder of then outstanding shares of any series of Designated Preferred
Stock shall thereafter have the right to convert such shares into the kind
and amount of stock and other securities and property receivable
<PAGE>
- 15 -
upon such reclassification, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock of the
Corporation into which such shares of such series of Designated Preferred
Stock might have been converted immediately prior thereto, and (B) there
shall be subsequent adjustments of the Applicable Conversion Rate with
respect to such series of Designated Preferred Stock which shall be
equivalent, as nearly as practicable, to the adjustments provided for in
Section 2.4(e) hereof. The provisions of this Section 2.4(f) shall
similarly apply to successive reclassifications, changes, consolidations,
mergers, sales or conveyances.
(g) Taxes. The issuance of shares of Common Stock of the
-----
Corporation on conversion of shares of any series of Designated Preferred
Stock shall be without charge to the converting holder of such shares for
any tax in respect of the issuance of such shares of Common Stock, but the
Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of such
shares of Common Stock in any name other than that of the holder of record
on the books of the Corporation of such shares of such series of Designated
Preferred Stock converted, and the Corporation shall not be required to
issue or deliver any certificate for shares of Common Stock unless and
until the person requesting issuance thereof shall have paid to the
Corporation the amount of such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.
(h) Reservation of Stock Issuable Upon Conversion. Shares of Common
---------------------------------------------
Stock issued on conversion of shares of any series of Designated Preferred
Stock shall be issued as fully paid shares and shall be non-assessable by
the Corporation. The Corporation shall at all times reserve and keep
available for the purpose of effecting the conversion of shares of each
series of Designated Preferred Stock such number of its duly authorized
shares of Common Stock as shall be sufficient to effect the conversion of
all outstanding shares of such series of Designated Preferred Stock, and,
to the extent necessary in order to reserve a sufficient number of such
shares of Common Stock, the Corporation shall, subject to appropriate
shareholder action, amend its Certificate of Incorporation to increase the
number of duly authorized but unissued shares of its Common Stock.
(i) No Reissuance of Preferred Stock. Shares of any series of
--------------------------------
Designated Preferred Stock converted as provided herein shall
<PAGE>
- 16 -
not be reissued and the Board of Directors shall take appropriate action
from time to time to effect reductions in the number of shares of such
series of Designated Preferred Stock which the Corporation is authorized to
issue.
(j) Notice of Adjustment. Upon any adjustment of the Applicable
--------------------
Conversion Rate or the Applicable Adjustment Price with respect to any
series of Designated Preferred Stock, then and in each such case, the
Corporation shall give written notice thereof, by hand or registered or
certified mail, postage and charges prepaid, or by express overnight
delivery, or by telecopy or telex (in which cases, the original notice
shall be sent by means reasonably intended to result in delivery of the
original notice to the recipient thereof on the next business day)
addressed to each holder of such series of Designated Preferred Stock
subject to conversion under this Section 2.4 at the address of such holder
as shown on the books of the Corporation, which notice shall state the
Applicable Conversion Rate for such series of Designated Preferred Stock
resulting from such adjustment, setting forth in reasonable detail the
method upon which such calculation is based.
(k) Other Notices. In case at any time:
-------------
(i) the Corporation shall declare any dividend upon its Common Stock
payable in cash, stock or Convertible Securities or make any other
distribution to the holders of its Common Stock;
(ii) the Corporation shall offer for subscription pro rata to the
--- ----
holders of its Common Stock any additional shares of stock of any class,
any Convertible Securities, or other rights;
(iii) there shall be any capital reorganization or reclassification
of the capital stock of the Corporation, or a consolidation or merger of
the Corporation with or into, or a sale of all or substantially all its
assets to, another entity or entities; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by any
of the means specified in Section 2.4(j) hereof, addressed to each holder
of shares of any series of Designated Preferred Stock at the address of
such holder as shown on the books of the Corporation, (a) at least 20 days'
prior written notice of the date on
<PAGE>
- 17 -
which the books of the Corporation shall close or a record shall be taken
for such dividend, distribution or subscription rights or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up and (b)
in the case of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, at least 20 days'
prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (a) shall also specify, in
the case of any such dividend, distribution or subscription rights, the
date on which the holders of Common Stock shall be entitled thereto and
such notice in accordance with the foregoing clause (b) shall also specify
the date on which the holders of Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be.
3. ADDITIONAL SERIES OF PREFERRED STOCK. The Board of Directors is
-------------------------------------
hereby expressly authorized to provide for, designate and issue, out of the
authorized but unissued shares of Preferred Stock, one or more other series
of Preferred Stock in addition to the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock,
subject to the terms and conditions set forth herein. Before any shares of
any such series are issued, the Board of Directors shall fix, and hereby is
expressly empowered to fix, by resolution or resolutions, the following
provisions of the shares of any such series:
(a) the designation of such series, the number of shares to
constitute such series and the stated value thereof, if different from the
par value thereof;
(b) whether the shares of such series shall have voting rights
or powers, in addition to any voting rights required by law, and, if so,
the terms of such voting rights or powers, which may be full or limited;
(c) the dividends, if any, payable on such series, whether any
such dividends shall be cumulative, and, if so, from what dates, the
conditions and dates upon which such dividends shall be payable, the
preference or relation which such dividends shall bear to the dividends
payable on any shares of stock of any other class or series;
<PAGE>
- 18 -
(d) whether the shares of such class or series shall be subject
to redemption by the Corporation, and, if so, the times, prices and other
conditions of such redemption;
(e) the amount or amounts payable with respect to shares of such
class or series upon, and the rights of the holders of such class or series
in, the voluntary or involuntary liquidation, dissolution or winding up, or
upon any distribution of the assets, of the Corporation;
(f) whether the shares of such class or series shall be subject
to the operation of a retirement or sinking fund and, if so, the extent to
and manner in which any such retirement or sinking fund shall be applied to
the purchase or redemption of the shares of such class or series for
retirement or other corporate purposes and the terms and provisions
relative to the operation thereof;
(g) whether the shares of such class or series shall be
convertible into, or exchangeable for, shares of stock of any other class
or series of any other securities and, if so, the price or prices or the
rate or rates of conversion or exchange and the method, if any, of
adjusting the same, and any other terms and conditions of conversion or
exchange;
(h) the limitations and restrictions, if any, to be effective
while any shares of such class or series are outstanding upon the payment
of dividends or the making of other distributions on, and upon the
purchase, redemption or other acquisition by the Corporation of, the Common
Stock or shares of stock of any other class or series;
(i) the conditions or restrictions, if any, to be effective
while any shares of such class or series are outstanding upon the creation
of indebtedness of the Corporation or upon the issue of any additional
stock, including additional shares of such class or series or of any other
class or series; and
(j) any other powers, designations, preferences and relative,
participating, optional or other special rights, and any qualifications,
limitations or restrictions thereof.
The powers, designations, preferences and relative,
participating, optional or other special rights of each series of
<PAGE>
- 19 -
Preferred Stock, and the qualifications, limitations or restrictions
thereof, if any, may differ from those of any and all other series at any
time outstanding. The Board of Directors is hereby expressly authorized
from time to time to increase (but not above the total number of authorized
shares of Preferred Stock) or decrease (but not below the number of shares
thereof then outstanding) the number of shares of stock of any series of
Preferred Stock designated to any one or more series of Preferred Stock
pursuant to this Section 3. Different series of Preferred Stock shall not
be construed to constitute different classes of stock for purposes of
voting by classes unless expressly so provided in the resolution or
resolutions adopted by the Board of Directors creating or establishing any
such series of Preferred Stock.
4. COMMON STOCK
------------
4.1. Increase or Decrease in Authorized Number. The number of
------------------------------------------
authorized shares of Common Stock may be increased or decreased (but not
below the combined number of shares thereof then outstanding and those
reserved for issuance upon conversion of the outstanding shares of all
series of Designated Preferred Stock) by the affirmative vote of the
holders of the majority of the stock of the Corporation entitled to vote,
irrespective of the provisions of Section 242(b)(2) of the Delaware General
Corporation Law.
4.2. Voting Rights. Except as otherwise required by law, each holder
-------------
of Common Stock shall have one vote in respect of each share of Common
Stock held of record on all matters submitted to a vote of stockholders of
the Corporation. Except as otherwise required by law, and subject to the
voting rights provided to the holders of any series of Preferred Stock
(other than Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock), the holders of Common Stock
and the holders of shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and/or Series D Preferred Stock shall vote
together as a single class on all matters submitted to the shareholders for
a vote.
4.3. Dividends. Each share of Common Stock issued and outstanding
---------
shall be identical in all respects with each other such share, and no
dividends shall be paid on any shares of Common Stock unless the same
dividend is paid on all shares of Common Stock outstanding at the time of
such payment. Except for and subject to those rights expressly granted to
the holders of Preferred
<PAGE>
- 20 -
Stock and except as may be provided by the laws of the State of Delaware,
the holders of Common Stock shall have all other rights of stockholders,
including, without limitation, (a) the right to receive dividends, when and
as declared by the Board of Directors, out of assets lawfully available
therefor, and (b) in the event of any distribution of assets upon a
liquidation or otherwise, the right to receive ratably and equally all the
assets and funds of the Corporation remaining after the payment to the
holders of the Preferred Stock or of any other class or series of stock
ranking senior to the Common Stock upon liquidation of the specific
preferential amounts which they are entitled to receive upon such
liquidation.
5. REVERSE STOCK SPLIT. Immediately upon the filing with the
-------------------
Secretary of State of Delaware of the Certificate of Amendment that, among
other things, amends Article FOURTH of the Corporation's Restated
Certificate of Incorporation for purposes of including the provisions of
this Section 5 in said Article FOURTH (the "Effective Time"), a one-for-
seven reverse stock split of the Common Stock (the "Reverse Stock Split")
shall become effective such that each share of Common Stock that is issued
and outstanding or held in treasury immediately prior to the Effective Time
shall be automatically combined and changed (without any further act) into
one-seventh (1/7) of one share of fully paid and nonassessable Common Stock
of the Corporation, all without changing the par value per share of the
Common Stock. No fractional share of Common Stock shall be issued to any
holder of record of shares of Common Stock as a result of the Reverse Stock
Split, but in lieu of any fraction of a share which would otherwise be
issuable to any such holder of record, there shall be paid by the
Corporation an amount of cash equal to the pro rata value of such
fractional share. Each outstanding stock certificate of the Corporation
that was issued at any time prior to the Effective Time shall immediately
after the Effective Time represent one-seventh (1/7) of the number of
shares of Common Stock shown on the face of such certificate, excluding
fractional shares which are subject to cash settlement as provided above.
Within a reasonable time after the Effective Time, notice shall be given to
the shareholders of record of the Common Stock instructing them to
surrender their certificates representing shares of Common Stock to the
Corporation for cancellation and reissuance of new certificates
representing the number of shares of Common Stock to which such
shareholders are entitled after adjustment for the Reverse Stock Split. The
aggregate amount of capital represented by the
<PAGE>
- 21 -
aggregate number of shares of Common Stock outstanding immediately prior to
the Effective Time shall be appropriately adjusted to reflect the change in
the aggregate number of shares of Common Stock outstanding immediately
after the Effective Time without changing the par value per share of the
Common Stock.
FIFTH. The following provisions are inserted for the management of
the business and for the conduct of the affairs of the Corporation and for
defining and regulating the powers of the Corporation and its directors and
stockholders and are in furtherance and not in limitation of the powers
conferred upon the Corporation by statute:
(a) Effective as of the closing (or the first closing) of the
Corporation's registered initial public offering of Common Stock (the "IPO
Closing"), the Board of Directors shall be divided into three classes of
directors, such classes to be as nearly equal in number of directors as
possible, having staggered three-year terms of office, the term of office
of the directors of the first such class ("Class I") to expire as of the
first annual meeting of the Corporation's stockholders following the IPO
Closing, those of the second class ("Class II") to expire as of the second
annual meeting of the Corporation's stockholders following the IPO Closing,
and those of the third class ("Class III") as of the third annual meeting
of the Corporation's stockholders following the IPO Closing, such that at
each annual meeting of stockholders after the IPO Closing, nominees will
stand for election for three-year terms to succeed those directors whose
terms are to expire as of such meeting. At each annual meeting of
stockholders held from and after the IPO Closing, those directors elected
at such meeting to succeed those directors whose terms expire at such
meeting, shall serve for a term expiring as of the third annual meeting of
stockholders after their elections. Notwithstanding anything expressed or
implied to the contrary in the foregoing provisions of this Article FIFTH,
each director shall continue to serve as such until the expiration of his
term as set forth above in this paragragph (a) and his successor is duly
elected and qualified or until his or her earlier death, incapacity,
resignation or removal. Subject to the right, if any, of holders of any
series of Preferred Stock to remove any director elected by the holders of
such series and/or any other series of Preferred Stock, any director
serving as such pursuant to this paragraph (a) of Article FIFTH may be
removed only for cause and only by the vote of the holders of a majority of
the shares of the Corporation's stock entitled to vote for the election of
directors.
<PAGE>
- 22 -
Those directors in office immediately prior to the IPO Closing shall be
allocated among Class I, Class II and Class III as determined by a
resolution or resolutions of the Board of Directors, which may have been
adopted prior to the effectiveness of this Restated Certificate of
Incorporation.
(b) The Board of Directors shall have the power and authority: (1)
to adopt, amend or repeal any or all of the By-Laws of the Corporation,
subject only to such limitations, if any, as may be from time to time
imposed by other provisions of this Restated Certificate of Incorporation,
by law, or by the By-Laws; and (2) to the full extent permitted or not
prohibited by law, and without the consent of or other action by the
stockholders, to authorize or create mortgage, pledges or other liens or
encumbrances upon any or all of the assets, real, personal or mixed, and
franchises of the Corporation, including after-acquired property, and to
exercise all of the powers of the Corporation in connection therewith. In
case of any vacancy on the Board of Directors, the vacancies shall be
filled by the directors at the time having voting power, as may be
prescribed herein and in the By-Laws. Directors need not be stockholders of
the Corporation. The election of directors need not be written ballot.
SIXTH. No director of the Corporation shall be personally liable to
the Corporation or to any of its stockholders for monetary damages for
breach of fiduciary duty as a director, notwithstanding any provision of
law imposing such liability; provided, however, that, to the extent
-------- -------
required from time to time by applicable law, this Article SIXTH shall not
eliminate or limit the liability of a director, to the extent such
liability is provided by applicable law, (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 Title 8 of the
Delaware Code, or (iv) for any transactions from which the director derived
an improper personal benefit. No amendment to or repeal of this Article
SIXTH shall apply to or have any effect on the liability or alleged
liability of any director for or with respect to any acts or omissions of
such director occurring prior to the effective date of such amendment or
repeal.
SEVENTH. Each person who was or is made a party or is threatened to
be made a party to or is otherwise involved in any action, suit or
proceeding, by reason of being or having been a
<PAGE>
- 23 -
director or officer of the Corporation or serving or having served at the
request of the Corporation as a director, trustee, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to an employee benefit
plan, whether the basis of such proceeding is alleged action or failure to
act in an official capacity as a director, trustee, officer, employee or
agent or in any other capacity while serving as a director, trustee,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended, against
all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such person in connection therewith, as
further provided in the By-Laws.
EIGHTH. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class or series of them, any court
of equitable jurisdiction within the State of Delaware may, on the
application in a summary way of the Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for the Corporation under the provisions of (S)391 of Title 8 of
the Delaware Code or on the application of trustees in dissolution or of
any receiver or receivers appointed for the Corporation under the
provisions of (S)279 of Title 8 of the Delaware Code, order a meeting of
the creditors or class of creditors, and/or of the stockholders or class or
series of stockholders of the Corporation, as the case may be, to be
summoned in such a manner as the said court directs. If a majority of the
number representing three-fourths (3/4ths) in value of the creditors or
class of creditors, and/or of the stockholders or class or series of
stockholders of the Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of the Corporation as a
consequence of such compromise or arrangement, the compromise or
arrangement and the said reorganization shall, if sanctioned by the court
to which the said application has been made, be binding on all creditors or
class of creditors, and/or stockholders or class or series of stockholders
of the Corporation, as the case may be, and also on the Corporation.
NINTH. The Board of Directors, when considering a tender offer or
merger or acquisition proposal, may take into account factors in addition
to potential short-term economic benefits
<PAGE>
- 24 -
to stockholders of the Corporation, including without limitation (A)
comparison of the proposed consideration to be received by stockholders in
relation to the then current market price of the Corporation's capital
stock, the estimated current value of the Corporation in a freely
negotiated transaction, and the estimated future value of the Corporation
as an independent entity and (B) the impact of such a transaction on the
employees, suppliers, and customers of the Corporation and its effect on
the communities in which the Corporation operates.
TENTH. Effective from and after the IPO Closing: (i) any action
required or permitted to be taken by the stockholders of the Corporation
may be taken only at a duly called annual or special meeting of the
stockholders, and not by written consent in lieu of such a meeting; and
(ii) subject to the right, if any, of the holders of any series of
Preferred Stock to call special meetings of stockholders of the
Corporation, special meetings of stockholders of the Corporation may be
called only by the Chairman of the Board of Directors, the President, or a
majority of the total number of directors which the Corporaton would have
if there were no vacancies.
ELEVENTH. Effective from and after the IPO Closing, the affirmative
vote of the holders of at least seventy-five percent (75%) of the
outstanding voting stock of the Corporation (in addition to any separate
class vote that may in the future be required pursuant to the terms of any
outstanding Preferred Stock) shall be required (i) to amend or repeal the
provisions of Articles FOURTH (to the extent such provisions relate to the
authority of the Board of Directors to issue shares of Preferred Stock in
one or more series, the terms of which may be determined by the Board of
Directors), FIFTH, SEVENTH, NINTH, TENTH or ELEVENTH of the Corporation's
Restated Certificate of Incorporation, as amended from time to time, (ii)
to amend, adopt or repeal the Corporation's By-Laws (provided, however,
-------- -------
that the provisions of this Article ELEVENTH shall in no way limit the
power or authority of the Board of Directors to amend, adopt or repeal By-
Laws), or (iii) to reduce the number of authorized shares of Common Stock
or Preferred Stock."
SECOND. The amendments to the Corporation's Restated Certificate of
Incorporation were duly adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware.
<PAGE>
- 25 -
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its President and attested by its Secretary this _____
day of ____, 1996.
CUBIST PHARMACEUTICALS, INC.
By_____________________________
Scott M. Rocklage,
President
ATTEST:
__________________________
Justin P. Morreale,
Secretary
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
CUBIST PHARMACEUTICALS, INC.
CUBIST PHARMACEUTICALS, INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies that (i) the original Certificate of
Incorporation of the Corporation was filed by the Corporation with the Secretary
of State of Delaware on May 1, 1992, (ii) this Restated Certificate of
Incorporation was duly adopted in accordance with the provisions of Sections 242
and 245 of the Delaware General Corporation Law, and (iii) the Restated
Certificate of Incorporation restates, integrates and further amends the
Corporation's current Restated Certificate of Incorporation, as heretofore
amended, to read in its entirety as follows:
FIRST. The name of the Corporation is CUBIST PHARMACEUTICALS, INC.
SECOND. The address of the Corporation's registered office in the
State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New
Castle. The name of the Corporation's registered agent at such address is
Corporation Service Company.
THIRD. 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 the State of Delaware.
FOURTH. The total number of shares of all classes of stock that the
Corporation shall have authority to issue is 95,000,000, consisting solely of:
25,000,000 shares of common stock, $.001 par value per share ("Common
Stock"); and
5,000,000 shares of preferred stock, $.001 par value per share ("Preferred
Stock").
The following is a statement of the powers, designations, preferences,
privileges, and relative, participating, optional, and other special rights of
the Preferred Stock and Common Stock, respectively:
1. PREFERRED STOCK. The Board of Directors is hereby expressly
----------------
authorized to provide for, designate and issue, out of the authorized but
unissued shares of Preferred Stock, one or more other series of Preferred Stock,
subject to the terms and conditions set forth herein. Before any shares of any
<PAGE>
-2-
such series are issued, the Board of Directors shall fix, and hereby is
expressly empowered to fix, by resolution or resolutions, the following
provisions of the shares of any such series:
(a) the designation of such series, the number of shares to
constitute such series and the stated value thereof, if different from the par
value thereof;
(b) whether the shares of such series shall have voting rights or
powers, in addition to any voting rights required by law, and, if so, the terms
of such voting rights or powers, which may be full or limited;
(c) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions and
dates upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any shares of stock
of any other class or series;
(d) whether the shares of such class or series shall be subject to
redemption by the Corporation, and, if so, the times, prices and other
conditions of such redemption;
(e) the amount or amounts payable with respect to shares of such
class or series upon, and the rights of the holders of such class or series in,
the voluntary or involuntary liquidation, dissolution or winding up, or upon any
distribution of the assets, of the Corporation;
(f) whether the shares of such class or series shall be subject to
the operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such class or series for retirement or
other corporate purposes and the terms and provisions relative to the operation
thereof;
(g) whether the shares of such class or series shall be convertible
into, or exchangeable for, shares of stock of any other class or series of any
other securities and, if so, the price or prices or the rate or rates of
conversion or exchange and the method, if any, of adjusting the same, and any
other terms and conditions of conversion or exchange;
(h) the limitations and restrictions, if any, to be effective while
any shares of such class or series are outstanding upon the payment of dividends
or the making of other distributions on, and upon the purchase, redemption or
other acquisition by the Corporation of, the Common Stock or shares of stock of
any other class or series;
<PAGE>
-3-
(i) the conditions or restrictions, if any, to be effective while any
shares of such class or series are outstanding upon the creation of indebtedness
of the Corporation or upon the issue of any additional stock, including
additional shares of such class or series or of any other class or series; and
(j) any other powers, designations, preferences and relative,
participating, optional or other special rights, and any qualifications,
limitations or restrictions thereof.
The powers, designations, preferences and relative, participating,
optional or other special rights of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding. The Board of
Directors is hereby expressly authorized from time to time to increase (but not
above the total number of authorized shares of Preferred Stock) or decrease (but
not below the number of shares thereof then outstanding) the number of shares of
stock of any series of Preferred Stock designated to any one or more series of
Preferred Stock pursuant to this Section 1. Different series of Preferred Stock
shall not be construed to constitute different classes of stock for purposes of
voting by classes unless expressly so provided in the resolution or resolutions
adopted by the Board of Directors creating or establishing any such series of
Preferred Stock. No resolution, vote, or consent of the holders of the capital
stock of the Corporation shall be required in connection with the creation or
issuance of any shares of any series of Preferred Stock authorized by and
complying with the conditions of this Restated Certificate of Incorporation, the
right to any such resolution, vote, or consent being expressly waived by all
present and future holders of the capital stock of the Corporation.
At such time as no shares of any series of Preferred Stock that may be
issued from time to time remain issued and outstanding, including without
limitation because all of such shares have been converted into shares of Common
Stock in accordance with this Restated Certificate of Incorporation, all
authorized shares of such series of Preferred Stock, automatically and without
further actions, shall be reclassified as authorized but unissued shares of
undesignated Preferred Stock of no particular class or series, and any and all
of such shares may thereafter be issued by the Board of Directors of the Company
in one or more series, and the terms of any such series may be determined by the
Board of Directors, as provided in this Section 1.
<PAGE>
-4-
2. COMMON STOCK
------------
2.1. Increase or Decrease in Authorized Number. The number of authorized
--------------------------------------------
shares of Common Stock may be increased or decreased (but not below the combined
number of shares thereof then outstanding by the affirmative vote of the holders
of the majority of the stock of the Corporation entitled to vote, irrespective
of the provisions of Section 242(b)(2) of the Delaware General Corporation Law.
2.2. Voting Rights. Except as otherwise required by law, and subject to
-------------
the voting rights provided to the holders of any series of Preferred Stock, the
holders of Common Stock shall have full voting rights and powers to vote on all
matters submitted to stockholders of the Corporation for vote, consent or
approval, and each holder of Common Stock shall be entitled to one vote for each
share of Common Stock held of record by such holder.
2.3. Dividend, Liquidation and Other Rights. Each share of Common Stock
--------------------------------------
issued and outstanding shall be identical in all respects with each other such
share, and no dividends shall be paid on any shares of Common Stock unless the
same dividend is paid on all shares of Common Stock outstanding at the time of
such payment. Except for and subject to those rights expressly granted to the
holders of Preferred Stock and except as may be provided by the laws of the
State of Delaware, the holders of Common Stock shall have all other rights of
stockholders, including, without limitation, (a) the right to receive dividends,
when and as declared by the Board of Directors, out of assets lawfully available
therefor, and (b) in the event of any distribution of assets upon a liquidation
or otherwise, the right to receive ratably and equally all the assets and funds
of the Corporation remaining after the payment to the holders of the Preferred
Stock or of any other class or series of stock ranking senior to the Common
Stock upon liquidation of the specific preferential amounts which they are
entitled to receive upon such liquidation.
FIFTH. The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation and for defining
and regulating the powers of the Corporation and its directors and stockholders
and are in furtherance and not in limitation of the powers conferred upon the
Corporation by statute:
(a) Effective as of the closing (or the first closing) of the
Corporation's registered initial public offering of Common Stock (the "IPO
Closing"), the Board of Directors shall be divided into three classes of
directors, such classes to be as nearly equal in number of directors as
possible, having staggered three-year terms of office, the term of office
of
<PAGE>
-5-
the directors of the first such class ("Class I") to expire at the first
annual meeting of the Corporation's stockholders following the IPO Closing,
those of the second class ("Class II") to expire at the second annual
meeting of the Corporation's stockholders following the IPO Closing, and
those of the third class ("Class III") at the third annual meeting of the
Corporation's stockholders following the IPO Closing, such that at each
such annual meeting of stockholders, nominees will stand for election for
three-year terms to succeed those directors whose terms are to expire as of
such meeting. Likewise, at each other annual meeting of stockholders held
from and after the IPO Closing, those directors elected at such meeting to
succeed those directors whose terms expire at such meeting, shall serve for
a term expiring at the third annual meeting of stockholders following their
election. Notwithstanding anything expressed or implied to the contrary in
the foregoing provisions of this Article FIFTH, each director shall
continue to serve as such until the expiration of his term as set forth
above in this paragragph (a) and his successor is duly elected and
qualified or until his or her earlier death, incapacity, resignation or
removal. Subject to the right, if any, of holders of any series of
Preferred Stock to remove any director elected by the holders of such
series and/or any other series of Preferred Stock, any director serving as
such pursuant to this paragraph (a) of Article FIFTH may be removed only
for cause and only by the vote of the holders of a majority of the shares
of the Corporation's stock entitled to vote for the election of directors.
Those directors in office immediately prior to the IPO Closing shall be
allocated among Class I, Class II and Class III as determined by a
resolution or resolutions of the Board of Directors, which may have been
adopted prior to the effectiveness of this Restated Certificate of
Incorporation.
(b) The Board of Directors shall have the power and authority: (1) to
adopt, amend or repeal any or all of the By-Laws of the Corporation,
subject only to such limitations, if any, as may be from time to time
imposed by other provisions of this Restated Certificate of Incorporation,
by law, or by the By-Laws; and (2) to the full extent permitted or not
prohibited by law, and without the consent of or other action by the
stockholders, to authorize or create mortgage, pledges or other liens or
encumbrances upon any or all of the assets, real, personal or mixed, and
franchises of the Corporation, including after-acquired property, and to
exercise all of the powers of the Corporation in connection therewith. In
case of any vacancy on the Board of Directors, the vacancies shall be
filled by the directors at the time having voting power, as may be
prescribed herein and in the By-Laws. Directors need not be stockholders
of the Corporation. The election of directors need not be written ballot.
<PAGE>
-6-
SIXTH. No director of the Corporation shall be personally liable to the
Corporation or to any of its stockholders for monetary damages for breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability; provided, however, that, to the extent required from time to time by
-------- -------
applicable law, this Article SIXTH shall not eliminate or limit the liability of
a director, to the extent such liability is provided by applicable law, (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
Title 8 of the Delaware Code, or (iv) for any transactions from which the
director derived an improper personal benefit. No amendment to or repeal of
this Article SIXTH shall apply to or have any effect on the liability or alleged
liability of any director for or with respect to any acts or omissions of such
director occurring prior to the effective date of such amendment or repeal.
SEVENTH. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding, by
reason of being or having been a director or officer of the Corporation or
serving or having served at the request of the Corporation as a director,
trustee, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan, whether the basis of such proceeding is alleged action or
failure to act in an official capacity as a director, trustee, officer, employee
or agent or in any other capacity while serving as a director, trustee, officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended, against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such person
in connection therewith, as further provided in the By-Laws.
EIGHTH. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class or series of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of the Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for the Corporation under
the provisions of (S)391 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of (S)279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class or series of stockholders of the Corporation, as the case
may be, to be summoned in such a manner as the said court directs. If a majority
of the number representing three-fourths (3/4ths) in value of the creditors or
class of creditors,
<PAGE>
-7-
and/or of the stockholders or class or series of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the compromise or arrangement and the said reorganization shall, if
sanctioned by the court to which the said application has been made, be binding
on all creditors or class of creditors, and/or stockholders or class or series
of stockholders of the Corporation, as the case may be, and also on the
Corporation.
NINTH. The Board of Directors, when considering a tender offer or merger
or acquisition proposal, may take into account factors in addition to potential
short-term economic benefits to stockholders of the Corporation, including
without limitation (A) comparison of the proposed consideration to be received
by stockholders in relation to the then current market price of the
Corporation's capital stock, the estimated current value of the Corporation in a
freely negotiated transaction, and the estimated future value of the Corporation
as an independent entity and (B) the impact of such a transaction on the
employees, suppliers, and customers of the Corporation and its effect on the
communities in which the Corporation operates.
TENTH. Any action required or permitted to be taken by the stockholders
of the Corporation may be taken only at a duly called annual or special meeting
of the stockholders, and not by written consent in lieu of such a meeting.
Subject to the right, if any, of the holders of any series of Preferred Stock to
call special meetings of stockholders of the Corporation, special meetings of
stockholders of the Corporation may be called only by the Chairman of the Board
of Directors, the President, or a majority of the total number of directors
which the Corporaton would have if there were no vacancies.
ELEVENTH. The affirmative vote of the holders of at least seventy-five
percent (75%) of the outstanding voting stock of the Corporation (in addition to
any separate class vote that may in the future be required pursuant to the terms
of any outstanding Preferred Stock) shall be required (i) to amend or repeal the
provisions of Articles FOURTH (to the extent such provisions relate to the
authority of the Board of Directors to issue shares of Preferred Stock in one or
more series, the terms of which may be determined by the Board of Directors),
FIFTH, SEVENTH, NINTH, TENTH or ELEVENTH of the Corporation's Restated
Certificate of Incorporation, as amended from time to time, (ii) to amend, adopt
or repeal the Corporation's By-Laws (provided, however, that the provisions of
-------- --------
this Article ELEVENTH shall in no way limit the power or authority of the Board
of Directors to amend, adopt or repeal By-Laws), or (iii) to reduce the number
of authorized shares of Common Stock or Preferred Stock.
<PAGE>
-8-
IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate of
Incorporation to be signed by its President and attested by its Secretary this
_____ day of ________, 1996.
CUBIST PHARMACEUTICALS, INC.
By__________________________
Scott M. Rocklage,
President
ATTEST:
__________________________
Justin P. Morreale,
Secretary
<PAGE>
AMENDED AND RESTATED
--------------------
BY-LAWS OF
----------
CUBIST PHARMACEUTICALS, INC.
----------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
Article I. - General................................................. 1
1.1. Offices...................................................... 1
1.2. Seal......................................................... 1
1.3. Fiscal Year.................................................. 1
Article II. - Stockholders........................................... 1
2.1. Place of Meetings............................................ 1
2.2. Annual Meeting............................................... 1
2.3. Special Meeting.............................................. 1
2.4. Notice of Meeting............................................ 2
2.5. Notice of Stockholder Business and Nominations............... 2
2.6. Quorum and Adjournment....................................... 4
2.7. Right to Vote; Proxies....................................... 5
2.8. Voting....................................................... 5
2.8.1 Inspectors.................................................. 5
2.9. Stockholders' List........................................... 6
2.10. No Stockholder Action by Written Consent.................... 6
Article III. - Directors............................................. 6
3.1. General Powers............................................... 6
3.2. Qualifications of Directors.................................. 6
3.3. Number of Directors; Vacancies............................... 7
3.4. Resignation.................................................. 8
3.5. Removal...................................................... 8
3.6. Place of Meetings and Books.................................. 8
3.7. Executive Committee.......................................... 8
3.8. Other Committees............................................. 8
3.9. Powers Denied to Committees.................................. 9
3.10. Substitute Committee Member................................. 9
3.11. Compensation of Directors................................... 9
3.12. Regular Meetings............................................ 10
3.13. Special Meetings............................................ 10
3.14. Quorum...................................................... 10
3.15. Telephonic Participation in Meetings........................ 10
3.16. Action by Consent........................................... 11
Article IV. - Officers............................................... 11
4.1. Selection; Statutory Officers................................ 11
</TABLE>
<PAGE>
-ii-
4.2. Time of Election............................................. 11
4.3. Additional Officers.......................................... 11
4.4. Terms of Office.............................................. 11
4.5. Compensation of Officers..................................... 11
4.6. Chairman of the Board........................................ 11
4.7. President.................................................... 12
4.8. Vice-Presidents.............................................. 12
4.9. Treasurer................................................... 12
4.10. Secretary................................................... 13
4.11. Assistant Secretary......................................... 13
4.12. Assistant Treasurer......................................... 13
4.13. Subordinate Officers........................................ 13
4.14. Removal..................................................... 14
4.15. Vacancies................................................... 14
Article V. - Stock................................................... 14
5.1. Stock ....................................................... 15
5.2. Fractional Share Interests.................................. 15
5.3. Transfers of Stock........................................... 15
5.4. Record Date.................................................. 15
5.5. Transfer Agent and Registrar................................. 16
5.6. Dividends.................................................... 16
5.7. Lost, Stolen or Destroyed Certificates....................... 17
Article VI. - Miscellaneous Management Provisions.................... 17
6.1. Checks, Drafts and Notes..................................... 17
6.2. Notices...................................................... 17
6.3. Conflict of Interest......................................... 17
6.4. Voting of Securities owned by this Corporation............... 18
6.5. Inspection of Books.......................................... 18
Article VII. - Indemnification....................................... 19
7.1. Right to Indemnification..................................... 19
7.2. Right of Indemnitee to Bring Suit............................ 20
7.3. Non-Exclusivity of Rights.................................... 20
7.4. Insurance.................................................... 21
7.5. Indemnification of Employees and Agents of the Corporation... 21
Article VIII. - Amendments........................................... 21
8.1. Amendments................................................... 21
<PAGE>
AMENDED AND RESTATED
--------------------
BY-LAWS OF
-----------
CUBIST PHARMACEUTICALS, INC.
---------------------------
Article 1. - General.
--------------------
1.1. Offices. The registered office shall be in the City of Wilmington,
-------
County of New Castle, State of Delaware. The Corporation may also have offices
at such other places both within and without the State of Delaware as the
Board of Directors may from time to time determine or the business of the
Corporation may require.
1.2. Seal. The seal of the Corporation shall be in the form of a circle and
----
shall have inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, Delaware".
1.3. Fiscal Year. The fiscal year of the Corporation shall be the period
-----------
from January 1 through December 31.
Article ll. - Stockholders.
--------------------------
2.1. Place of Meetings. All meetings of the stockholders shall be held at
-----------------
the office of the Corporation in Cambridge, Massachusetts except such meetings
as the Board of Directors expressly determine shall be held elsewhere, in which
case meetings may be held upon notice as hereinafter provided at such other
place or places within or without the Commonwealth of Massachusetts as the Board
of Directors shall have determined and as shall be stated in such notice.
2.2. Annual Meeting. The annual meeting of stockholders of the Corporation
--------------
shall be held on such date and at such place and time as may be fixed by
resolution of the Board of Directors and stated in the notice of the meeting. At
each annual meeting of stockholders, the stockholders entitled to vote shall
elect such members of the Board of Directors as are standing for election at
such meeting, and shall transact such other business as may properly be brought
before the meeting. At the annual meeting any business may be transacted,
irrespective of whether the notice calling such meeting shall have contained a
reference thereto, except where notice is required by law, the Corporation's
Restated Certificate of Incorporation, as amended and in effect from time to
time (the "Restated Certificate of Incorporation"), or these By-Laws.
2.3. Special Meeting. Subject to the rights of the holders of any series of
---------------
preferred stock, $0.001 par value per share ("Preferred Stock"), of
<PAGE>
-2-
the Corporation with respect to calling special meetings of stockholders of the
Corporation, special meetings of the stockholders for any purpose or purposes
may only be called by the Chairman of the Board of Directors, the President, or
a majority of the total number of directors which the Corporation would have if
there were no vacancies (the "Whole Board"). Only such business shall be
conducted at a special meeting as shall have been brought before the meeting
pursuant to the Corporation's notice of meeting.
2.4. Notice of Meeting. Written notice of any meeting of the stockholders
-----------------
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting. Notice need not be given to any
stockholder who submits a written waiver of notice signed by him before or after
the time stated therein. Attendance of a stockholder at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. 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. Any previously scheduled meeting of
the stockholders may be postponed, and (unless the Restated Certificate of
Incorporation otherwise provides) any special meeting of the stockholders may be
canceled, by resolution of the Board of Directors upon public notice given prior
to the date previously scheduled for such meeting of stockholders.
2.5. Notice of Stockholder Business and Nominations.
----------------------------------------------
(a) Nomination of Directors. Only persons who are nominated in
-----------------------
accordance with the procedures set forth in these By-Laws shall be eligible to
serve as directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of stockholders (a) by or
at the direction of the Board of Directors or (b) by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice for
the election of directors at the meeting and who complies with the notice
procedures set forth in this Section 2.5(a). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 90 days nor more
than 120 days prior to the meeting; provided, however, that in the event that
-------- -------
less than 100 days' notice or prior public disclosure of the date of the meeting
is given or
<PAGE>
-3-
made to stockholders, notice by the stockholder to be timely must be
so received not later than the close of business on the seventh day following
the day on which such notice of the date of the meeting or such public
disclosure was made. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or reelection as a
director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if elected),
and (b) as to the stockholder giving the notice (i) the name and address, as
they appear on the Corporation's books, of such stockholder and (ii) the class
and number of shares of the Corporation which are beneficially owned by such
stockholder. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a director shall furnish to the Secretary
of the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
to serve as a director of the Corporation unless nominated in accordance with
the procedures set forth in this Section 2.5(a). The chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by the By-
Laws, and if he should so determine, he shall so declare to the meeting and the
defective nomination shall be disregarded. Notwithstanding the foregoing
provisions of this Section 2.5(a), a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set forth in
this Section 2.5(a).
(b) Notice of Business. At any meeting of the stockholders, only such
------ -- --------
business shall be conducted as shall have been brought before the meeting (a) by
or at the direction of the Board of Directors or (b) by any stockholder of the
Corporation who is a stockholder of record at the time of giving of the notice
provided for in this Section 2.5(b), who shall be entitled to vote at such
meeting and who complies with the notice procedures set forth in this Section
2.5(b). For business to be properly brought before a stockholder meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 90 days nor more than 120 days prior to the meeting;
provided, however, that in the event that less than 100 days' notice or
- -------- -------
<PAGE>
-4-
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received no later
than the close of business on the seventh day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
A stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting; (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder, and (d) any material interest of the stockholder in such business.
Notwithstanding anything in the By-Laws to the contrary, no business shall be
conducted at a stockholder meeting except (i) in accordance with the procedures
set forth in this Section 2.5(b) or (ii) with respect to nominations of persons
for election as directors of the Corporation, in accordance with the provisions
of Section 2.5(a) hereof. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting and in accordance with the provisions of the By-Laws,
and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Section 2.5(b), a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder with respect
to the matters set forth in this Section.
2.6. Quorum and Adjournment. At all meetings of the stockholders, 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
requisite for the transaction of business except as otherwise provided by law,
by the Restated Certificate of Incorporation or by these By-Laws. The chairman
of the meeting or a majority of the shares so represented may, whether or not
there is such a quorum, adjourn the meeting from time to time without notice
other than announcement at the meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. At such adjourned
meeting, at which the requisite amount of voting stock shall be represented, any
business may be transacted which might have been transacted if the meeting had
been held as originally called. The stockholders present at a duly called
meeting at which quorum is present
<PAGE>
-5-
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
2.7. Right to Vote; Proxies. Each holder of a share or shares of capital
----------------------
stock of the Corporation having the right to vote at any meeting shall be
entitled to one vote for each such share of stock held by him. Any stockholder
entitled to vote at any meeting of stockholders may vote either in person or by
proxy, but no proxy which is dated more than three years prior to the meeting at
which it is offered shall confer the right to vote thereat unless the proxy
provides that it shall be effective for a longer period. A proxy may be granted
by a writing executed by the stockholder or his authorized officer, director,
employee or agent or by transmission or authorization of transmission of a
telegram, cablegram, or other means of electronic transmission to the person who
will be the holder of the proxy or to a proxy solicitation firm, proxy support
service organization or like agent duly authorized by the person who will be the
holder of the proxy to receive such transmission, subject to the conditions set
forth in Section 212 of the Delaware General Corporation Law, as it may be
amended from time to time (the "Delaware GCL").
2.8. Voting. At all meetings of stockholders, except as otherwise expressly
------
provided for by statute, the Restated Certificate of Incorporation or these By-
Laws, (i) in all matters other than the election of directors, the affirmative
vote of a majority of shares present in person or represented by proxy at the
meeting and entitled to vote on such matter shall be the act of the stockholders
and (ii) directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Except as otherwise expressly provided by law, the
Restated Certificate of Incorporation or these By-Laws, at all meetings of
stockholders the voting shall be by ballot, each of which shall state the name
of the stockholder voting and the number of shares voted by him, and, if such
ballot be cast by a proxy, it shall also state the name of the proxy. The
chairman of the meeting shall fix and announce at the meeting the date and time
of the opening and the closing of the polls for each matter upon which the
stockholders will vote at a meeting
2.8.1. Inspectors. The Board of Directors by resolutions shall appoint one
----------
or more inspectors, which inspector or inspectors may include individuals who
serve the Corporation in other capacities, including, without limitation, as
officers, employees, agents or representatives, to act at the meeting of
stockholders and make a written report thereof. One or more persons may be
designated as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate has been appointed
<PAGE>
-6-
to act or is able to act at a meeting of stockholders, the chairman of the
meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall have the
duties prescribed by law.
2.9. Stockholders' List. A complete list of the stockholders entitled to
------------------
vote at any meeting of stockholders, arranged in alphabetical order and showing
the address of each stockholder, and the number of shares registered in the name
of each stockholder, shall be prepared by the Secretary and filed 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, at least 10 days before such meeting, and shall
at all times during the usual hours for business, and during the whole time of
said election, be open to the examination of any stockholder for a purpose
germane to the meeting.
2.9.1. No Stockholder Action by Written Consent. Unless otherwise provided
----------------------------------------
in the Restated Certificate of Incorporation, and subject to the rights, if any,
of the holders of Preferred Stock to take action by written consent, any action
required or permitted to be taken by the stockholders of the Corporation must be
effected at an annual or special meeting of stockholders of the Corporation and
may not be effected by any consent in writing by such stockholders.
Article lll. - Directors.
------------------------
3.1. General Powers. In addition to the powers and authority expressly
--------------
conferred upon them by these By-Laws, the Board of Directors may exercise all
such powers of the Corporation and do all such lawful acts and things as are not
by statute or by the Restated Certificate of Incorporation or by these By-Laws
directed or required to be exercised or done by the stockholders.
3.2. Qualifications of Directors. A director need not be a stockholder, a
---------------------------
citizen of the United States, or a resident of the State of Delaware.
3.2.1. Number of Directors; Vacancies. The number of directors constituting the
------------------------------
full Board of Directors shall be fixed from time to time exclusively pursuant to
a resolution adopted by a majority of the Whole Board of Directors. Effective as
of the closing (or the first closing) of the Corporation's registered initial
public offering of Common Stock (the "IPO Closing"), the Board of Directors
shall consist of three classes of directors,
<PAGE>
-7-
such classes to be as nearly equal in number of directors as possible, having
staggered three-year terms of office, the term of office of the directors of the
first such class to expire at the first annual meeting of the Corporation's
stockholders following the IPO Closing, those of the second class to expire at
the second annual meeting of the Corporation's stockholders following the IPO
Closing, and those of the third class at the third annual meeting of the
Corporation's stockholders following the IPO Closing, such that at each such
annual meeting of stockholders, nominees will stand for election for three-year
terms to succeed those directors whose terms are to expire at such meeting.
Likewise, at each other annual meeting of stockholders held from and after the
IPO Closing, those nominees elected at such meeting to succeed those directors
whose terms expire at such meeting, shall serve for a term expiring at the third
annual meeting of stockholders following their election. Members of the Board of
Directors shall hold office until the annual meeting of stockholders for the
year in which their term is scheduled to expire as set forth above in this
Section 3.3 and their respective successors are duly elected and qualified or
until their earlier death, incapacity, resignation, or removal. Except as the
Delaware GCL may otherwise require, in the interim between annual meetings of
stockholders or special meetings of stockholders called for the election of
directors and/or for the removal of one or more directors and for the filling of
any vacancy in that connection, any vacancies or new directorships in the Board
of Directors, including unfilled vacancies or new directorships resulting from
the removal of directors for cause or any increase in the number of directors,
may be filled only by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
3.3. Resignation. Any director of this Corporation may resign at any time
-----------
by giving written notice to the Chairman of the Board, if any, the President or
the Secretary of the Corporation. Such resignation shall take effect at the time
specified therein, at the time of receipt if no time is specified therein or at
the time of acceptance if the effectiveness of such resignation is conditioned
upon its acceptance. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
3.3.1. Removal. Subject to the rights of the holders of any series of
-------
Preferred Stock with respect the removal of any director elected by the holders
of such series and/or any other series of Preferred Stock, any director or the
entire Board of Directors may be removed from office at any time, but only for
cause and only by the affirmative vote of the holders of a majority of the then-
outstanding shares entitled to vote thereon, voting together as a class.
<PAGE>
-8-
3.4. Place of Meetings and Books. The Board of Directors may hold their
---------------------------
meetings and keep the books of the Corporation outside the State of Delaware, at
such places as they may from time to time determine.
3.5. Executive Committee. There may be an executive committee of one or
--------------------
more directors designated by resolution passed by a majority of the Whole Board.
The act of a majority of the members of such committee shall be the act of the
committee. Said committee may meet at stated times or on notice to all by any of
their own number, and shall have and may exercise those powers of the Board of
Directors in the management of the business affairs of the Corporation as are
provided by law and may authorize the seal of the Corporation to be affixed to
all papers which may require it. Vacancies in the membership of the committee
shall be filled by the Board of Directors at a regular meeting or at a special
meeting called for that purpose.
3.6. Other Committees. The Board of Directors may also designate one or
----------------
more committees in addition to the executive committee, by resolution or
resolutions passed by a majority of the Whole Board; such committee or
committees shall consist of one or more directors of the Corporation, and to the
extent provided in the resolution or resolutions designating them, shall have
and may exercise specific powers of the Board of Directors in the management of
the business and affairs of the Corporation to the extent permitted by statute
and shall have power to authorize the seal of the Corporation to be affixed to
all papers which may require it. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
3.7 Powers Denied to Committees. Committees of the Board of Directors shall
---------------------------
not, in any event, have any power or authority to amend the Restated Certificate
of Incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares adopted by the
Board of Directors as provided in Section 151(a) of the Delaware GCL, 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),
adopt an agreement of merger or consolidation, recommend to the stockholders the
sale, lease or exchange of all or substantially all of the Corporation's
<PAGE>
-9-
property and assets, recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution or to amend the By-Laws of the
Corporation. Further, no committee of the Board of Directors 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
Delaware GCL, unless the resolution or resolutions designating such committee
expressly so provides.
3.8. Substitute Committee Member. In the absence or on the 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 such absent or disqualified member. Any committee shall
keep regular minutes of its proceedings and report the same to the Board of
Directors as may be required by the Board of Directors.
3.9. Compensation of Directors. The Board of Directors shall have the power
-------------------------
to fix the compensation of directors and members of committees of the Board of
Directors. The directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors and/or a stated annual fee
(some or all of which may be paid in the form of capital stock of the
Corporation) as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
3.10. Regular Meetings. A regular meeting of the Board of Directors shall
----------------
be held without other notice than this Section 3.12, immediately after, and at
the same place as, the Annual Meeting of Stockholders. The Board of Directors
may, by resolutions, provide the time and place for the holding of additional
regular meetings without other notice than such resolution. Such regular
meetings shall be held at such place within or without the State of Delaware as
shall be fixed by the Board of Directors.
3.11. Special Meetings. Special meetings of the Board of Directors may be
----------------
called by the Chairman of the Board of Directors, if any, or the President, on
two (2) days notice to each director, or such shorter period of time before the
meeting as will nonetheless be sufficient for the convenient assembly of the
directors so notified; special meetings shall be
<PAGE>
-10-
called by the Secretary in like manner and on like notice, on the written
request of two or more directors.
3.12. Quorum. At all meetings of the Board of Directors, a majority of the
------
total number of directors shall be necessary and sufficient to 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 permitted or
provided by statute, or by the Restated Certificate of Incorporation, or by
these By-Laws. If at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of those present may adjourn the meeting from
time to time until a quorum is obtained, and no further notice thereof need be
given other than by announcement at said meeting which shall be so adjourned.
3.13. Telephonic Participation in Meetings. Members of the Board of
------------------------------------
Directors or any committee designated by such board may participate in a meeting
of the Board of Directors or committee thereof by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting pursuant to
this section shall constitute presence in person at such meeting.
3.14. Action by Consent. Unless otherwise restricted by the Restated
-----------------
Certificate of Incorporation or these By-Laws, 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 written consent thereto is signed by all
members of the Board of Directors or of such committee, as the case may be, and
such written consent is filed with the minutes of proceedings of the Board of
Directors or committee .
Article IV. - Officers.
----------------------
4.1. Selection; Statutory Officers. The officers of the Corporation shall
-----------------------------
be chosen by the Board of Directors. There shall be a President, a Secretary and
a Treasurer, and there may be a Chairman of the Board of Directors, one or more
Vice Presidents, one or more Assistant Secretaries, and one or more Assistant
Treasurers, as the Board of Directors may elect. Any number of offices may be
held by the same person, unless the Restated Certificate of Incorporation or
these By-Laws otherwise provide.
4.2. Time of Election. The officers above named shall be chosen by the
----------------
Board of Directors at its first meeting after each annual meeting of
stockholders. None of said officers need be a director.
<PAGE>
-11-
4.3. Additional Officers. The Board of Directors may appoint such other
-------------------
officers and agents as it shall deem necessary, who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
4.4. Terms of Office. The officers of the Corporation shall hold office
---------------
until their successors are chosen and qualify. Any officer elected or appointed
by the stockholders may be removed at any time by the affirmative vote of a
majority of the stockholders. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
4.5. Compensation of Officers. The Board of Directors (or a duly appointed
------------------------
committee of the Board of Directors) shall have power to fix the compensation of
all officers of the Corporation.
4.6. Chairman of the Board. The Chairman of the Board of Directors, if any,
---------------------
otherwise the President, if a director, or such other director as the Board may
choose, shall preside at all meetings of the Board of Directors and of the
stockholders of the Corporation. In the absence of the President, or in the
event of the President's inability or refusal to act, the Chairman of the Board
shall perform the duties and exercise the powers of the President until such
vacancy shall be filled in the manner prescribed by these By-Laws or by law. The
Chairman of the Board shall have such other powers and perform such other duties
as may from time to time be prescribed by the Board of Directors or these By-
Laws.
4.7. President. Unless the Board of Directors otherwise determines, the
---------
President shall be the chief executive officer and head of the Corporation.
Unless there is a Chairman of the Board, the President shall preside at all
meetings of directors and stockholders. Under the supervision of the Board of
Directors and of the executive committee, the President shall have the general
control and management of its business and affairs, subject, however, to the
right of the Board of Directors and of the executive committee to confer any
specific power, except such as may be by statute exclusively conferred on the
President, upon any other officer or officers of the Corporation. The President
shall perform and do all acts and things incident to the position of President
and such other duties as may be assigned to him from time to time by the Board
of Directors or the executive committee.
4.8. Vice-Presidents. The Vice-Presidents shall perform such of the duties
---------------
of the President on behalf of the Corporation as may be respectively assigned to
them from time to time by the Board of Directors
<PAGE>
-12-
or by the executive committee or by the President. The Board of Directors or the
executive committee may designate one of the Vice-Presidents as the Executive
Vice-President, and in the absence or inability of the President to act, such
Executive Vice-President shall have and possess all of the powers and discharge
all of the duties of the President, subject to the control of the Board of
Directors and of the executive committee.
4.9. Treasurer. The Treasurer shall have the care and custody of all the
---------
funds and securities of the Corporation which may come into his hands as
Treasurer, and the power and authority to endorse checks, drafts and other
instruments for the payment of money for deposit or collection when necessary or
proper and to deposit the same to the credit of the Corporation in such bank or
banks or depository as the Board of Directors or the executive committee, or the
officers or agents to whom the Board of Directors or the executive committee may
delegate such authority, may designate, and he may endorse all commercial
documents requiring endorsements for or on behalf of the Corporation. He may
sign all receipts and vouchers for the payments made to the Corporation. He
shall render an account of his transactions to the Board of Directors or to the
executive committee as often as the Board of Directors or the committee shall
require the same. He shall enter regularly in the books to be kept by him for
that purpose full and adequate account of all moneys received and paid by him on
account of the Corporation. He shall perform all acts incident to the position
of Treasurer, subject to the control of the Board of Directors and of the
executive committee. He shall when requested, pursuant to vote of the Board of
Directors or the executive committee, give a bond to the Corporation conditioned
for the faithful performance of his duties, the expense of which bond shall be
borne by the Corporation.
4.10. Secretary. The Secretary shall keep the minutes of all meetings of
---------
the Board of Directors and of the stockholders; and shall attend to the giving
and serving of all notices of the Corporation. Except as otherwise ordered by
the Board of Directors or the executive committee, the Secretary shall attest
the seal of the Corporation upon all contracts and instruments executed under
such seal and shall affix the seal of the Corporation thereto and to all
certificates of shares of capital stock of the Corporation. The Secretary shall
have charge of the stock certificate book, transfer book and stock ledger, and
such other books and papers as the Board of Directors or the executive committee
may direct. He shall, in general, perform all the duties of Secretary, subject
to the control of the Board of Directors and of the executive committee.
4.11. Assistant Secretary. The Assistant Secretary, or if there be more
-------------------
than one, the assistant secretaries in the order determined by the
<PAGE>
-13-
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
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.
4.12. Assistant Treasurer. The Assistant Treasurer, or if there shall be
-------------------
more than one, the Assistant Treasurers 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 Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
4.13. Subordinate Officers. The Board of Directors may select such
--------------------
subordinate officers as it may deem desirable. Each such officer shall hold
office for such period, have such authority, and perform such duties as the
Board of Directors may prescribe. The Board of Directors may, from time to time,
authorize any officer to appoint and remove subordinate officers and to
prescribe the powers and duties thereof.
4.14. Removal. Any officer elected, or agent appointed, by the Board of
-------
Directors may be removed by the affirmative vote of a majority of the Whole
Board whenever, in their judgment, the best interests of the Corporation would
be served thereby. Any officer or agent appointed by the President may be
removed by him whenever, in his judgment, the best interests of the Corporation
would be served thereby. No elected officer shall have any contractual rights
against the Corporation for compensation by virtue of such election beyond the
date of the election of his successor, his death, his resignation or his
removal, whichever event shall first occur, except as otherwise provided in an
employment contract or under an employee deferred compensation plan.
4.15. Vacancies. A newly created elected office and a vacancy in any
---------
elected office because of death, resignation or removal may be filled by the
Board of Directors for the unexpired portion of the term at any meeting of the
Board of Directors. Any vacancy in an office appointed by the President because
of death, resignation, or removal may be filled by the President.
<PAGE>
-14-
Article V. - Stock.
------------------
5.1. Stock. Each stockholder shall be entitled to a certificate or
-----
certificates of stock of the Corporation in such form as the Board of Directors
may from time to time prescribe. The certificates of stock of the Corporation
shall be numbered and shall be entered in the books of the Corporation as they
are issued. They shall certify the holder's name and number and class of shares
and shall be signed by both of (i) either the President or a Vice-President, and
(ii) any one of the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, and shall be sealed with the corporate seal of the
Corporation. If such certificate is countersigned (l) by a transfer agent other
than the Corporation or its employee, or, (2) by a registrar other than the
Corporation or its employee, the signature of the officers of the Corporation
and the corporate seal may be facsimiles. In case any officer or officers who
shall have signed, or whose facsimile signature or signatures shall have been
used on, any such certificate or certificates shall cease to be such officer or
officers of the Corporation, whether because of death, resignation or otherwise,
before such certificate or certificates shall have been delivered by the
Corporation, such certificate or certificates may nevertheless be adopted by the
Corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature shall have
been used thereon had not ceased to be such officer or officers of the
Corporation.
5.2. Fractional Share Interests. The Corporation may, but shall not be
--------------------------
required to, issue fractions of a share. If the Corporation does not issue
fractions of a share, it shall (i) arrange for the disposition of fractional
interests by those entitled thereto, (ii) pay in cash the fair value of
fractions of a share as of the time when those entitled to receive such
fractions are determined, or (iii) issue scrip or warrants in registered or
bearer form which shall entitle the holder to receive a certificate for a full
share upon the surrender of such scrip or warrants aggregating a full share. A
certificate for a fractional share shall, but scrip or warrants shall not unless
otherwise provided therein, entitle the holder to exercise voting rights, to
receive dividends thereon, and to participate in any of the assets of the
Corporation in the event of liquidation. The Board of Directors may cause scrip
or warrants to be issued subject to the conditions that they shall become void
if not exchanged for certificates representing full shares before a specified
date, or subject to the conditions that the shares for which scrip or warrants
are exchangeable may be sold by the Corporation and the proceeds thereof
distributed to the
<PAGE>
-15
holders of scrip or warrants, or subject to any other conditions which
the Board of Directors may impose.
5.3. Transfers of Stock. Subject to any transfer restrictions then in
------------------
force, the shares of stock of the Corporation shall be transferable only upon
its books by the holders thereof in person or by their duly authorized attorneys
or legal representatives and upon such transfer the old certificates shall be
surrendered to the Corporation by the delivery thereof to the person in charge
of the stock and transfer books and ledgers or to such other person as the
directors may designate by whom they shall be cancelled and new certificates
shall thereupon be issued. The Corporation shall be entitled to treat the holder
of record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person whether or not it shall
have express or other notice thereof save as expressly provided by the laws of
Delaware.
5.4. Record Date. For the purpose of determining the stockholders entitled
-----------
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or the
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) days nor less than ten (10) days before the date of
such meeting, nor more than sixty (60) days prior to any other action. If no
such record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; 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; and
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 any 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.
<PAGE>
-16-
5.5. Transfer Agent and Registrar. The Board of Directors may appoint one
----------------------------
or more transfer agents or transfer clerks and one or more registrars and may
require all certificates of stock to bear the signature or signatures of any of
them.
5.6. Dividends.
---------
1. Power to Declare. Dividends upon the capital stock of the Corporation,
----------------
subject to the provisions of the Restated Certificate of Incorporation, if any,
may be declared by the Board of Directors at any regular or special meeting,
pursuant to law. Dividends may be paid in cash, in property, in promissory notes
or in shares of the capital stock, subject to the provisions of the Restated
Certificate of Incorporation and the laws of Delaware.
2. Reserves. Before payment of any dividend, there may be set aside out of
--------
any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
5.7. Lost, Stolen or Destroyed Certificates. No certificates for shares of
--------------------------------------
stock of the Corporation shall be issued in place of any certificate alleged to
have been lost, stolen or destroyed, except upon production of such evidence of
the loss, theft or destruction and upon indemnification of the Corporation and
its agents to such extent and in such manner as the Board of Directors may from
time to time prescribe.
Article VI. - Miscellaneous Management Provisions.
-------------------------------------------------
6.1. Checks, Drafts and Notes. All checks, drafts or orders for the payment
------------------------
of money, and all notes and acceptances of the Corporation shall be signed by
such officer or officers, agent or agents as the Board of Directors may
designate.
6.2. Notices.
-------
1. Notices to directors may, and notices to stockholders shall, be in
writing and delivered personally or mailed to the directors or stockholders
at their addresses appearing on the books of the Corporation. Notice by
mail shall be deemed to be given at the time when the same shall be mailed.
Notice to directors may
<PAGE>
-17-
also be given by telegram, telecopy or orally, by telephone or in person.
2. Whenever any notice is required to be given under the provisions
of the statutes or of the Restated Certificate of Incorporation of the
Corporation or of these By-Laws, a written waiver of notice, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein or the meeting or action to which such notice relates, 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.
6.3. Conflict of Interest. No contract or transaction between the
--------------------
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorized the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (i) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (ii) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders of the Corporation entitled to vote thereon, and the contract or
transaction as specifically approved in good faith by vote of such stockholders;
or (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
6.4. Voting of Securities owned by this Corporation. Subject always to the
----------------------------------------------
specific directions of the Board of Directors, (i) any shares or other
securities issued by any other corporation and owned or controlled by this
Corporation may be voted in person at any meeting of security holders of such
other corporation by the President of this Corporation if he
<PAGE>
-18-
is present at such meeting, or in his absence by the Treasurer of this
Corporation if he is present at such meeting, and (ii) whenever, in the judgment
of the President, it is desirable for this Corporation to execute a proxy or
written consent in respect to any shares or other securities issued by any other
corporation and owned by this Corporation, such proxy or consent shall be
executed in the name of this Corporation by the President, without the necessity
of any authorization by the Board of Directors, affixation of corporate seal or
countersignature or attestation by another officer, provided that if the
President is unable to execute such proxy or consent by reason of sickness,
absence from the United States or other similar cause, the Treasurer may execute
such proxy or consent. Any person or persons designated in the manner above
stated as the proxy or proxies of this Corporation shall have full right, power
and authority to vote the shares or other securities issued by such other
corporation and owned by this Corporation the same as such shares or other
securities might be voted by this Corporation.
6.5. Inspection of Books. The stockholders of the Corporation, by a
-------------------
majority vote at any meeting of stockholders duly called, or in case the
stockholders shall fail to act, the Board of Directors shall have power from
time to time to determine whether and to what extent and at what times and
places and under what conditions and regulations the accounts and books of the
Corporation (other than the stock ledger) or any of them, shall be open to
inspection of stockholders; and no stockholder shall have any right to inspect
any account or book or document of the Corporation except as conferred by
statute or authorized by the Board of Directors or by a resolution of the
stockholders.
Article VII. - Indemnification.
------------------------------
7.1. Right to Indemnification. Each person who was or is made a party or is
------------------------
threatened to be made a party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of being or having been a director or officer of the
Corporation or serving or having served at the request of the Corporation as a
director, trustee, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (an "Indemnitee"), whether the basis of such
proceeding is alleged action or failure to act in an official capacity as a
director, trustee, officer, employee or agent or in any other capacity while
serving as a director, trustee, officer, employee or agent, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be amended
(but, in
<PAGE>
-19-
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than permitted prior
thereto) (as used in this Article VII, the "Delaware Law"), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such Indemnitee in connection therewith and such indemnification
shall continue as to an Indemnitee who has ceased to be a director, trustee,
officer, employee or agent and shall inure to the benefit of the Indemnitee's
heirs, executors and administrators; provided, however, that, except as provided
in Section 7.2 hereof with respect to Proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such Indemnitee in
connection with a Proceeding (or part thereof) initiated by such Indemnitee only
if such Proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Article VII
shall be a contract right and shall include the right to be paid by the
Corporation the expenses (including attorneys' fees) incurred in defending any
such Proceeding in advance of its final disposition (an "Advancement of
Expenses"); provided, however, that, if the Delaware Law so requires, an
Advancement of Expenses incurred by an Indemnitee shall be made only upon
delivery to the Corporation of an undertaking (an "Undertaking"), by or on
behalf of such Indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (a "Final Adjudication") that such Indemnitee is not
entitled to be indemnified for such expenses under this Article VII or
otherwise.
7.2. Right of Indemnitee to Bring Suit. If a claim under Section 7.1 hereof
---------------------------------
is not paid in full by the Corporation within sixty days after a written claim
has been received by the Corporation, except in the case of a claim for an
Advancement of Expenses, in which case the applicable period shall be twenty
days, the Indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit, or in a suit brought by the Corporation to recover an
Advancement of Expenses pursuant to the terms of an Undertaking, the Indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit. In (i) any suit brought by the Indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the Indemnitee to
enforce a right to an Advancement of Expenses) it shall be a defense that, and
(ii) in any suit by the Corporation to recover an Advancement of Expenses
pursuant to the terms of an Undertaking the Corporation shall be entitled to
recover such expenses upon a Final Adjudication that, the Indemnitee has not met
the applicable standard of conduct set forth in the Delaware Law. Neither the
failure of the Corporation (including its board of directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the Indemnitee is proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct set forth in the
<PAGE>
-20-
Delaware Law, nor an actual determination by the Corporation (including its
board of directors, independent legal counsel, or its stockholders) that the
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that the Indemnitee has not met the applicable standard of conduct
or, in the case of such a suit brought by the Indemnitee, be a defense to such
suit. In any suit brought by the Indemnitee to enforce a right to
indemnification or to an Advancement of Expenses hereunder, or by the
Corporation to recover an Advancement of Expenses pursuant to the terms of an
Undertaking, the burden of proving that the Indemnitee is not entitled to be
indemnified, or to such Advancement of Expenses, under this Article VII or
otherwise shall be on the Corporation.
7.3. Non-Exclusivity of Rights. The rights to indemnification and to the
-------------------------
Advancement of Expenses conferred in this Article 7 shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, the Corporation's Restated Certificate of Incorporation, By-Law,
agreement, vote of stockholders or disinterested directors or otherwise.
7.4. Insurance. The Corporation may maintain insurance, at its expense, to
---------
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under this Article VII or under the Delaware Law.
7.5. Indemnification of Employees and Agents of the Corporation. The
----------------------------------------------------------
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, and to the Advancement of Expenses,
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article VII with respect to the indemnification and
Advancement of Expenses of directors and officers of the Corporation.
Article VIII. - Amendments.
--------------------------
8.1. Amendments. Subject always to any limitations imposed by the
----------
Corporation's Restated Certificate of Incorporation, these By-Laws
<PAGE>
-21-
may be altered, amended, or repealed, or new By-Laws may be adopted, only by (i)
the affirmative vote of the holders of at least three-quarters (75%) of the
outstanding voting stock of the Corporation (in addition to any separate class
vote that may be required pursuant to the terms of any then outstanding
preferred stock of the Corporation), or (ii) by resolution of the Board of
Directors duly adopted by not less than a majority of the directors then
constituting the full Board of Directors.
<PAGE>
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
LICENSE AGREEMENT
(EXCLUSIVE)
Date:____________________
<PAGE>
(i)
Vers 11/1/91 LLN/sc: 5261.5730.Cubist.agt.
Patent/Ex Date: November 4, 1992
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PREAMBLE........................................1
--------
ARTICLES
--------
1 DEFINITIONS.................................1
2 GRANT.......................................3
3 DUE DILIGENCE...............................4
4 ROYALTIES...................................5
5 REPORTS AND RECORDS.........................6
6 PATENT PROSECUTION..........................7
7 INFRINGEMENT................................8
8 PRODUCT LIABILITY...........................9
9 EXPORT CONTROLS.............................9
10 NON-USE OF NAMES............................10
11 ASSIGNMENT..................................10
12 DISPUTE RESOLUTION..........................10
13 TERMINATION.................................11
14 PAYMENTS, NOTICES AND OTHER
COMMUNICATIONS..............................12
15 MISCELLANEOUS PROVISIONS....................12
</TABLE>
<PAGE>
-1-
This Agreement is made and entered into this day of , 199 , (the
"Effective Date") by and between MASSACHUSETTS INSTITUTE OF TECHNOLOGY, a
corporation duly organized and existing under the laws of the Commonwealth of
Massachusetts and having its principal office at 77 Massachusetts Avenue,
Cambridge, Massachusetts 02139, U.S.A. (hereinafter referred to as "M.I.T."),
and CUBIST PHARMACEUTICALS, INC., a corporation duly organized under the laws of
Delaware and having its principal office c/o DSV Partners, 221 Nassau Street,
Princeton, NJ 08542 (hereinafter referred to as "LICENSEE").
WITNESSETH
----------
WHEREAS, M.I.T. is the owner of certain PATENT RIGHTS (as later defined
herein) relating to M.I.T. Case No. 5261, "Designing Compounds Specifically
Inhibiting Ribonucleic Acid" by Paul R. Schimmel, and Case No. 5730, "Nucleic
Acid Reduction and Transport" by Nassim Usman and J. Rebek, Jr. and has the
right to grant licenses under said PATENT RIGHTS, subject only to a
royalty-free, nonexclusive license heretofore granted to the United States
Government.
WHEREAS, M.I.T. desires to have the PATENT RIGHTS utilized in the public
interest and is willing to grant a license thereunder;
WHEREAS, LICENSEE has represented to M.I.T., to induce M.I.T. to enter into
this Agreement, that LICENSEE is knowledgeable with respect to the subject
matter related to the LICENSED PRODUCTS(s) (as later defined herein) and/or the
use of the LICENSED PROCESS(es) (as later defined herein) and that it shall
commit itself to a thorough, vigorous and diligent program of exploiting the
PATENT RIGHTS so that public utilization shall result therefrom; and
WHEREAS, LICENSEE desires to obtain a license under the PATENT RIGHTS upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agrees as follows:
ARTICLE 1 - DEFINITIONS
-----------------------
For the purposes of this Agreement, the following words and phrases shall
have the following meanings:
1.1 "LICENSEE" shall include a related company of CUBIC PHARMACEUTICALS,
INC., the voting stock of which is directly or indirectly at least fifty Percent
(50%) owned or controlled by CUBIC PHARMACEUTICALS, INC., an organization which
directly or indirectly controls more than Fifty Percent (50%) of the voting
stock of CUBIST PHARMACEUTICALS,
<PAGE>
-2-
INC. and an organization, the majority ownership of which is directly or
indirectly common to the ownership of CUBIST PHARMACEUTICALS, INC.
1.2 "PATENT RIGHTS" shall mean all of the following M.I.T. intellectual
property:
(a) the United States and foreign patents and/or patent applications
listed in Appendices A and B;
(b) United States and foreign patents issued from the applications
listed in Appendices A and B and from divisional and continuations
of these applications;
(c) claims of U.S. and foreign continuations-in-part applications, and
of the resulting patents, which are directed to subject matter
specifically described in the U.S. and foreign applications listed
in Appendices A and B;
(d) claims of all foreign patent applications, and of the resulting
patents, which are directed to subject matter specifically described
in the United States patents and/or patent applications described in
(a), (b) or (c) above; and
(e) any reissues of United States patents described in (a), (b) or (c)
above.
1.3 A "LICENSED PRODUCT" shall mean any product or part thereof which:
(a) is covered in whole or in part by an issued, unexpired valid claim
or a pending claim contained in the PATENT RIGHTS in the country in
which any such product or part thereof is made, used or sold; or
(b) is manufactured by using a process or is employed to practice a
process which is covered in whole or in part by an issued, unexpired
valid claim or a pending claim contained in the PATENT RIGHTS in the
country in which any LICENSED PROCESS is used or in which such
product or part thereof is used or sold.
where a "valid claim" shall mean a claim of an unexpired patent contained
in the PATENT RIGHTS so long as such claim shall not have been held invalid in
an unappealed or unappealable decision rendered by a court of competent
jurisdiction.
1.4 A "LICENSED PROCESS" shall mean any process which is covered in whole
or in part by an issued, unexpired claim or a pending claim contained in the
PATENT RIGHTS.
1.5 "NET SALES" shall mean LICENSEE's (and its sublicensees') billings for
LICENSED PRODUCTS and LICENSED PROCESSES produced hereunder less the sum of the
following:
(a) ****************************************************
(b) **********************************************************
**********************
(c) ************************************************
(d) *******************************************
<PAGE>
-3-
***********************************************************************
********************************************************************************
**************************************** LICENSED PRODUCTS shall be considered
"sold" when billed out or invoiced. "Net Sales" shall not include LICENSED
PRODUCTS sold for clinical testing, research or development purposes.
ARTICLE 2 - GRANT
-----------------
2.1 M.I.T hereby grants to LICENSEE the worldwide right and license to
make, have made, use, lease and sell the LICENSED PRODUCTS and to practice the
LICENSED PROCESSES to the end of the term for which the PATENT RIGHTS are
granted unless this Agreement shall be sooner terminated according to the terms
hereof.
2.2 LICENSEE agrees that LICENSED PRODUCTS leased or sold in the United
States shall be manufactured substantially in the United States.
2.3 In order to establish a period of exclusivity for LICENSEE, M.I.T.
hereby agrees that it shall not grant any other licensee to make, have made,
use, lease and sell LICENSED PRODUCTS or to utilize LICENSED PROCESSES during
the term of this agreement, except as provided in P 2.10 below.
2.4 At the end of the exclusive period, the license granted hereunder
shall become nonexclusive and shall extend to the end of the term or terms for
which any PATENT RIGHTS are issued, unless sooner terminated as hereinafter
provided.
2.5 M.I.T. reserves the right to practice under the PATENT RIGHTS for its
own noncommercial research purposes.
2.6 LICENSEE shall have the right to enter into sublicensing agreements
for the rights, privileges and licenses granted hereunder. Upon any termination
of this Agreement, sublicensees' rights shall also terminate, subject to
Paragraph 13.6 hereof.
2.7 LICENSEE agrees that any sublicenses granted by it shall provide that
the obligations to M.I.T. of Articles 2, 5, 7, 8, 9, 10, 12, 13, and 15 of this
Agreement shall be binding upon the sublicensee as if it were a party to this
Agreement. LICENSEE further agrees to attach copies of these Articles to
sublicense agreements.
2.8 LICENSEE agrees to forward to M.I.T. a copy of any and all sublicense
agreements promptly upon execution by the parties.
2.9 LICENSEE shall not receive from sublicenses anything of value in lieu
of cash payments in consideration for any sublicense under this Agreement,
without the express prior written permission of M.I.T.
<PAGE>
-4-
2.10 If at any time following five (5) years after the Effective Date of
this Agreement, M.I.T. receives a bona fide request from a third party for a
license under the PATENT RIGHTS for a LICENSED PRODUCT not directly competitive
with any LICENSED PRODUCT then sold by or under development by LICENSEE ("Third
Party's Field of Use") M.I.T. shall so notify LICENSEE and request that LICENSEE
enter into good faith negotiations with the third party for a sublicense to the
PATENT RIGHTS in the Third Party's Field of Use. If such a sublicense has not
been granted within six months after such notification, M.I.T. may negotiate
with the third party to grant such a sublicense, provided that any sublicense
granted by M.I.T. shall:
(a) Be confined to a single class of therapeutic products not
competitive with any LICENSED PRODUCT under development or sold by
LICENSEE at any time of granting of the sublicense; and
(b) Be nonexclusive; and
(c) Require the third party to commit to a development plan in the Third
Party Field of Use committing a minimum of $250,000 per year in
development funds beginning within six months of the granting of the
sublicense; and
(d) Require running royalties no less than those specified for LICENSEE
in subparagraph 4.1 (c) below; and
further provided that when M.I.T. and the third party have substantially
agreed on sublicensing terms, LICENSEE shall have a forty-five (45) day first
right of refusal to retain exclusivity in the Third Party Field of Use by
matching the Third Party sublicensing terms (including committed development
funds) but at a running royalty rate equal to that specified in subparagraph 4.1
(c) below.
Any revenue derived by M.I.T. in the sublicensing of the PATENT RIGHTS as
specified hereunder shall be shared equally between M.I.T. and LICENSEE.
2.11 The license granted hereunder shall not be construed to confer any
rights upon LICENSEE by implication, estoppel or otherwise as to any technology
not specifically set forth in Appendix A hereof.
2.12 Any improvements made by LICENSEE relating to the LICENSED PRODUCTS or
LICENSED PROCESSES shall be the property of LICENSEE and M.I.T. shall have no
right, title or interest therein. Any improvements made by Dr. Paul R. Schimmel
or Dr. Julius Rebek while performing services for LICENSEE using LICENSEE's
facilities shall, contingent upon agreement between LICENSEE and Dr. Schimmel or
Dr. Rebek as the case may be, be considered to be an improvement made by
LICENSEE.
ARTICLE 3 - DUE DILIGENCE
-------------------------
3.1 LICENSEE shall use its best efforts to bring LICENSED PRODUCTS to
market through a thorough, vigorous and diligent program for exploitation of the
PATENT RIGHTS and
<PAGE>
-5-
to continue active, diligent development and marketing efforts for LICENSED
PRODUCTS throughout the life of this Agreement.
************************************************************************
*******************************
************************************************************************
*******************
*************************************************************************
**********************
*************************************************************************
****************
3.3 LICENSEE's failure to perform in accordance with Paragraphs 3.1 and
3.2 above shall be grounds for M.I.T. to terminate this Agreement pursuant to
Paragraph 13.3 hereof.
ARTICLE 4 - ROYALTIES
---------------------
4.1 For the rights, privileges and license granted hereunder, LICENSEE
shall pay royalties to M.I.T. in the manner hereinafter provided to the end of
the term of the PATENT RIGHTS or until this Agreement shall be terminated:
(a) A License Issue Fee of ************************, which said
License Issue Fee shall be deemed earned and due in two parts:
(i) ****************************** due upon the signing of this
Agreement; and
(ii) ************************************* due upon the raising
of Two Million Dollars ($2,000,000) in investment capital by
LICENSEE.
(b) Licensee Maintenance Fees of ******************************* per
year payable on January 1, 1994 and on January 1 of each year
thereafter; provided, however, that Running Royalties subsequently
due on NET SALES for each said year, if any, shall be creditable
against the License Maintenance Fee for said year. **************
*********************************
(c) Running Royalties in amount equal to **************** of NET SALES
of the LICENSED PRODUCTS and LICENSED PROCESSES used, leased or sold
by and/or for LICENSEE which require prescriptions to be sold and
*************** of the NET SALES of other LICENSED PRODUCTS and
LICENSED PROCESSES.
(d) A share of sublicensing revenue received by LICENSEE equal to:
(i) *********************** if only the PATENT RIGHTS are
sublicensed; or
(ii) ************************* if the sublicense revenue includes
revenue received for the PATENT RIGHTS sublicensed in
conjunction with products developed by LICENSEE and/or
substantial technology developed by LICENSEE, provided that
in no case shall the revenue paid to M.I.T. for each
sublicense be less than *********************** the LICENSED
PRODUCTS made, used or sold by that sublicensee
<PAGE>
-6-
(e) Shares of common stock of LICENSEE equal to ************ of the
outstanding common and preferred shares of LICENSEE at the
completion of the first round of equity of investment.
(f) Antidilution:
------------
If, following the first round of equity funding, LICENSEE issues
additional shares of stock that M.I.T.'s total share of outstanding
stock falls below **************, then LICENSEE shall grant to
M.I.T. additional shares such that M.I.T.'s fraction of total
outstanding shares remains at ***********, until a total of
*********************** funding is obtained by LICENSEE. Thereafter,
no additional shares shall be due to M.I.T., provided that in
subsequent rounds of financing, M.I.T. shall have the right to
invest in additional shares, on a pro rata basis, at the same
--------
price as is granted to other investors holding common or preferred
stock.
4.2 All payments due hereunder shall be paid in full, without deduction of
taxes or other fees which may be imposed by any government and which shall be
paid by LICENSEE.
4.3 No multiple royalties shall be payable because any LICENSED PRODUCT,
its manufacture, use, lease or sale are or shall be covered by more than one
PATENT RIGHTS patent application or PATENT RIGHTS patent licensed under this
Agreement.
4.4 Royalty payments shall be paid in United States dollars in Cambridge,
Massachusetts, or at such other place as M.I.T. may reasonably designate
consistent with the laws and regulations controlling in any foreign country. If
any currency conversion shall be required in connection with the payment of
royalties hereunder, such conversion shall be made by using the exchange rate
prevailing at the Chase Manhattan Bank (N.A.) on the last business day of the
calendar quarterly reporting period to which such royalty payments relate.
ARTICLE 5 - REPORTS AND RECORDS
-------------------------------
5.1 LICENSEE shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of showing the
amounts payable to M.I.T. hereunder. Said books of account shall be kept
LICENSEE's principal place of business or the principal place of business of
the appropriate division of LICENSEE to which this Agreement relates. Said books
and the supporting data shall be open at all reasonable times for three (3)
years following the end of the calendar year to which they pertain, to the
inspection of M.I.T. or its agents for the purpose of verifying LICENSEE's
royalty statement or compliance in other respects with this Agreement. Should
such inspection lead to the discovery of a greater than ten Percent (10%)
discrepancy in reporting, LICENSEE agrees to pay the full cost of such
inspection.
5.2 LICENSEE, within sixty (60) days after December 31 of each year prior
to the first commercial sale of a LICENSED PRODUCT and sixty days after March
31, June 30, September 30 and December 31, of each year after the first
commercial sale of a LICENSED PRODUCT, shall deliver to M.I.T. true and accurate
reports, giving such particulars of the business conducted
<PAGE>
-7-
by LICENSEE and it sublicensees during the preceding three-month period under
this Agreement as shall be pertinent to a royalty accounting hereunder. These
shall include at least the following:
(a) number of LICENSED PRODUCTS manufactured and sold by LICENSEE and
all sublicensees;
(b) total billings for LICENSED PRODUCTS sold by LICENSEE and all
sublicensees;
(c) accounting for all LICENSED PROCESSES used or sold by LICENSEE and
all sublicensees;
(d) deductions applicable as provided in Paragraph 1.5;
(e) total royalties due; and
(f) names and addresses of all sublicensees of LICENSEE.
5.3 With each such report submitted, LICENSEE shall pay to M.I.T. the
royalties due and payable under this Agreement. If no royalties shall be due,
LICENSEE shall so report.
5.4 On or before the ninetieth (90th) day following the close of
LICENSEE's fiscal year, LICENSEE shall provide M.I.T. with LICENSEE's certified
financial statements for the preceding fiscal year including, at a minimum, a
Balance Sheet and an Operating Statement.
5.5 The royalty payments set forth in this Agreement and amounts due under
Article 6 shall, if overdue, bear interest until payment at a per annum rate two
Percent (2%) above the prime rate in effect at the Chase Manhattan Bank (N.A.)
on the due date. The payment of such interest shall not foreclose M.I.T. from
exercising any other rights it may have as a consequence of the lateness of any
payment.
ARTICLE 6 - PATENT PROSECUTION
------------------------------
6.1 M.I.T. shall apply for, seek prompt issuance of, and maintain during
the term of this Agreement the PATENT RIGHTS in the United States and, where
legally possible, in those foreign countries listed in Appendix B hereto and in
any other foreign country at LICENSEE's request. Appendix B may be amended by
verbal agreement of both parties, such agreement to be confirmed in writing
within ten (10) days. The prosecution, filing and maintenance of all PATENT
RIGHTS patents and applications shall be primary responsibility of M.I.T.;
provided, however, LICENSEE shall have reasonable opportunities to advise M.I.T.
and shall cooperate with M.I.T. in such prosecution, filing and maintenance.
6.2 Payment of all fees and costs relating to the filing, prosecution, and
maintenance of the PATENT RIGHTS shall be the responsibility of LICENSEE,
whether such fees and costs were incurred before or after the date of this
Agreement.
<PAGE>
-8-
ARTICLE 7 - INFRINGEMENT
------------------------
7.1 LICENSEE shall inform M.I.T. promptly in writing of any alleged
infringement of the PATENT RIGHTS by a third party and of any available evidence
thereof.
7.2 During the term of this Agreement, M.I.T. shall have the right, but
shall not be obligated, to prosecute at its own expense all infringements of the
PATENT RIGHTS and, in furtherance of such right, LICENSEE, hereby agrees that
M.I.T. may include LICENSEE as a party plaintiff in any such suit, without
expense to LICENSEE. The total cost of any such infringement action commenced or
defended solely by M.I.T. shall be borne by M.I.T. and M.I.T. shall keep any
recovery or damages for past infringement derived therefrom.
7.3 If within six (6) months after having been notified of any alleged
infringement, M.I.T. shall have been unsuccessful in persuading the alleged
infringer to desist and shall not have brought and shall not be diligently
prosecuting an infringement action, or if M.I.T. shall notify LICENSEE at any
time prior thereto of its intention not to bring suit against any alleged
infringer, then, and in those events only, LICENSEE shall have the right, but
shall not be obligated, to prosecute at its own expense any infringement of the
PATENT RIGHTS, and LICENSEE may, for such purposes, use the name of M.I.T. as
party plaintiff; provided, however, that such right to bring such an
infringement action shall remain in effect. No settlement, consent judgment or
other voluntary, final disposition of the suit may be entered into without the
consent of M.I.T., which consent shall not unreasonably be withheld or delayed.
LICENSEE shall indemnify M.I.T. against any order for costs that may be made
against M.I.T. in such proceedings.
7.4 In the event that LICENSEE shall undertake the enforcement and/or
defense of the PATENT RIGHTS by litigation, LICENSEE may withhold up to Fifty
Percent (50%) of the payments otherwise thereafter due M.I.T. under Article 4
hereunder and apply the same toward reimbursement of up to half of LICENSEE's
expenses, including reasonable attorney's fees, in connection therewith. Any
recovery of damages by LICENSEE for each such suit shall be applied first in
satisfaction of any unreimbursed expenses and legal fees of LICENSEE relating to
such suit, and next toward reimbursement of M.I.T. for any payments under
Article 4 past due or withheld and applied pursuant to this Article 7. The
balance remaining from any such recovery shall be divided between LICENSEE and
M.I.T. in the proportion *******.
7.5 In the event that a declaratory judgment action alleging invalidity or
noninfringement of any of the PATENT RIGHTS shall be brought against LICENSEE,
M.I.T., at its option, shall have the right, within thirty (30) days after
commencement of such action, to intervene and take over the sole defense of the
action at its own expense.
7.6 In any infringement suit as either party may institute to enforce the
PATENT RIGHTS pursuant to this Agreement, the other party hereto shall, at the
request and expense of the party initiating such suit, cooperate in all respects
and, to the extent possible, have its employees testify
<PAGE>
-9-
when requested and make available relevant records, papers, information,
samples, specimens, and the like.
7.7 LICENSEE, during the exclusive period of this Agreement, shall have
the sole right in accordance with the terms and conditions herein to sublicense
any alleged infringer for future use of the PATENT RIGHTS. Any upfront fees as
part of such a sublicense shall be treated per Article 4.
ARTICLE 8 - PRODUCT LIABILITY
-----------------------------
8.1 LICENSEE shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold M.I.T., its trustees, officers, employees
and affiliates, harmless against all claims and expenses, including legal
expenses and reasonable attorneys' fees, arising out of the death of or injury
to any person or persons or out of any damage to property and against any other
claim, proceeding, demand, expense and liability of any kind whatsoever
resulting from the production, manufacture, sale, use, lease, consumption or
advertisement of the LICENSED PRODUCT(s) and/or LICENSED PROCESS(es) or arising
from any obligation of LICENSEE hereunder.
8.2 Prior to the first use of a LICENSED PRODUCT on humans, LICENSEE shall
obtain and carry in full force and effect liability insurance which shall
protect LICENSEE and M.I.T. in regard to events covered by Paragraph 8.1 above.
8.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, M.I.T.
MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS
OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, AND VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR
PENDING. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION MADE
OR WARRANTY GIVEN BY M.I.T. THAT THE PRACTICE BY LICENSEE OF THE LICENSE GRANTED
HEREUNDER SHALL NOT INFRINGE THE PATENT RIGHTS OF ANY THIRD PARTY.
ARTICLE 9 - EXPORT CONTROLS
---------------------------
It is understood that M.I.T. is subject to United States laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes and other commodities (including the Arms Export Control
Act, as amended and the Export Administration Act of 1979), and that its
obligations hereunder are contingent on compliance with applicable United States
export laws and regulations. The transfer of certain technical data and
commodities may require a license from the cognizant agency of the United States
Government and/or written assurances by LICENSEE that LICENSEE shall not export
data or commodities to certain foreign countries
<PAGE>
-10-
without prior approval of such agency. M.I.T. neither represents that a license
shall not be required nor that, if required, it shall be issued.
ARTICLE 10 - NON-USE OF NAMES
-----------------------------
Except as required by law, LICENSEE shall not use the names or trademarks
of the Massachusetts Institute of Technology, nor any adaptation thereof, nor
the names of any of its employees, in an advertising, promotional or sales
literature without prior written consent obtained from M.I.T., or said employee,
in each case, except that LICENSEE may state that it is licensed by M.I.T. under
one or more of the patents and/or applications comprising the PATENT RIGHTS.
LICENSEE, may, however, use the name of Dr. Paul R. Schimmel, Dr. Julius Rebek
and/or any other employee of M.I.T. who is a consultant or member of an advisory
board of LICENSEE, with their permission, and provided, also, that their
affiliation with LICENSEE is identified.
ARTICLE 11 - ASSIGNMENT
-----------------------
This Agreement is not assignable, except in the case where LICENSEE
transfers its business relating to the subject matter hereof or transfers a
subsidiary of LICENSEE, or a joint venture in which LICENSEE is a participant,
or all of any other entity in which LICENSEE has a controlling interest,
whereupon transferee shall acquire all of LICENSEE's benefits and obligations
hereunder. Any other assignment shall be void.
ARTICLE 12 - DISPUTE RESOLUTION
-------------------------------
12.1 Except for the right of either party to apply to a court of competent
jurisdiction for a temporary restraining order, a preliminary injunction, or
other equitable relief to preserve the status quo or prevent irreparable harm,
and all claims, disputes or controversies arising under, out of, or in
connection with the Agreement, including any dispute relating to patent validity
or infringement, which the parties shall be unable to resolve within sixty (60)
days shall be mediated in good faith. The party raising such dispute shall
promptly advise the other party of such claim, dispute or controversy in a
writing which describes in reasonable detail the nature of such dispute. By not
later than five (5) business days after the recipient has received such notice
of dispute, each party shall have selected for itself a representative who shall
have the authority to bind such party, and shall additionally have advised the
other party in writing of the name and title of such representative. By not
later than ten (10) business days after the date of such notice of dispute, such
representatives shall schedule a date for a mediation hearing with the Cambridge
Dispute Settlement Center or Endispute Inc. in Cambridge, Massachusetts. The
parties shall enter into good faith mediation and shall share the costs equally.
If the representatives of the parties have not been able to resolve the dispute
within fifteen (15) business days after such mediation hearing, the
<PAGE>
-11-
parties shall have the right to pursue any other remedies legally available to
resolve such dispute in either the Courts of the Commonwealth of Massachusetts
or in the United States District Court for the District of Massachusetts, to
whose jurisdiction for such purposes M.I.T. and LICENSEE each hereby irrevocably
consents and submits.
12.2 Notwithstanding the foregoing, nothing in this Article shall be
construed to waive any rights or timely performance of any obligations existing
under this Agreement.
ARTICLE 13 - TERMINATION
------------------------
13.1 If LICENSEE shall cease to carry on its business, this Agreement shall
terminate upon notice by M.I.T, except as provided in Article 11.
13.2 Should LICENSEE fail to make any payment whatsoever due and payable to
M.I.T. hereunder, M.I.T. shall have the right to terminate this Agreement
effective on thirty (30) days' notice unless LICENSEE shall make all such
payments to M.I.T. within said thirty (30) day period. Upon the expiration of
the thirty (30) day period, if LICENSEE shall not have made all such payments to
M.I.T., the rights, privileges and license granted hereunder shall automatically
terminate.
13.3 Upon any material breach or default of this Agreement by LICENSEE,
other than those occurrences set out in Paragraphs 13.1 and 13.2 hereinabove,
which shall always take precedence in that order over any material breach or
default referred to in this Paragraph 13.3, M.I.T. shall have the right to
terminate this Agreement and the rights, privileges and license granted
hereunder effective on ninety (90) days' notice to LICENSEE. Such termination
shall become automatically effective unless LICENSEE shall have cured any such
material breach or default prior to the expiration of the ninety (90) day
period.
13.4 LICENSEE shall have the right to terminate this Agreement at any time
on six (6) months' notice to M.I.T., and upon payment of all amounts due M.I.T.
through the effective date of the termination.
13.5 Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that matured
prior to the effective date of such termination. LICENSEE and any sublicensee
thereof may, however, after the effective date of such termination, sell all
LICENSED PRODUCTS, and complete LICENSED PRODUCTS in the process of manufacture
at the time of such termination and sell the same, provided that LICENSEE shall
pay to M.I.T. the Running Royalties thereon as required by Article 4 of this
Agreement and shall submit the reports required by Article 5 hereof on the sales
of LICENSED PRODUCTS.
13.6 Upon termination of this Agreement for any reason, any sublicensee not
then in default shall have the right to seek a license from M.I.T. M.I.T. agrees
to negotiate such licenses in good faith under reasonable terms and conditions.
<PAGE>
-12-
ARTICLE 14 - PAYMENTS, NOTICES
------------------------------
AND OTHER COMMUNICATIONS
-----------------------
Any payment, notice or other communication pursuant to this Agreement shall
be sufficiently made or given on the date of mailing if sent to such party by
certified first class mail, postage prepaid, addressed to it as its address
below or as it shall designate by written notice given to the other party:
In the case of M.I.T.:
Director
Technology Licensing Office
Massachusetts Institute of Technology
Room E32-300
Cambridge, Massachusetts 02139
In the case of LICENSEE:
President
Cubist Pharmaceuticals, Inc.
c/o DSV Partners
221 Nassau Street
Princeton, NJ 08542
ARTICLE 15 - MISCELLANEOUS PROVISIONS
-------------------------------------
15.1 This Agreement shall be construed, governed, interpreted and applied
in accordance with the laws of the Commonwealth of Massachusetts, U.S.A., except
that questions affecting the construction and effect of any patent shall be
determined by the law of the country in which the patent was granted.
15.2 The parties hereto acknowledge that this Agreement sets forth the
entire Agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change or modification except by
the execution of a written instrument subscribed to by the parties hereto.
15.3 The provisions of this Agreement are severable, and in the event that
any provisions of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of the law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.
15.4 LICENSEE agrees to mark the LICENSED PRODUCTS sold in the United
States with all applicable United States patent numbers. All LICENSED PRODUCTS
shipped to or sold in other countries shall be marked in such a manner as to
conform with the patent laws and practice of the country of manufacture or sale.
<PAGE>
-13-
15.5 The failure of either party to assert a right hereunder or to insist
upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
IN WITNESS WHEREOF, the parties have duly executed this Agreement the day
and year set forth below.
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
By /s/ John T. Preston
----------------------------------
Name JOHN T. PRESTON, DIRECTOR
---------------------------------
Title TECHNOLOGY LICENSING OFFICE
--------------------------------
Date 11-5-92
---------------------------------
CUBIST PHARMACEUTICALS, INC.
By /s/ John K. Clarke
-----------------------------------
Name JOHN K. CLARKE
---------------------------------
Title PRESIDENT & CEO
--------------------------------
Date 11-17-92
--------------------------------
<PAGE>
-14-
APPENDIX A
----------
UNITED STATES PATENT RIGHTS
- ---------------------------
M.I.T. Case No. 5261
"Designing Compounds Specifically Inhibiting Ribonucleic Acid"
U.S.S.N. 586,534
By Paul R. Schimmel
Filed on 9/21/90
M.I.T. Case No. 5730
"Nucleic Acid Reduction and Transport"
By Nasim Usman and J. Rebek, Jr.
U.S.S.N. 930,087
Filed on 8/14/92
<PAGE>
-15-
APPENDIX B
----------
Foreign countries in which PATENT RIGHTS for M.I.T. Case No. 5730 shall be
filed, prosecuted and maintained in accordance with Article 6:
Canada
Great Britain
France
Germany
Italy
Japan
<PAGE>
FIRST AMENDMENT
This Amendment with the effective date of January 20, 1995, is to the License
Agreement dated November 4, 1992 between CUBIST PHARMACEUTICALS, INC. and
MASSACHUSETTS INSTITUTE OF TECHNOLOGY.
The parties thereto now further agree as follows:
1. The PATENT RIGHTS of M.I.T. Case 6299 "Specific tRNA Binding-Dependent
Inhibition of Growth of Microbial Pathogens" by Paul R. Schimmel and Eric T.
Schmidt shall be added to the PATENT RIGHTS of the License Agreement. These
include as of the date of this Amendment:
U.S.S.N. 068362 Filed 05/28/93
PCT/US94/05905 Filed 05/25/94
USSN PCT Filed 05/25/94 as CIP of 06382
2. Cubist will reimburse M.I.T. for all costs incurred in the filing and
prosecution of the PATENT RIGHTS of M.I.T. Case 6299 whether incurred before or
after the effective date of this Amendment.
Agreed to for:
MASSACHUETTS INSTITUTE OF TECHNOLOGY CUBIST PHARMACEUTICALS, INC.
By /s/ Lita Nelsen By /s/ Scott M. Rocklage
---------------------------------- --------------------------
Name LITA L. NELSEN, DIRECTOR Name Scott M. Rocklage
-------------------------------- ------------------------
Title TECHNOLOGY LICENSING OFFICE Title President & CEO
------------------------------- -----------------------
Date Jan 17, 1995 Date 1/19/95
------------------------------- -----------------------
<PAGE>
[LETTERHEAD APPEARS HERE]
SECOND AMENDMENT
This Amendment with the effective date of May 17, 1995, is to the License
Agreement dated November 4, 1992 between CUBIST PHARMACEUTICALS, INC. and
MASSACHUSETTS INSTITUTE OF TECHNOLOGY.
The parties thereto now further agree as follows:
1. The PATENT RIGHTS of M.I.T. Case 6299 "Specific tRNA Binding-Dependent
Inhibition of Growth of Microbial Pathogens" by Paul R. Schimmel and Eric T.
Schmidt shall be deleted from the PATENT RIGHTS of the License Agreement. These
include as of the date of this Amendment:
USSN 08/068362 Filed 05/28/93
PCT/US94/05905 Filed 05/25/94
USSN PCT Filed 05/25/94
2. The PATENT RIGHTS of M.I.T. Case 5730 "Nucleic Acid Recognition and
Transport" by Julius Rebek, Jr., Nassim Usman, and Javier deMendoza shall be
deleted from the PATENT RIGHTS of the License Agreement. These include as of the
date of this Amendment:
USSN 07/930,087 Filed 08/14/92
PCT/US93/07603 Filed 08/13/93
3. The PATENT RIGHTS of M.I.T. Case 5261 "Designing Compounds Specifically
Inhibiting Ribonucleic Acid" by Paul R. Schimmel and Karin Musier-Forsyth are
retained under the Patent Rights of the License Agreement. These include as of
the date of this Amendment:
USSN 07/586,534 Filed 09/21/90
USSN 07/929,834 Filed 08/14/92
USSN 08/129,787 Filed 09/29/93
4. The License Maintenance Fees under Paragraph 4.1 (b) on page 5 of the
License Agreement are amended as follows:
License Maintenance Fees of ****************************
********* per year payable on January 1 of the year following the
-------------------------
issuance of a Valid Claim under the Patent Rights and on January
-------------------------------------------------
1 of each year thereafter; provided that such Valid Claim includes
---------------------------------------
<PAGE>
the intended scope of one or both of Claim 1 and Claim 3, as
------------------------------------------------------------
originally filed, and also provided, however, that Running
----------------
Royalties subsequently due on NET SALES for each said year, if
any, shall be creditable against the License Maintenance Fee for
said year.*******************************************************
*****************************************************************
*****************************************************************
Agreed to for:
MASSACHUSETTS INSTITUTE OF TECHNOLOGY CUBIST PHARMACEUTICALS, INC.
By: /s/ Lita Nelsen By: /s/ Scott M. Rocklage
------------------------------------- -------------------------
Name: Lita L. Nelsen Name: Scott M. Rocklage, Ph.D.
------------------------------------- -------------------------
Title: Director, Technology Licensing office Title: President & CEO
------------------------------------- -------------------------
Date: 8/2/95 Date: 7/25/95
------------------------------------- -------------------------
<PAGE>
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
AND
CUBIST PHARMACEUTICALS, INC.
PATENT LICENSE AGREEMENT
7/21/94
(EXCLUSIVE)
<PAGE>
6-8-94 LLN/sc; 6484. Cubist.agt
Patent Exclusive (Date last modified: July 18, 1994)
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
WITNESSETH....................................................... 1
1 - DEFINITIONS................................................. 2
2 - GRANT....................................................... 3
3 - DILIGENCE................................................... 4
4 - ROYALTIES................................................... 5
5 - REPORTS AND RECORDS......................................... 6
6 - PATENT PROSECUTION.......................................... 7
7 - INFRINGEMENT................................................ 8
8 - PRODUCT LIABILITY........................................... 9
9 - EXPORT CONTROLS............................................. 10
10 - NON-USE OF NAMES............................................ 10
11 - ASSIGNMENT.................................................. 11
12 - DISPUTE RESOLUTION.......................................... 11
13 - TERMINATION................................................. 11
14 - PAYMENTS, NOTICES AND OTHER COMMUNICATIONS.................. 12
15 - MISCELLANEOUS PROVISIONS.................................... 13
APPENDIX A....................................................... 15
APPENDIX B....................................................... 16
</TABLE>
<PAGE>
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
and
CUBIST PHARMACEUTICALS, INC.
PATENT LICENSE AGREEMENT
This Agreement is made and entered into this 21 day of July , 1994,
---- ---------- -----
(the "EFFECTIVE DATE") by and between the MASSACHUSETTS INSTITUTE OF TECHNOLOGY,
a corporation duly organized and existing under the laws of the Commonwealth of
Massachusetts and having its principal office at 77 Massachusetts Avenue,
Cambridge, Massachusetts 02139, U.S.A. (hereinafter referred to as "M.I.T."),
and CUBIST PHARMACEUTICALS, INC., a corporation duly organized under the laws
of Delaware and having its principal office at 24 Emily St., Cambridge, MA
------------
02139 (hereinafter referred to as "LICENSEE").
WITNESSETH
----------
WHEREAS, M.I.T. is the owner of certain PATENT RIGHTS (as later defined
herein) relating to M.I.T. Case No. 6484, "Process for Creating Molecular
Diversity" by Julius Rebek, Jr., Thomas Carell and Edward Wintner and has the
right to grant licenses under said PATENT RIGHTS, subject to a royalty-free,
nonexclusive license heretofore granted to the United States Government;
WHEREAS, M.I.T. desires to have the PATENT RIGHTS developed and
commercialized to benefit the public and is willing to grant a license
thereunder;
WHEREAS, LICENSEE has represented to M.I.T., to induce M.I.T. to enter into
this Agreement, that LICENSEE is experienced in the development, production,
manufacture, marketing and sale of products similar to the LICENSED PRODUCT(s)
(as later defined herein) and/or the use of the LICENSED PROCESS(es) (as later
defined herein) and that it shall commit itself to a thorough, vigorous and
diligent program of exploiting the PATENT RIGHTS so that public utilization
shall result therefrom; and
WHEREAS, LICENSEE desires to obtain a license under the PATENT RIGHTS upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
-1-
<PAGE>
1 - DEFINITIONS
---------------
For the purposes of this Agreement, the following words and phrases shall
have the following meanings:
1.1 "LICENSEE" shall include a related company of CUBIST PHARMACEUTICALS,
INC., the voting stock of which is directly or indirectly at least fifty
percent (50%) owned or controlled by CUBIST PHARMACEUTICALS, INC., an
organization which directly or indirectly controls more than fifty percent
(50%) of the voting stock of CUBIST PHARMACEUTICALS, INC. and an organization,
the majority ownership of which is directly or indirectly common to the
ownership of CUBIST PHARMACEUTICALS, INC.
1.2 "PATENT RIGHTS" shall mean all of the following M.I.T. intellectual
property:
a. the United States patents listed in Appendix A;
b. the United States patent applications listed in Appendix A, and
divisionals, continuations and claims of continuation-in-part
applications which shall be directed to subject matter
specifically described in such patent applications, and the
resulting patents;
c. any patents resulting from reissues or reexaminations of the
United States patents described in a. and b. above;
d. the Foreign patents listed in Appendix A;
e. the Foreign patent applications listed in Appendix A, and
divisionals, continuations and claims of continuation-in-part
applications which shall be directed to subject matter
specifically described in such Foreign patent applications, and
the resulting patents;
f. Foreign patent applications filed after the EFFECTIVE DATE in the
countries listed in Appendix B and divisionals, continuations and
claims of continuation-in-part applications which shall be
directed to subject matter specifically described in such patent
applications, and the resulting patents; and
g. any Foreign patents, resulting from equivalent Foreign procedures
to United States reissues and reexaminations, of the Foreign
patents described in d., e. and f. above.
1.3 A "LICENSED PRODUCT" shall mean any product or part thereof which:
a. is covered in whole or in part by an issued, unexpired claim or a
pending claim contained in the PATENT RIGHTS in the country in
which any such product or part thereof is made, used or sold; or
b. is manufactured by using a process or is employed to practice a
process which is covered in whole or in part by an issued,
unexpired claim or a pending claim contained in the PATENT RIGHTS
in the country in which any LICENSED PROCESS is used or in which
such product or part thereof is used or sold.
<PAGE>
1.4 A "LICENSED PROCESS" shall mean any process which is covered in whole
or in part by an issued, unexpired claim or a pending claim contained in the
PATENT RIGHTS.
1.5 "NET SALES" shall mean LICENSEE's and its sublicensees' billings for
LICENSED PRODUCTS and LICENSED PROCESSES less the sum of the following:
*********************************************************************
************************************************************************
*********************************************************************
******************************
****************************************************
********************************************
***********************************************************************
********************************************************************************
**************************************** NET SALES shall occur when a LICENSED
PRODUCT or LICENSED PROCESS shall be invoiced. If a LICENSED PRODUCT or
LICENSED PROCESS shall be distributed or invoiced for a discounted price
substantially lower than customary in the trade or distributed at no cost to
affiliates or otherwise, NET SALES shall be based on the customary amount billed
for such LICENSED PRODUCTS or LICENSED PROCESSES.
1.6 "TERRITORY" shall mean worldwide.
1.7 "FIELD OF USE" shall mean all fields except autoimmune disease and
endogenous immune disorders.
2 - GRANT
---------
2.1 M.I.T. hereby grants to LICENSEE the exclusive right and license in
the TERRITORY for the FIELD OF USE to practice under the PATENT RIGHTS and, to
the extent not prohibited by other patents, to make, have made, use, lease, sell
and import LICENSED PRODUCTS and to practice the LICENSED PROCESSES, until the
expiration of the last to expire of the PATENT RIGHTS, unless this Agreement
shall be sooner terminated according to the terms hereof.
2.2 LICENSEE agrees that LICENSED PRODUCTS leased or sold in the United
States shall be manufactured substantially in the United States.
2.3 M.I.T. also grants to LICENSEE the rights to use the Tangible Property
in research, development and commercial production.
2.4 M.I.T. reserves the right to practice under the PATENT RIGHTS for
noncommercial research purposes and to grant the right to other non-profit
organizations to practice under the PATENT RIGHTS for noncommercial academic
publishable research purposes.
<PAGE>
2.5 LICENSEE shall have the right to enter into sublicensing agreements
for the rights, privileges and licenses granted hereunder. Upon any termination
of this Agreement, sublicensees' rights shall also terminate, subject to
Paragraph 13.6 hereof.
2.6 LICENSEE agrees to incorporate Articles 2,5,7,8,9,10,12,13 and 15 of
this Agreement into its sublicense agreements, so that these Articles shall be
binding upon such sublicensees as if they were parties to this Agreement.
2.7 LICENSEE agrees to forward to M.I.T. a copy of any and all sublicense
agreements promptly upon execution by the parties.
2.8 LICENSEE shall not receive from sublicensees anything of value in lieu
of cash payments in consideration for any sublicense under this Agreement,
without the express prior written permission of M.I.T.
2.9 Nothing in this Agreement be construed to confer any rights upon
LICENSEE by implication, estoppel or otherwise as to any technology, other than
the chemical libraries discussed in P.4.1 or to patent rights of M.I.T. or any
other entity other than the PATENT RIGHTS, regardless of whether such patent
rights shall be dominant or subordinate to any PATENT RIGHTS.
3 - DILIGENCE
-------------
3.1 LICENSEE shall use its best efforts to bring one or more LICENSED
PRODUCTS or LICENSED PROCESSES to market through a thorough, vigorous and
diligent program for exploitation of the PATENT RIGHTS and to continue active,
diligent marketing efforts for one or more LICENSED PRODUCTS or LICENSED
PROCESSES throughout the life of this Agreement. LICENSEE shall maintain a
technical staff of chemists and other qualified professionals capable of
developing the technology of the PATENT RIGHTS.
3.2 LICENSEE shall deliver to M.I.T. on or before December 31, 1994
************************************************************************** of
the LICENSED PRODUCTS and LICENSED PROCESSES and shall provide similar reports
to M.I.T. on or before December 31 of each year.
3.3 LICENSEE and M.I.T. recognize that the technology of the PATENT RIGHTS
may have utility in many sub-fields of use other than those in the interest of
LICENSEE to develop. LICENSEE therefore agrees to make diligent efforts to
sublicense the PATENT RIGHTS under reasonable terms to third parties to
encourage development of these other field. Also, if M.I.T. brings to LICENSEE a
third party interested in sublicensing in a sub-field not competitive with
LICENSEE's products or development programs and not previously exclusively
sublicensed to others, LICENSEE shall negotiate in good faith towards granting a
sublicense to the third party under reasonable terms.
<PAGE>
3.4 LICENSEE's failure to perform in accordance with Paragraphs 3.1 and
3.2 above shall be grounds for M.I.T. to terminate this Agreement pursuant to
Paragraph 13.3 hereof. LICENSEE's failure to perform in accordance with P.3.3
shall be grounds for M.I.T. to terminate the exclusivity of this Agreement.
3.5 It is understood that Prof. Julius Rebek of M.I.T. has delivered to
ProCept, Inc. one or more chemical libraries prepared according to the
technology of the PATENT RIGHTS. LICENSEE shall use good faith efforts to
negotiate a sublicense with ProCept in the field of use of "Action on CD4 and/or
CD8 receptors for anti-viral therapy and/or vaccines." If LICENSEE and ProCept
are unable to reach a satisfactory sublicensing agreement within four (4) months
of the Effective Date of this Agreement, the dispute shall be subject to
mediation according to Article 12, provided that ProCept is willing to agree to
his mediation.
4 - ROYALTIES
-------------
4.1 For the rights, privileges and license granted hereunder, LICENSEE
shall pay royalties to M.I.T. in the manner hereinafter provided to the end of
the term of the PATENT RIGHTS or until this Agreement shall be terminated:
a. License Issue Fee of ****************************************
which said License Issue Fee shall be deemed earned and due
immediately upon the EFFECTIVE DATE.
b. License Maintenance Fees of ****************************
********* per year payable on January 1, 1996 and on January 1 of
each year thereafter; provided, however, that Running Royalties
subsequently due on NET SALES for each said year, if any, shall
be creditable against the License Maintenance Fee for said year.
************************************************************
**************************************************************
License Maintenance fees shall increase to **********************
********* per year beginning January 1 after the issuance of the
first patent of the PATENT RIGHTS.
c. ******************** of revenues received for sublicensing of the
Patent Rights and for the sale, lease or sublicensing of chemical
libraries or portions thereof prepared by the technology of the
PATENT RIGHTS, excluding running royalties received from
sublicensees subject to subparagraph 4.1(d) below.
d. ************************* of any running royalties derived from
sublicensees based on products discovered using the technology
of the PATENT RIGHTS or chemical libraries made by LICENSEE or
M.I.T. using the technology of the PATENT RIGHTS, provided,
however, that if a LICENSED PRODUCT sold by a sublicensee is
covered by an issued claim of the PATENT RIGHTS, the running
royalties received by M.I.T. shall be no less than ***********
**** of sublicensees net sales.
e. ****************************** Tangible Property Fee for each new
chemical library or portion thereof made at M.I.T. under the
supervision of Prof. Julius Rebek and delivered to LICENSEE after
August 1, 1994. Preparation and delivery of such libraries shall
be solely at the discretion of Prof. Rebek and
<PAGE>
shall be subject to any rights M.I.T. may have granted to
sponsors of research at M.I.T. It is understood that one or more
libraries have been prepared and delivered to LICENSEE prior to
July 1, 1994. No Tangible Property Fee is due for these earlier
delivered libraries provided that this Agreement is executed and
in effect.
f. Running Royalties in an amount equal to **************** of NET
SALES of LICENSED PRODUCTS covered by an issued claim of the
PATENT RIGHTS which are leased or sold by and/or for LICENSEE. No
running royalties shall be due on commercial products sold by
LICENSEE which are not covered by an issued claim.
4.2 All payments due hereunder shall be paid in full, without deduction of
taxes or other fees which my be imposed by any government, except as otherwise
provided in Paragraph 1.5(b).
4.3 No multiple royalties shall be payable because any LICENSED PRODUCT,
its manufacture, use, lease or sale are or shall be covered by more than one
PATENT RIGHTS patent application or PATENT RIGHTS patent licensed under this
Agreement.
4.4 Royalty payments shall be paid in United States dollars in Cambridge,
Massachusetts, or at such other place as M.I.T. may reasonably designate
consistent with the laws and regulations controlling in any foreign country. If
any currency conversion shall be required in connection with the payment or
royalties hereunder, such conversion shall be made by using the exchange rate
prevailing at the Chase Manhattan Bank (N.A.) on the last business day of the
calender quarterly reporting period to which such royalty payments relate.
5 - REPORTS AND RECORDS
-----------------------
5.1 LICENSEE shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of showing the
amounts payable to M.I.T. hereunder. Said books of account shall be kept at
LICENSEE's principal place of business or the principal place of business of the
appropriate division of LICENSEE to which this Agreement relates. Said books and
the supporting data shall be open at all reasonable times for five (5) years
following the end of the calender year to which they pertain, to the inspection
of M.I.T. or its agents for the purpose of verifying LICENSEE's royalty
statement or compliance in other respects with this Agreement. Should such
inspection lead to the discovery of a greater than ten percent (10%) discrepancy
in reporting to M.I.T.'s detriment, LICENSEE agrees to pay the full cost of such
inspection.
5.2 LICENSEE shall deliver to M.I.T. true and accurate reports, giving
such particulars of the business conducted by LICENSEE and its sublicensses
under this Agreement as shall be pertinent to a royalty accounting hereunder;
<PAGE>
a. before the first commercial sale of a LICENSED PRODUCT or
LICENSED PROCESS, annually, on January 31 of each year; and
b. after the first commercial sale of a LICENSED PRODUCT or LICENSED
PROCESS, quarterly, within sixty (60) days after March 31, June
30, September 30 and December 31, of each year.
These reports shall include at least the following:
a. number of LICENSED PRODUCTS manufactured, leased and sold by
and/or for LICENSEE and all sublicensees;
b. total invoices for LICENSED PRODUCTS manufactured, leased, and
sold by and/or for LICENSEE and all sublicensees;
c. accounting for all LICENSED PROCESSES used or sold by and/or for
LICENSEE and all sublicensees;
d. accounting for NET SALES, noting the deductions applicable as
provided in Paragraph 1.5;
e. Running Royalties due under Paragraph 4.1(f);
f. names and addresses of all sublicensees of LICENSEE;
g. royalties due on payments from sublicensees; and
h. total royalties due.
5.3 With each such report submitted, LICENSEE shall pay to M.I.T. the
royalties due and payable under this Agreement. If no royalties shall be due,
LICENSEE shall so report.
5.4 On or before the ninetieth (90th) day following the close of LICENSEE's
fiscal year, LICENSEE shall provide M.I.T. with LICENSEE's certified financial
statements for the preceding fiscal year including, at a minimum, a balance
sheet and an income statement.
5.5 The royalty payments set forth in this Agreement and amounts due under
Article 6 shall, if overdue, bear interest until payment at a per annum rate two
percent (2%) above the prime rate in effect at the Chase Manhattan Bank (N.A.)
on the due date. The payment of such interest shall not foreclose M.I.T. from
exercising any other rights it may have as a consequence of the lateness of any
payment.
6 - PATENT PROSECUTION
----------------------
6.1 M.I.T. shall apply for, seek prompt issuance of, and maintain the
PATENT RIGHTS during the term of this Agreement. Appendix B is a list of the
foreign countries in which patent applications corresponding to the United
States Patent applications listed in Appendix A shall be filed. Appendix B may
be amended by mutual agreement of both parties. The filing, prosecution and
maintenance of all PATENT RIGHTS applications and patents shall be the primary
<PAGE>
responsibility of M.I.T.; provided, however, LICENSEE shall have reasonable
opportunities to advise M.I.T. and shall cooperate with M.I.T. in such filing,
prosection and maintenance.
6.2 LICENSEE shall reimburse M.I.T. for eighty percent (80%) of all fees
and costs relating to the filing, prosecution and maintenance of the PATENT
RIGHTS, whether such fees and costs were incurred before or after the EFFECTIVE
DATE, provided, however, that if after December 31, 1994, if M.I.T. has in
effect no other license to the PATENT RIGHTS, LICENSEE shall reimburse M.I.T.
one hundred percent (100%) of patent fees and costs incurred thereafter. If
M.I.T. subsequently grants a license to a third party, LICENSEE shall be
reimbursed for twenty percent (20%) of costs incurred during LICENSEE's sole-
licensee period after December 31, 1994.
7 - INFRINGEMENT
----------------
7.1 LICENSEE shall inform M.I.T. promptly in writing of any alleged
infringement of the PATENT RIGHTS by a third party and of any available evidence
thereof.
7.2 M.I.T. shall have the right, but shall not be obligated, to prosecute
at its own expense all infringements of the PATENT RIGHTS and, in furtherance of
such right, LICENSEE hereby agrees that M.I.T. may include LICENSEE as a party
plaintiff in any such suit, without expense to LICENSEE. The total cost of any
such infringement action commenced or defended solely by M.I.T. shall be borne
by M.I.T., and M.I.T. shall keep any recovery or damages for past infringement
derived therefrom.
7.3 If within six (6) months after having been notified of an alleged
infringement, M.I.T. shall have been unsuccessful in persuading the alleged
infringer to desist and shall not have brought and shall not be diligently
prosecuting an infringement action, or if M.I.T. shall notify LICENSEE at any
time prior thereto of its intention not to bring suit against any alleged
infringer in the TERRITORY for the FIELD OF USE, then, and in those events only,
LICENSEE shall have the right, but shall not be obligated, to prosecute at its
own expense any infringement of the PATENT RIGHTS in the TERRITORY for the FIELD
OF USE, and LICENSEE may, for such purposes, use the name of M.I.T. as party
plaintiff. No settlement, consent judgment or other voluntary final disposition
of the suit may be entered into without the consent of M.I.T., which consent
shall not unreasonably be withheld. LICENSEE shall indemnify M.I.T. against any
order for costs that may be made against M.I.T. in such proceedings.
7.4 In the event that LICENSEE shall undertake the enforcement and/or
defense of the PATENT RIGHTS by litigation, LICENSEE may withhold up to fifty
percent (50%) of the payments otherwise thereafter due M.I.T. under Article 4
hereunder and apply the same toward reimbursement of up to half of LICENSEE's
expenses, including reasonable attorneys' fees, in connection therewith. Any
recovery of damages by LICENSEE for each such suit shall be applied
<PAGE>
first in satisfaction of any unreimbursed expenses and legal fees of LICENSEE
relating to such suit, and next toward reimbursement of M.I.T. for any payments
under Article 4 past due or withheld and applied pursuant to this Article 7. The
balance remaining from any such recovery shall be between LICENSEE and M.I.T. in
the proportion of *************************************************************
*****.
7.5 In the event that a declaratory judgment action alleging invalidity or
noninfringement of any of the PATENT RIGHTS shall be brought against LICENSEE,
M.I.T., at its option, shall have the right, within thirty (30) days after
commencement of such action, to intervene and take over the sole defense of the
action at its own expense.
7.6 In any infringement suit as either party may institute to enforce the
PATENT RIGHTS pursuant to this Agreement, the other party hereto shall, at the
request and expense of the party initiating such suit, cooperate in all respects
and, to the extent possible, have its employees testify when requested and make
available relevant records, papers, information, samples, specimens, and the
like.
7.7 LICENSEE, during any period that this Agreement remains exclusive,
shall have the sole right in accordance with the terms and conditions herein to
sublicense any alleged infringer in the TERRITORY for the FIELD OF USE for
future use of the PATENT RIGHTS. Any fees as part of such a sublicense shall be
treated per Article 4.
8 - PRODUCT LIABILITY
---------------------
8.1 LICENSEE shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold M.I.T., its trustees, directors,
officers, employees and affiliates, harmless against all claims, proceedings,
demands and liabilities of any kind whatsoever, including legal expenses and
reasonable attorneys' fees, arising out of the death of or injury to any person
or persons or out of any damage to property, resulting from the production,
manufacture, sale, use, lease, consumption or advertisement of the LICENSED
PRODUCT(s) and/or LICENSED PROCESS(es) or arising from any obligation of
LICENSEE hereunder.
8.2 LICENSEE shall obtain and carry in full force and effect commercial,
general liability insurance which shall protect LICENSEE and M.I.T. with respect
to events covered by Paragraph 8.1 above. Such insurance shall be written by a
reputable insurance company authorized to do business in the Commonwealth of
Massachusetts, shall list M.I.T. as an additional named insured thereunder,
shall be endorsed to include product liability coverage and shall require thirty
(30) days written notice to be given to M.I.T. prior to any cancellation or
material change thereof. The limits of such insurance shall not be less than One
Million Dollars ($1,000,000) per occurrence with an aggregate of Three Million
Dollars ($3,000,000) for personal injury or death, and One Million Dollars
($1,000,000) per occurrence with an aggregate of Three Million Dollars
($3,000,000) for
<PAGE>
property damage. LICENSEE shall provide M.I.T. with Certificates of Insurance
evidencing the same.
8.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, M.I.T., ITS
TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES, AND AFFILIATES MAKE NO REPRESENTATIONS
AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT
NOT LIMITED TO WARRANTIES OF MERCANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
VALIDITY OR PATENT RIGHTS CLAIMS, ISSUED OR PENDING, AND THE ABSENCE OF LATENT
OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. NOTHING IN THIS AGREEMENT SHALL
BE CONSTRUED AS A REPRESENTATION MADE OR WARRANTY GIVEN BY M.I.T. THAT THE
PRACTICE BY LICENSEE OF THE LICENSE GRANTED HEREUNDER SHALL NOT INFRINGE THE
PATENT RIGHTS OF ANY THIRD PARTY. IN NO EVENT SHALL M.I.T., ITS TRUSTEES,
DIRECTORS, OFFICERS, EMPLOYEES AND AFFILIATES BE LIABLE FOR INCIDENTAL OR
CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING ECONOMIC DAMAGE OR INJURY TO
PROPERTY AND LOST PROFITS, REGARDLESS OF WHETHER M.I.T. SHALL BE ADVISED, SHALL
HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF THE POSSIBILITY OF THE
FOREGOING.
9 - EXPORT CONTROLS
-------------------
LICENSEE acknowledges that it is subject to United States laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes and other commodities (including the Arms Export Control
Act, as amended and the United States Department of Commerce Export
Administration Regulations). The transfer of such items may require a license
form the cognizant agency of the United States Government and/or written
assurances by LICENSEE that LICENSEE shall not export data or commodities to
certain foreign countries without prior approval of such agency. M.I.T. neither
represents that a license shall not be required not that, if required, it shall
be issued.
10 - NON-USE OF NAMES
---------------------
LICENSEE shall not use the names or trademarks of the Massachusetts
Institute of Technology or Lincoln Laboratory, nor any adaptation thereof, nor
the names of any of their employees, in any advertising, promotional or sales
literature without prior written consent obtained from M.I.T., or said employee,
in each case, except that LICENSEE may state that it is licensed by M.I.T. under
one or more of the patents and/or applications comprising the PATENT RIGHTS.
<PAGE>
11 - ASSIGNMENT
---------------
This Agreement is not assignable and any attempt to do so shall be void.
12 - DISPUTE RESOLUTION
-----------------------
12.1 Except for the right of either party to apply to a court of competent
jurisdiction for a temporary restraining order, a preliminary injunction, or
other equitable relief to preserve the status quo or prevent irreparable harm,
any and all claims, disputes or controversies arising under, out of, or in
connection with the Agreement, including any dispute relating to patent validity
or infringement, which the parties shall be unable to resolve within sixty (60)
days shall be mediated in good faith. The party raising such dispute shall
promptly advise the other party of such claim, dispute or controversy in a
writing which describes in reasonable detail the nature of such dispute. By not
later than five (5) business days after the recipient has received such notice
of dispute, each party shall have selected for itself a representative who shall
have the authority to bind such party, and shall additionally have advised the
other party in writing of the name and title of such representative. By not
later than ten (10) business days after the date of such notice of dispute, the
party against whom the dispute shall be raised shall select a mediation firm in
the Boston area and such representatives shall schedule a date with such firm
for a mediation hearing. The parties shall enter into good faith mediation and
shall share the costs equally. If the representatives of the parties have not
been able to resolve the dispute within fifteen (15) business days after such
mediation hearing, then any and all claims, disputes or controversies arising
under, out of, or in connection with this Agreement, including any dispute
relating to patent validity or infringement, shall be resolved by final and
binding arbitration in Boston, Massachusetts under the rules of the American
Arbitration Association, or the Patent Arbitration Rules if applicable, then
obtaining. The arbitrators shall have no power to add to, subtract from or
modify any of the terms or conditions of this Agreement, nor to award punitive
damages. Any award rendered in such arbitration may be enforced by either party
in either the courts of the Commonwealth of Massachusetts or in the United
States District Court for the District of Massachusetts, to whose jurisdiction
for such purposes M.I.T. and LICENSEE each hereby irrevocably consents and
submits.
12.2 Notwithstanding the foregoing, nothing in this Article shall be
construed to waive any rights or timely performance of any obligations existing
under this Agreement.
13 - TERMINATION
----------------
13.1 If LICENSEE shall cease to carry on its business, this Agreement shall
terminate upon notice by M.I.T..
13.2 Should LICENSEE fail to make any payment whatsoever due and payable to
M.I.T. hereunder, M.I.T. shall have the right to terminate this Agreement
effective on thirty (30) days'
<PAGE>
notice, unless LICENSEE shall make all such payments to M.I.T. within said
thirty (30) day period. Upon the expiration of the thirty (30) day period, if
LICENSEE shall not have made all such payments to M.I.T., the rights, privileges
and license granted hereunder shall automatically terminate.
13.3 Upon any material breach or default of this Agreement by LICENSEE
(including, but not limited to, breach or default under Paragraph 3.3), other
than those occurrences set out in Paragraphs 13.1 and 13.2 hereinabove, which
shall always take precedence in that order over any material breach or default
referred to in this Paragraph 13.3, M.I.T. shall have the right to terminate
this Agreement and the rights, privileges and license granted hereunder
effective on ninety (90) days' notice to LICENSEE. Such termination shall become
automatically effective unless LICENSEE shall have cured any such material
breach or default prior to the expiration of the ninety (90) day period.
13.4 LICENSEE shall have the right to terminate this Agreement at any time
on six (6) months' notice to M.I.T., and upon payment of all amounts due M.I.T.
through the effective date of the termination.
13.5 Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that matured
prior to the effective date of such termination; and Articles 1, 8, 9, 10, 12,
13.5, 13.6, and 15 shall survive any such termination. LICENSEE and any
sublicensee thereof may, however, after the effective date of such termination,
sell all LICENSED PRODUCTS, and complete LICENSED PRODUCTS in the process of
manufacture at the time of such termination and sell the same, provided that
LICENSEE shall make the payments to M.I.T. as required by Article 4 of this
Agreement and shall submit the reports required by Article 5 hereof.
13.6 Upon termination of this Agreement for any reason, any sublicensee not
then in default shall have the right to seek a license from M.I.T. M.I.T. agrees
to negotiate such licenses in good faith under reasonable terms and conditions.
14 - PAYMENTS NOTICES AND OTHER COMMUNICATIONS
----------------------------------------------
Any payments, notice or other communication pursuant to this Agreement
shall be sufficiently made or given on the date of mailing if sent to such party
by certified first class mail, return receipt requested, postage prepaid,
addressed to it at its address below or as it shall designate by written notice
given to the other party:
<PAGE>
In the case of M.I.T.:
Director
Technology Licensing Office
Massachusetts Institute of Technology
77 Massachusetts Avenue, Room E32-300
Cambridge, Massachusetts 02139
In the case of LICENSEE:
(title) President & CEO
(company) Cubist Pharmacenticals, Inc.
(address) 24 Emily Street
Cambridge, MA 02139
15 - MISCELLANEOUS PROVISIONS
-----------------------------
15.1 All disputes arising out of or related to this Agreement, or the
performance, enforcement, breach or termination hereof, and any remedies
relating thereto, shall be construed, governed, interpreted and applied in
accordance with the laws of the Commonwealth of Massachusetts, U.S.A., except
that questions affecting the construction and effect of any patent shall be
determined by the law of the country in which the patent shall have been
granted.
15.2 The parties hereto acknowledge that this Agreement sets forth the
entire Agreement and understanding of the parties hereto as to the subject
matter thereof, and shall not be subject to any change or modification except by
the execution of a written instrument signed by the parties.
15.3 The provisions of this Agreement are severable, and in the event that
any provisions of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of the law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.
15.4 LICENSEE agrees to mark the LICENSED PRODUCTS sold in the United
States with all applicable United States patent numbers. All LICENSED PRODUCTS
shipped to or sold in other countries shall be marked in such a manner as to
conform with the patent laws and practice of the country of manufacture or sale.
<PAGE>
15.6 The failure of either party to assert a right hereunder or to
insist upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
IN WITNESS WHEREOF, the parties have duly executed this Agreement the day
and year set forth below.
MASSACHUSETTS INSTITUTE OF CUBIST PHARMACEUTICAL, INC.
TECHNOLOGY
By /s/ Lita Nelsen By /s/ Scott M. Rocklage
----------------------------------------- ---------------------------------
Name Lita L. Nelsen Name Scott M. Rocklage
--------------------------------------- -------------------------------
Title DIRECTOR, TECHNOLOGY LICENSING OFFICE Title President & CEO
-------------------------------------- ------------------------------
Date 21 July 1994 Date 21 July 1994
-------------------------------------- ------------------------------
<PAGE>
APPENDIX A
PATENT RIGHTS on the EFFECTIVE DATE
UNITED STATES PATENT RIGHTS
M.I.T. Case No. 6484
----
Title "Process for Creating Molecular Diversity"
U.S.S.N. 180,215 or U.S.P.N.
By Julius Rebek, Jr., Thomas Carell and Edward Wintner
Filed on 1/12/94
FOREIGN PATENT RIGHTS
<PAGE>
APPENDIX B
DESIGNATED FOREIGN COUNTRIES
Foreign countries in which PATENT RIGHTS shall be filed, prosecuted and
maintained in accordance with Article 6:
[To Be Discussed]
<PAGE>
[SEAL]
[LETTERHEAD APPEARS HERE]
August 31, 1994
Dr. Scott Rocklage
President and Chief Executive Officer
Cubist Pharmaceuticals, Inc.
24 Emily Street
Cambridge, MA 02139
Ref: MIT Case No. 6484
"Process for Creating Molecular Diversity and Novel Protease Inhibitors
Produced Thereby", By Julius Rebek, Jr. Thomas Carell, Edward A. Wintner
Continuation-in-Part filed July 28, 1994
Dear Scott:
Enclosed is a copy of the continuation-in-part patent application recently filed
on this case. It was our intent to include this patent in the license granted to
you effective July 21, 1994.
Please acknowledge below that you wish to have this application included in the
PATENT RIGHTS of the license and return one copy to me.
Sincerely,
/s/ Lita Nelsen
Lita Nelsen
Director
Accepted for:
CUBIST PHARMACEUTICALS CORP.
By /s/ Scott M. Rocklage
------------------------------
Title PRESIDENT & CEO
--------------------------
Date 9/6/94
--------------------------
LLN/vc
Cubist 6484
<PAGE>
. September 1989
- --------------------------------------------------------------------------------
LICENSE AGREEMENT
- --------------------------------------------------------------------------------
Effective as of 4-1-94 THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR
UNIVERSITY, a body having corporate powers under the laws of the State of
California (STANFORD), and CUBIST PHARMACEUTICALS, INC. a DELAWARE
corporation having a principal place of business at 24 EMILY STREET,
CAMBRIDGE, MA 02139 (LICENSEE) agree as follows:
1. BACKGROUND
1.1-In the course of fundamental research programs at the University of
California and STANFORD (Universities), inventions were conceived jointly which
relate to engineering biologically functional replicons possessing desired
genetic properties of parent DNA molecules. These research programs were
supported by the National Science Foundation, the American Cancer Society, and
the National Institutes of Health of the Department of Health, Education and
Welfare, now Health and Human Services (HHS). These agencies and the
Universities agreed that the intellectual property rights resulting from these
inventions (and licensed through this Agreement) would be administered pursuant
and subject to the terms of STANFORD's Institutional Patent Agreement (IPA) with
HHS.
1.2-The Universities have agreed that Stanford will manage the securing of
patent rights and licensing in the public interest, and that any net income
arising therefrom will be shared between the Universities, and designated to be
used for educational and research purposes.
1.3-By assignment of the inventions from the inventors, STANFORD is the owner
of certain U.S. Patent rights and desires to grant licenses under those rights
to licensees for development of products and processes for public use and
benefit.
1.4-LICENSEE desires to develop processes and methods and marketable products
for public use and benefit by using Licensed Patent Rights, and it will follow
good safety practices in such development work.
2. DEFINITIONS
2.1-Licensed Patent Rights means U.S. Patent No. 4,237,224, issued December 2,
1980, U.S. Patent No. 4,468,464, issued August 28, 1984, and U.S. Patent No.
4,740,470, issued April 26, 1988 and any reissues or extensions thereof.
2.2-Ultimate Consumer means that person or entity whose use of the product
results in its destruction or loss of activity and/or loss of value.
2.3-Licensed Product(s) means materials (including organisms) which, in the
course of manufacture, use, or sale would, in the absence of this license,
infringe one or more claims of Licensed Patent Rights which have not been held
invalid by a court from which no appeal may be taken.
1
<PAGE>
Four categories of Licensed Products are designated:
End Products (Paragraph 2.4)
Basic Genetic Products (Paragraph 2.5)
Process Improvement Products (Paragraph 2.6)
Bulk Products (Paragraph 2.7)
2.4-- End Products means marketable goods having at least one component coming
within LicenSed Products, or produced by a Licensed Product, which goods are
sold in a form for utilization by the Ultimate Consumer, and are not intended or
marketed for further formulation, processing, or chemical transformation,
illustrative End Products include:
(a) health care products, sold for patient care and use or dispensation
by medical professionals (for example, dosage forms of hormones,
vaccines, and biosynthesized drugs;films, fibers or dressings: and
reagents or devices used for diagnostic purposes, incorporating
biochemical agents such as antibodies, enzymes, specific binding
proteins or polysaccharides);
(b) products sold in a form ready for application to seeds, for
addition to feed or crop treating agents, for administration to
animals or for treatment of cells being cultured in order to
improve agriculture, animal production, forestry or landscaping
(such as fertilizers, vaccines, and nitrogen fixing or pesticidal
microorganisms);
(c) microorganisms and/or their products which are suitable for use as
animal or human food, for degrading substances in an environment,
or for increasing the production of desired substances (such as
concentrating minerals, generating gas or useful compost from low
value substrates):
(d) reagents for research, such as enzymes or antibodies.
2.5--Basic Genetic Products means materials having at least one component
coming within Licensed Products which are sold or used primarily for further
processing or genetic manipulation and/or are neither End Products, Process
Improvement Products or Bulk Products. Illustrative Basic Genetic Products
include plasmids, transformants, and nucleic acid segments such as expression
regulators and structural gene sequences, Also, Basic Genetic Products include
services using Licensed Products and which services are provided by LICENSEE to
customers on a contract basis.
2.6--Process Improvement Products means materials having at least one
component coming within Licensed Products, which are developed by or for the
LICENSEE, as opposed to being purchased by the LICENSEE, and are used by the
LICENSEE in its manufacturing processes to enhance production efficiency and
where the resulting product is essentially identical to a product manufactured
by the previous process, illustrative Process Improvement Products include
microorganisms for production of chemical intermediates, amino acids, or
pharmaceuticals; enzymes for chemical manufacturing; antibodies for separation
processes; and nitrogen-fixing microorganisms used by an agricultural company to
reduce fertilizer consumption.
2.7--Bulk Products means materials having at least one component coming within
Licensed Products, or produced by a Licensed Product, which material is intended
for further formulation, processing or chemical transformation by a
manufacturer, formulator or the like (as distinguished from a distributor,
retailer or Ultimate Consumer). Illustrative Bulk Products include an antibody
or a hormone sold to a pharmaceutical company, a dipeptide sold to a beverage
company to be used as a sweetener, an amino acid sold to a health care company,
and a chemical intermediate sold to a chemical company for conversion into
functional chemicals.
2.8--Net Sales means the gross sales, royalties or fees received by Licensee,
whether invoiced or not, less: returns and allowances actually granted; packing,
insurance, freight out, taxes or excise duties imposed on the transaction (if
separately invoiced); wholesaler discounts and cash discounts.
2.9--First Commercial Sale means the initial transfer by LICENSEE of Licensed
Products in exchange for cash or some equivalent to which value can be assigned
for the purpose of determining Net Sales.
2
<PAGE>
2.10-"LICENSEE" is understood to include all of its Affiliates. An
Affiliate of LICENSEE shall mean any corporation or other business entity
controlled by controlling, or under common control with LICENSEE. For this
purpose, "control" means direct or indirect beneficial ownership of at least
fifty percent (50%) of the voting stock, or a least fifty percent (50%) interest
in the income of such corporation or other business.
3. GRANT
3.1-STANFORD grants to LICENSEE a non-exclusive, non-transferable right
and license to make, have made, use and sell Licensed Products under Licensed
Patent Rights.
4. COMPLIANCE WITH LAWS, REGULATIONS AND STANDARDS
4.1-LICENSEE agrees to comply with all governmental laws and regulations
applicable to the use, production and/or sale of Licensed Products.
4.2-With respect to operations by the LICENSEE in the United States, it
territories and possessions, LICENSEE specifically expresses its intent to
comply with the physical and biological containment standards set forth in the
NIH Guidelines for Research involving Recombinant DNA Molecules, dated 21
November 1980, or any subsequent amended version of U.S. Government guidelines
or regulation pertaining to such activities in effect during the term of this
Agreement. LICENSEE further agrees to cooperate with government agency(ies)
authorized to monitor compliance with such containment standards.
5. GOVERNMENT TERMS
5.1-This Agreement is subject to the terms and conditions of the HHS IPA
with STANFORD dated April 5, 1972.
6. ROYALTIES
6.1-In consideration of the rights granted herein. LICENSEE shall pay
to STANFORD upon execution of this agreement ******. Thereafter, LICENSEE shall
pay a minimum annual advance on earned royalties of ******* on or before the
first day of February for each calendar year following execution of this
agreement. Said payments are nonrefundable except that they can be credited
against earned royalties to the extent provided in paragraph 6.3.
6.2-All sales or use of Licensed Products by LICENSEE, excepting sales
under paragraph 10.1 to an Affiliate or another license of STANFORD or sales to
the United States Government, shall be subject to royalty payments as provided
in paragraphs 6.3 to 6.7 inclusive.
6.3-Earned royalty payments due under Article 8 in excess of the annual
minimum ******* may be reduced up to 50% in any one year by a credit. This
credit equal to the unreimbursed cumulative excess of the advance royalties paid
in accordance with paragraph 6.1 over the total of the earned royalties due
under paragraphs 6.4 to 6.6 inclusive. This reduction is earned royalty
payments may continue so long as is necessary to fully amortize the credit.
6.4-LICENSEE shall pay earned royalties for use of Licensed Patent
Rights for production and sale of End Products based on the total royalty
bearing Ne Sales of End Products by LICENSEE. The earned royalty rate for End
Products sold in the U.S. is ** in each calendar year.
6.5-LICENSEE shall pay earned royalties for use of Licensed Patent Rights to
produce in the United States End Products and Bulk Products for sale outside of
the United States of **** of Net Sales of End Products and ** of Net Sales of
Bulk Products in each calendar year.
3
<PAGE>
6.6-LICENSEE also shall pay earned royalties for use of Licensed Patent Rights
for production and sale of Licensed Products that are not End Products as
follows:
6.6.1-The earned royalty rate for Basic Genetic Products sold in the U.S.
shall be **% of Net Sales.
6.6.2-The earned royalty rate for Bulk Products sold in the U.S. is *% in
each calendar year.
6.6.3-The earned royalty rate for Process Improvement Products shall be **%
of cost savings and economic benefits enjoyed by LICENSEE in each calendar year.
6.6.4-If LICENSEE can demonstrated that the royalty payments for a product
falling under Basic Genetic Products (paragraph 6.6.1) Bulk Products (paragraph
6.6.2) or Process Improvement Products (paragraph 6.6.3) are greater than the
royalties that would result if calculated on the End Product (for sales in the
U.S. and other territories) made from or with such product, it may request
negotiation of a lower royalty comparable to the End Product royalty. Such
negotiation will be initiated by notice in writing from LICENSEE to STANFORD
giving the nature of the product(s) to be marketed by LICENSEE and expected use
of the product(s).
6.7-If the parties cannot agree after negotiation upon equitable royalty terms
for the use of Licensed Patent Rights under subparagraph 6.6.4, then either
party may submit the matter for decision by arbitration in accordance with
paragraph 14.4. Fees for arbitration shall be borne by the LICENSEE, but may be
credited per paragraph 8.3 against royalties payable by LICENSEE under the
agreement established by means of the arbitration, until such arbitration fees
are fully recovered.
6.7.1-In arriving at a decision, the negotiators and arbitrator(s) shall
consider such factors as the size of the potential market for the Licensed
Product(s) involved, the anticipated profit margin, the royalty rates for End
Products, the royalty that would be paid on the End Products most likely to be
prepared for the Ultimate Consumer from the Licensed Products(s) in question,
and prevailing royalty rates in the industry to which the Licensed Products(s)
pertain.
7. MORE FAVORED TERMS
7.1-STANFORD intends that the terms of al licenses under Licensed Patent
Rights are to be essentially similar to the terms of this license. STANFORD will
advise LICENSEE as to those terms which are different in such other license
agreements, unless said terms are consequent to the operation of any provision
of paragraphs 6.6.4, 6.7, and 6.7.1, whereupon LICENSEE may determine whether
such terms are more favorable than those granted herein. LICENSEE shall, at its
election, be entitled upon written notice to STANFORD to have this Agreement
amended to substitute all terms of such more favorable license for all terms of
this Agreement as of the date upon which such more favorable license shall have
become effective. Such amendment shall, as to royalty, apply only to prospective
royalties.
7.2-In the event LICENSEE chooses to exercise its option under paragraph 76.1,
LICENSEE agrees that it shall also accept and be bound by the same terms and
conditions for the benefit of STANFORD as those which are a part of or shall
accompany such other license granted by STANFORD to a third party. LICENSEE
further agrees that in determining whether the royalty rate for a particular
product or process accorded the third party licensee is more favorable, STANFORD
may assign a reasonable value to any patent rights or other consideration it has
or will receive in return for the grant of such other license.
7.3-STANFORD has entered into prior license agreements for Licensed Patent
Rights. This Article 7 does not apply with respect to these prior license
agreements.
8. PAYMENTS AND REPORTS
8.1-LICENSEE agrees to notify STANFORD promptly, in writing, of the date of
the First Commercial Sale of a Licensed Product and date of first transaction
under paragraph 10.1.
4
<PAGE>
8.2--Beginning with date of First Commercial Sale, royalties from LICENSEE
hereunder (less the credits allowed by paragraphs 6.3 and 6.7 and less the
minimum annual royalty paid in advance for that calendar year) shall be paid to
STANFORD within ninety (90) days after the close of each subsequent calendar
quarter.
8.3--Total credits allowable by operation of paragraphs 6.3 and 6.7 shall
in no case exceed 50% of the excess of current earned royalties over the minimum
royalty due in any given year. Any amount so credited shall be credited only
once against earned royalties payable hereunder.
8.4--LICENSEE shall provide with each earned royalty payment of paragraph
8.2 a statement of Net Sales and the applicable royalties in accordance with
Article 6 and a report of each transaction under paragraph 10.1. All such
reports shall be held in confidence by STANFORD. Such statements and reports
shall be submitted whether or not a payment in excess of the minimum is due.
8.5--STANFORD is a nonprofit institution. Any taxes, fees, or other charges
imposed by governmental authorities upon payments due STANFORD shall be paid by
LICENSEE. The amounts remitted shall be pursuant to payment terms of the
agreement.
8.6--To facilitate STANFORD's conformance with its Institutional Patent
Agreement, LICENSEE agrees to make an annual report to STANFORD each March 1
covering its progress during the previous calendar year toward
commercialization. Such report may be general in nature and shall not include
company proprietary information.
8.7--LICENSEE also agrees to make a written report to STANFORD within
ninety (90) days after the date of termination of this License Agreement,
stating in such report the royalty payable hereunder which was not previously
reported to STANFORD. LICENSEE shall also continue to make annual reports
pursuant to the provisions of this Article 8 covering Net Sales and the
applicable royalties in accordance with Article 6 received for sale of Licensed
Products after termination of this License Agreement, until such time as all
such sales shall have terminated. Concurrent with the submittal of each
post-termination report, LICENSEE shall pay STANFORD all applicable royalties.
9. RECORDS
9.1--LICENSEE shall keep complete, true and accurate books of account and
records for the purpose of showing the derivation of all amounts payable to
STANFORD under this License Agreement. Said books and records shall be kept at
LICENSEE'S principal place of business for at least three (3) years following
the end of the calendar year to which they pertain and shall be open at all
reasonable times for inspection by a representative of STANFORD for the purpose
of verifying LICENSEE's royalty statements or LICENSEE's compliance in other
respects to this License Agreement. This representative is obliged to treat as
confidential all relevant matters and should be acceptable to LICENSEE. LICENSEE
may specify that this representative be an independent Certified Public
Accountant.
10. OTHER TRANSFERS OF LICENSED PRODUCTS
10.1--It is anticipated that LICENSEE may supply Licensed Products to an
Affiliate (as defined in paragraph 2.10) or to another licensee of STANFORD for
further processing and/or sale by the Affiliate or other licensee under Licensed
Patent Rights. No earned royalty shall be payable by LICENSEE with respect to
such Licensed Products, so long as the Affiliate or second licensee shall be
obligated to pay STANFORD royalty under Licensed Patent Rights on its use or
sales thereof. However, reports made by LICENSEE as provided in paragraph 8.4
shall list each such transaction as a non-royalty bearing sale and identify such
Affiliate or other licensee.
10.2--If an earned royalty payment has been made to STANFORD for a Licensed
Product used by LICENSEE to make another Licensed Product, that payment may be
deducted by LICENSEE from the earned royalty payment for such resulting Licensed
Product.
<PAGE>
11. TERM AND TERMINATION
11.1 - The term of this Agreement shall extend from the above effective
date until expiration of the last to expire of Licensed Patent Rights.
11.2 - Upon any breach of, or default under, this License Agreement by
LICENSEE, STANFORD may terminate this License Agreement by ninety (90) days
written notice to LICENSEE. Said notice shall become effective at the end of
such period unless during said period LICENSEE shall cure such defect or
default.
11.3 - LICENSEE shall have the right to terminate this Agreement at any
time upon ninety (90) days written notice to STANFORD.
12. ASSIGNABILITY
12.1 - This Agreement shall not be assigned except (a) with the advance
written consent of STANFORD, or (b) as part of a sale or transfer of
substantially the entire business of LICENSEE relating to operations pursuant to
this license.
13. NEGATION OF WARRANTIES AND INDEMNITY
13.1 - Nothing in this Agreement shall be construed as:
(a) a warranty or representation by STANFORD as to the validity or
scope of any Licensed Patent Rights; or
(b) a warranty or representation that anything made, used, sold or
otherwise disposed of under any license granted in this Agreement
is or will be free from infringement of patents of third parties;
or
(c) an obligation to bring or prosecute actions or suits against third
parties for infringement; or
(d) conferring the right to use in advertising, publicity or otherwise
any trademark, trade name, or names, or any contraction,
abbreviation, simulation or adaptation thereof, of STANFORD;or
(e) conferring by implication, estoppel or otherwise any license or
rights under any patents of STANFORD other than Licensed Patent
Rights, regardless of whether such patents are dominant or
subordinate to Licensed Patent Rights (however, STANFORD is not
aware of any STANFORD patent or application dominant to Licensed
Patent Rights); or
(f) an obligation to furnish any know-how not provided in Licensed
Patent Rights.
13.2 - STANFORD makes no representations other than those specified in
Article 1. STANFORD MAKES NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
13.3 - LICENSEE shall defend, indemnify and hold STANFORD harmless from and
against all liability, demands, damages, expenses and losses for death, personal
injury, illness or property damage ("claims and damages") arising (a) out of the
use by LICENSEE of any method under Licensed Patent Rights, or (b) out of any
use, sale or other disposition of Licensed Products by LICENSEE or its
transferees. As used in this Section, "STANFORD" includes its trustees,
officers, agents and employees, and "LICENSEE" includes its Affiliates described
in paragraph 2.10. LICENSEE acknowledges that the technology licensed hereby is
experimental and agrees to take all reasonable precautions to prevent death,
personal injury, illness and property damage.
14. GENERAL
14.1 - Neither party may waive or release any of its rights or interests in
this Agreement except in writing. Failure to assert any right arising from this
Agreement shall not be deemed or construed to be a waiver of such right.
6
<PAGE>
14.2 - This License Agreement constitutes the entire agreement between the
parties relating to the subject matter thereof, and all prior negotiations,
representations, agreements and understandings are merged into, extinguished by,
and completely expressed by it.
14.3 - This Agreement and its effects are subject to and shall be construed
and enforced in accordance with the laws of the State of California.
14.4 - Any dispute or controversy arising out of or relating to this
License Agreement, its construction or its actual or alleged breach, shall be
finally decided by arbitration conducted in San Francisco, California, by and in
accordance with the Licensing Agreement Arbitration Rules of the American
Arbitration Association. Judgment upon the award rendered may be entered in the
highest court or forum, state or federal, having jurisdiction; provided,
however, that the provisions of this Article 14 shall not apply to decision of
the validity of patent claims or to any dispute or controversy as to which any
treaty or law prohibits such arbitration.
14.5 - All notices required or permitted to be given by the terms of this
Agreement shall be given by prepaid registered or certified mail properly
addressed to the other party at the address designated below or to such other
address as may be designated in writing by such other party and shall be
effective as of the date of the postmark of such mail notice.
LICENSEE:
Attention:
STANFORD:
Office of Technology Licensing
Stanford University
900 Welch Road, Suite 350
Palo Alto, CA 94304-1850
U.S.A.
Attention: Director
This Agreement is effective as of the date first given above.
LICENSEE
By THOMAS SHEA
-------------------------------------------------
Title DIRECTOR OF FINANCE
----------------------------------------------
Date 5/11/94
-----------------------------------------------
THE BOARD OF TRUSTEES OF THE
LELAND STANFORD JUNIOR UNIVERSITY
By Katharine Ku
--------------------------------------------------
Title DIRECTOR OF TECHNOLOGY LICENSING
-----------------------------------------------
Date May 18, 1994
------------------------------------------------
7
<PAGE>
CUBIST PHARMACEUTICALS, INC.
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT, entered into as of this 20th day of June, 1994
(this "Agreement"), is between Cubist Pharmaceuticals, Inc., a Delaware
corporation (hereinafter called the "Employer"), and Scott M. Rocklage
(hereinafter called the "Employee").
1. Freedom to Contract. The Employee represents that he is free to enter
------- -- --------
into this Agreement, that he has not made and will not make any agreements in
conflict with this Agreement, and that he will not disclose to the Employer, or
use for the Employer's benefit, any trade secrets or confidential information
which is the property of any other party.
2. Employment. The Employer hereby employs the Employee, and the
----------
Employee hereby accepts his employment by the Employer, subject to and upon the
terms and conditions set forth herein.
3. Effective Date and Term. This Agreement shall take effect as of the
--------- ---- --- ----
date hereof (the "Effective Date"), and shall continue thereafter in full force
and effect until terminated in accordance with the provisions of this Agreement.
The obligations and agreements of the Employee pursuant to Sections 7.2, 9,
10.4, and 10.5 hereof, and pursuant to the Confidentiality Agreement (as defined
in Section 8 hereof) and the Stock Restriction Agreement (as defined in Section
6.3 hereof), shall survive the termination for any reason of this Agreement.
4. Title and Duties; Extent of Services. The Employee shall promote the
----- --- ------ ------ -- --------
business and affairs of the Employer as President and Chief Executive Officer.
The Employer shall use its best efforts to cause the Employee to be elected to
the Board of Directors of the Employer, and the Employee shall devote his best
efforts and entire time, attention and energies to the business and affairs of
the Employer. As President and Chief Executive Officer of the Employer, the
Employee shall have such duties and responsibilities as may be assigned to him
by the Board of Directors from time to time. The Employee shall report and
shall be responsible to the Board of Directors. Unless the Employee has
received the written approval of the Board of Directors, he shall not
participate in any other business or render services to any other business, as a
principal, consultant, employee or in any other capacity.
<PAGE>
-2-
5. Compensation and Benefits.
------------ --- --------
5.1. Salary. During the term of the Employee's employment with the
------
Employer pursuant to this Agreement, the Employer shall pay the Employee a
salary at the annual rate of $175,000, payable bi-weekly in arrears with an
annual review.
5.2. Performance Bonus. The Employer shall pay to the Employee a
----------- -----
performance bonus in respect of each fiscal year of the Employer, upon the
achievement by the Employer of those milestones for such fiscal year as are
mutually agreed upon by the Employee and the Board of Directors of the Employer.
The Employee's bonus scale for each fiscal year shall be up to $50,000, subject
to review by the Board of Directors of the Employer; provided, however, that the
-------- -------
Employee's bonus scale in respect of the Employer's fiscal year ending on
December 31, 1994 shall be up to that amount equal to the product of (i) $50,000
and (ii) a fraction, the numerator of which shall be the number of days elapsed
from the Effective Date to December 31, 1994 and the denominator of which shall
be the total number of days in such fiscal year. The performance bonus payable
to the Employee pursuant to this Section 5.2 shall be paid by the Employer
within 90 days of the end of the applicable fiscal year of the Employer.
5.3. Medical Benefits. During the term of the Employee's employment with
----------------
the Employer pursuant to this Agreement, the Employee shall be entitled, on a
family coverage basis, to participate, at the Employer's expense, in the health
insurance plan offered or generally made available to the Employer's employees
based at the Employer's headquarters in Cambridge, Massachusetts, provided that
--------
the Employer's insurance carrier accepts the Employee and the members of his
family.
5.4. Certain Expenses Relating to Relocation. The Employer shall reimburse
---------------------------------------
the Employee for the following expenses and pay the Employee the following
amounts relating to the Employee's relocation to the Boston, Massachusetts area:
(i) the reasonable lodging expenses incurred by the Employee during the
period commencing on the Effective Date and ending on the earlier of (x) the
closing of the purchase of a residence in the Boston, Massachusetts area or (y)
the first anniversary of the Effective Date;
(ii) the reasonable travel and lodging expenses incurred by the Employee
prior to the Effective Date in connection with up to two trips by the Employee
and his spouse to the Boston, Massachusetts area for the purpose of locating a
permanent residence in such area; and
<PAGE>
-3-
(iii) the amount of $85,000, as reimbursement for other expenses incurred
by the Employee in connection with the relocation of the Employee and his family
and their property from the Los Gatos, California area to the Boston,
Massachusetts area.
5.5. Sick Leave and Vacation. During the term of the Employee's employment
-----------------------
with the Employer pursuant to this Agreement, the Employee shall be entitled to
sick leave and vacation consistent with the Employer's policy concerning sick
leave and vacation.
5.6. Other Benefits. During the term of the Employee's employment with the
--------------
Employer pursuant to this Agreement, the Employee shall be entitled to receive
such retirement benefits, life insurance, disability insurance and other fringe
benefits as are customarily provided by the Employer to senior executives and/or
key employees.
6. Stock Option.
------------
6.1. Grant of Stock Option. As soon as practicable after the Effective
---------------------
Date, the Employer shall grant (the "Grant Date") to the Employee a stock option
(the "Option") under the Employer's 1993 Amended and Restated Stock Option Plan
(the "Plan") to purchase 1,316,849 shares (the "Option Shares") of the
Employer's common stock, $.001 par value per share ("Common Stock"). The
exercise price of the Option shall be equal to $.05 per Option Share. Promptly
after the Grant Date, the Employer and the Employee shall enter into the
Employer's standard form of Stock Option Agreement (the "Stock Option
Agreement"), evidencing the Option and the terms thereof. The Option shall be
subject to, and governed by, the terms and provisions of the Plan and the Stock
Option Agreement.
6.2. Exercise of Option; Payment of Exercise Price. The Option shall
---------------------------------------------
become exercisable in a series of sixteen (16) equal quarterly installments
(6.25% per quarter) . The Employee may, at his option, pay the exercise price
for the Option through the execution and delivery of a Secured Promissory Note
payable to the Company, substantially in the form of Exhibit A attached hereto.
------- -
6.3. Restrictions on Option Shares. As a condition precedent to the
-----------------------------
exercise of the Option, the Employee and the Employer shall enter into the
Employer's standard form of Stock Restriction Agreement (the "Stock Restriction
Agreement"), providing for certain restrictions on transfer (including certain
rights of first refusal) applicable to the Option Shares, all as set forth in
the Stock Restriction Agreement.
<PAGE>
-4-
7. Termination.
-----------
7.1. Termination Rights of the Parties. The Employee may terminate his
----------- ------ -- --- -------
employment at any time by giving the Employer thirty (30) days' prior written
notice thereof, whereupon such employment shall terminate on the earlier of (i)
the 30th day following the date on which such notice is given to the Employer or
(ii) any date prior to such 30th day that is specified by the Employer by notice
to the Employee. The Employer may terminate the Employee's employment at any
time by giving notice of termination to the Employee, whereupon, unless
otherwise specified by the Employer, the date of termination of the Employee's
employment shall be the date on which notice of termination is given to the
Employee. Upon the death of the Employee or the Employee's disability such that
he is unable to perform his duties, his employment shall terminate immediately
upon such occurrence. The date on which the Employee's employment hereunder
terminates is hereinafter referred to as the "Termination Date".
7.2. Employee's Right to Compensation Following Termination; Severance Pay.
---------- ----- -- ------------ --------- ----------- --------- ---
(a) If the Employee voluntarily terminates his employment hereunder,
he shall not be entitled to compensation hereunder beyond the Termination Date,
including, without limitation, severance pay.
(b) If the employment of the Employee is terminated by the Employer
for any reason other than for Cause (as defined in Section 7.2(c) below) within
twelve (12) months from the Effective Date, then the Employee shall be entitled
to severance pay in an amount equal to six (6) months of his then current annual
salary (exclusive of any bonuses). After twelve (12) months from the Effective
date, if the employment of the Employee is terminated by the Employer for any
reason other than for Cause, then the Employee shall be entitled to severance
pay in an amount equal to three (3) months of his then current annual salary
(exclusive of any bonuses). Severance pay shall be payable bi-weekly in arrears.
Severance pay shall cease upon the Employee's obtaining employment.
(c) If the Employer terminates the employment of the Employee, at any
time, for Cause, all of the Employee's rights to compensation, including, but
not limited to, severance pay, shall thereupon cease. For purposes of this
Agreement, "Cause" shall mean unlawful or dishonest conduct, or a breach of any
of the Employee's obligations hereunder, including but not limited to his
obligations under the Confidentiality Agreement (as defined below) (other than
as a result of the Employee's death or disability).
8. Proprietary Information and Invention Agreement. The Employee shall,
-----------------------------------------------
as of the date hereof, enter into the Employer's standard form of Proprietary
Information and Invention Assignment Agreement (the "Confidentiality
<PAGE>
-5-
Agreement"), an original counterpart of which shall be attached hereto as
Exhibit B and incorporated herein as if reproduced in its entirety.
- ------- -
9. Unique Nature of Agreement; Specific Enforcement. The Employer and
------ ------ -- --------- -------- -----------
Employee agree and acknowledge that the rights and obligations set forth with
this Agreement are of a unique and special nature and that the Employer is,
therefore, without an adequate legal remedy in the event of the Employee's
violation of any of the covenants set forth in this Agreement. The Employer and
Employee agree, therefore, that each of the covenants made by the Employee under
this Agreement shall be specifically enforceable in equity, in addition to all
other rights and remedies, at law or in equity or otherwise (including
termination of employment), that may be available to the Employer.
10. Miscellaneous.
-------------
10.1. Entire Agreement. This Agreement, the Confidentiality Agreement,
------ ---------
the Stock Option Agreement, and the Stock Restriction Agreement shall represent
the entire agreement of the parties with respect to the arrangements
contemplated hereby. No prior agreement, whether written or oral, shall be
construed to change, amend, alter, repeal or invalidate this Agreement. This
Agreement may be amended only by a written instrument executed in one or more
counterparts by the parties.
10.2. Waiver. No consent to or waiver of any breach or default in the
------
performance of any obligations hereunder shall be deemed or construed to be a
consent to or waiver of any other breach or default in the performance of any of
the same or any other obligations hereunder. Failure on the part of either
party to complain of any act or failure to act of the other party or to declare
the other party in default, irrespective of the duration of such failure, shall
not constitute a waiver of rights hereunder and no waiver hereunder shall be
effective unless it is in writing, executed by the party waiving the breach or
default hereunder.
10.3. Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto, their respective successors and assigns and, in
the case of the Employee, his heirs. This Agreement may be assigned by the
Employer to any Affiliate of the Employer and to a successor of its business
(whether by purchase or otherwise). "Affiliate of the Employer" means any
person which, directly or indirectly, controls or is controlled by, or is under
common control with, the Employer and, for the purposes of this definition,
"control" (including the terms "controlled by" and "under common control with")
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of another, whether through
the ownership of voting securities, the holding of office in another, by
contract, or otherwise. The Employee may not assign or transfer any or all of
his rights or obligations under this Agreement.
<PAGE>
-6-
10.4. Disputes. In case of any dispute hereunder, the parties will submit
--------
to the exclusive jurisdiction and venue of any court of competent jurisdiction
sitting in Suffolk County, Massachusetts, and will comply with all requirements
necessary to give such court jurisdiction over the parties and the controversy.
Each party waives any right to a jury trial and to claim or recover punitive
damages.
10.5. Severability. All headings and subdivisions of this Agreement are
------------
for reference only and shall not affect its interpretation. In the event that
any provision of this Agreement should be held unenforceable by a court of
competent jurisdiction, such court is hereby authorized to amend such provision
so as to be enforceable to the fullest extent permitted by law, and all
remaining provisions shall continue in full force without being impaired or
invalidated in any way.
10.6. Governing Law. This Agreement shall be governed by and construed in
--------- ---
accordance with the laws of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have signed this agreement as of the date
written above as a sealed instrument.
CUBIST PHARMACEUTICALS, INC.
By: /s/John K. Clarke
-----------------------
John K. Clarke
/s/Scott M. Rocklage
---------------------------
Scott M. Rocklage
<PAGE>
EXHIBIT A
---------
PROMISSORY NOTE
$65,842.45 Boston, Massachusetts
_______________, 1994
FOR VALUE RECEIVED, the undersigned, Scott M. Rocklage (the "Maker"), by
this Promissory Note (this "Note"), absolutely and unconditionally promises to
pay to the order of CUBIST PHARMACEUTICALS, INC., a Delaware corporation (the
"Payee"), the aggregate principal amount of Sixty-Five Thousand Eight Hundred
Forty-Two Dollars and Forty-Five Cents ($65,842.45) on __________, 1997 (the
"Maturity Date"), and to pay interest on the principal amount outstanding from
time to time hereunder, from the date hereof through and including the date on
which such principal amount is paid in full, at a rate of four percent (4%) per
annum simple interest. Interest hereunder shall be due and payable on the first
anniversary hereof, the second anniversary hereof and on the Maturity Date or
any accelerated maturity hereof.
The Maker shall have the right to prepay the unpaid principal amount of
this Note in full at any time, or in part from time to time, without premium or
prepayment penalty, provided that there is paid with each such principal
prepayment all accrued and unpaid interest to the date of prepayment (calculated
on the basis of a 365-day year for the actual number of days for which the same
is due).
All payments of interest and principal hereunder shall be made at the
principal residence or business address of the holder hereof. All payments
hereunder shall be applied first to any unpaid accrued interest, second to
----- ------
payment of all, if any, other amounts except principal due under or in respect
of this Note, and third to repayment of principal.
-----
This Note is made and delivered by the Maker to the Payee pursuant to that
certain letter agreement, dated ____________, 1994, between the Payee and the
Maker.
Anything implied herein to the contrary notwithstanding, in the event that
(1) the Maker shall fail to pay when due all or any portion of the principal of
or interest on this Note, (2) the Maker shall make an assignment of the whole or
a substantial part of his assets for the benefit of creditors, or (3) there
shall be commenced by or against the Maker any proceeding under any bankruptcy,
insolvency, readjustment of debt or similar law of any jurisdiction, (each event
referred to in clauses (1) through (3) above being hereinafter referred to
herein as an "Event of Default") then without notice to or demand upon the Maker
the entire unpaid principal of this Note, and all interest accrued thereon,
shall (if not already due and payable) immediately become and be due and payable
to the order of the holder hereof.
<PAGE>
-2-
The Maker hereby, to the fullest extent permitted by applicable law: (a)
waives presentment, demand, notice, protest, and all other demands and notices
in connection with delivery, acceptance, performance, default, acceleration or
enforcement of or under this Note; (b) assents to any extension or postponement
of the time of payment or any other indulgence, and to any substitution,
exchange or release of collateral; and (c) agrees to pay to the holder, on
demand, all costs and expenses of collection, including, without limitation,
reasonable attorneys' fees and legal expenses, incurred by the holder in
enforcing this Note, whether or not litigation is commenced.
No failure by the holder to exercise, or delay by the holder in exercising,
any right or remedy hereunder shall operate as a waiver therof, or of any other
right or remedy, and no single or partial exercise of any right or remedy shall
preclude any other or further exercise thereof or of any other right or remedy.
Acceptance by the holder of any payment after the maturity of this Note has been
accelerated shall not constitute a waiver of such acceleration.
This Note shall take effect as an instrument under seal and shall be
governed by and construed in accordance with the law of the Commonwealth of
Massachusetts.
______________________________
<PAGE>
EXHIBIT B
---------
CUBIST PHARMACEUTICALS, INC.
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
In consideration of my employment or continued employment by Cubist
Pharmaceuticals, Inc. (together with any subsidiary of Cubist Pharmaceuticals,
Inc., the "Company"), and the compensation now and hereafter paid to me. I
hereby agree as follows:
1. RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE.
At all times during the term of my employment and thereafter, I will hold in
strictest confidence and will not disclose, use, lecture upon or publish any of
the Company's Proprietary Information (defined below), except as such
disclosure, use or publication may be required in connection with my work for
the Company, or unless an officer of the Company expressly authorizes such in
writing.
The term "Proprietary Information" shall mean trade secrets, confidential
knowledge, data or any other proprietary information of the Company. By way of
illustration but not limitation. "Proprietary Information" includes (a)
inventions, mask works, trade secrets, ideas, processes, formulas, source and
object codes, data, programs, other works of authorship, know-how, improvements,
discoveries, developments, designs and techniques (hereinafter collectively
referred to as "Inventions"); and (b) information regarding plans for research,
development, new products, regulatory matters, marketing and selling, business
plans, budgets and unpublished financial statements, licenses, princes and
costs, suppliers and customers; and information regarding the skills and
compensation of other employees of the Company.
2. THIRD PARTY INFORMATION. I understand, in addition, that the Company
has received, and in the future will receive, from third parties confidential or
proprietary information ("Third Party Information") subject to a duty on the
Company's part to maintain the confidentiality of such information and to use it
only for certain limited purposes. During the term of my employment and
thereafter. I will hold Third Party Information in the strictest confidence and
will not disclose to anyone (except in connection with my work for the Company),
unless expressly authorized by an officer of the Company in writing.
-1-
<PAGE>
3. ASSIGNMENT OF INVENTIONS.
3.1 ASSIGNMENT.
(a) I hereby assign to the Company all my right, title and interest in
and to any and all Inventions (and all patent rights, copyrights, mask work
rights, trademarks, trade secret rights, all other rights throughout the world
in connection therewith, and the goodwill associated with all of the foregoing
(collectively, "Proprietary Rights")), whether or not patentable or registrable
under patent, copyright, trademark or similar statutes, made or conceived or
reduced to practice or learned by me, either alone or jointly with others,
during reduced to practice or learned by me, either alone or jointly with
others, during the period of my employment with the Company. Inventions assigned
to, or as directed by, the Company under this Paragraph 3 are hereinafter
referred to as "Company Inventions". I agree, upon request, to execute, verify
and deliver assignments of the Proprietary Rights to the Company or its designee
and hereby appoint the Company my attorney-in-fact with respect to the
Proprietary Rights for the purpose of effecting any or all of the Company's
rights to the Proprietary Rights.
3.2 GOVERNMENT. I also agree to assign to or as directed by the
Company all my right, title and interest in and to any and all Inventions, full
title to which is required to be assigned to the United States of America by a
contract between the Company and United States of America or any of its
agencies.
3.3 WORKS FOR HIRE. I acknowledge that all original works of
authorship which are made by me (solely or jointly with others) within the scope
of my employment and which are protectable by copyright are "works made for
hire", as that term is defined in the United States Copyright Act (17 U.S.C.
Section 101).
4. ENFORCEMENT OF PROPRIETARY RIGHTS. From time to time, I will assist
the Company in every proper way to obtain and enforce United States and foreign
Proprietary Rights relating to Company Inventions in any and all countries. My
obligation to assist the Company with respect to Proprietary Rights relating to
such Company Inventions in any and all countries shall continue beyond the
termination of my employment, but the Company shall compensate me at a
reasonable rate after my termination for the time actually spent by me at the
Company's request on such assistance.
I hereby waive and quitclaim to the Company any and all claims, of any
nature whatsoever, which now or may hereafter have for infringement of any
Proprietary Rights assigned hereunder to the Company.
-2-
<PAGE>
5. OBLIGATION TO KEEP COMPANY INFORMED. During the period of my
employment. I will promptly disclose all Inventions to the Company fully and in
writing and will hold such Inventions in trust for the sole right and benefit of
the Company. In addition, after termination of my employment. I will promptly
disclose all patent applications filed by me within a year after termination of
employment.
6. PRIOR INVENTIONS. Inventions, if any, patented or unpatented, which I
made prior to the commencement of my employment with the Company are excluded
from the scope of this Agreement. To preclude any possible uncertainty, I have
set forth in Exhibit A attached hereto a complete list of all Inventions (i)
---------
that I have, alone or jointly with others, conceived, developed or reduced to
practice or caused to be conceived, developed or reduced to practice prior to
the commencement of my employment with the Company, (ii) that I consider to be
my property or the property of third parties and (iii) that I wish to have
excluded from the scope of this Agreement. If disclosure of any such Invention
on Exhibit A would cause me to violate any prior confidentiality agreement, I
---------
understand that I am not to list such Inventions in Exhibit A but am to inform
---------
the Company that all such Inventions have not been listed for that reason.
7. COVENANT NOT TO COMPETE OR SOLICIT.
7.1 RESTRICTIVE COVENANTS. I agree that during the period of my
employment by the Company I will not, without the Company's express written
consent, engage in any employment or business activity other than for the
Company. In view of the unique nature of the business of the Company and the
need of the Company to maintain its competitive advantage in the industry, I
agree that, for a period of three (3) years after the termination of my
employment with the Company for any reason whatsoever, I shall not, directly or
indirectly, within the United States of America or its Territories or
possessions, or within any other country, (i) engage in, (ii) own an interest
in, (iii) be employed by, or consult for, or act as an advisor to, any person or
entity which engages in, or (iv) otherwise participate in any way in, any
activity which competes with the Business (as defined in Section 7.2 below).
During the term of my employment with the Company and for a period of three (3)
years thereafter, I also shall not solicit, or arrange to have any other person
or entity solicit, any person or entity engaged by the Company as an employee,
customer, supplier, or consultant or advisor to, the Company to terminate such
party's relationship with the Company. The time periods provided for in this
Section 7 shall be extended for a period of time equal to any period of time in
which I shall be in violation of any provision of this Section 7.
-3-
<PAGE>
7.2 DEFINITION OF BUSINESS; COVENANT TO AGREE. For purposes of
Section 7.1 above, the term "Business" shall mean: (i) the current business of
--------
the Company, defined as the research, development, manufacture, promotion
distribution, sale and license of treatments of diseases through or in
connection with the use of tRNA or tRNA synthetases as targets; and (ii) any
other business or businesses conducted by the Company at any time in the future,
but only to the extent that the Company and I shall have agreed in writing on an
accurate description of such other business or businesses. I hereby covenant and
agree that, promptly after the Company submits a proposed description of any
business conducted by the Company at any time in the future, I will use my best
efforts, in good faith, to reach a written agreement with the Company as to an
accurate description of such business, all for the purpose of ensuring that the
business covered by any such description shall be included within the definition
of "Business" for purposes of Section 7.1 above.
--------
8. NO IMPROPER USE OF MATERIALS. During my employment by the Company, I
will not improperly use or disclose any confidential information or trade
secrets, if any, of any former employer or any other person to whom I have an
obligation of confidentiality, and I will not bring onto the premises of the
Company any unpublished documents or any property belonging to any former
employer or any other person to whom I have an obligation of confidentiality
unless consented to in writing by that former employer or person.
9. NO CONFLICTING OBLIGATION. I represent that my performance of all the
terms of this Agreement and my performance of my duties as an employee of the
Company do not and will not breach any agreement to keep in confidence
information acquired by me in confidence or in trust prior to my employment by
the Company. I have not entered into, and I agree I will not enter into, any
agreement either written or oral in conflict herewith.
10. RETURN OF COMPANY DOCUMENTS. When I leave employ of the Company, I
will deliver to the company any and all drawings, notes, memoranda,
specifications, devices, formulas, molecules, cells, storage media, including
software, documents and computer printouts, together with all copies thereof,
and any other material containing or disclosing any Company Inventions. Third
Party Information or Proprietary Information of the Company. I further agree
that any property situated on the Company's premises and owned by the Company,
including disks and other storage media, filing cabinets or the work areas, is
subject to inspection by Company personnel at any time with or without notice.
-4-
<PAGE>
11. LEGAL AND EQUITABLE REMEDIES. Because my services are personal and
unique and because I may have access to and may become acquainted with the
Proprietary Information of the Company, the Company shall have the right to
enforce this Agreement and any of its provisions by injunction, specific
performance or other equitable relief, without bond, without prejudice to any
other rights and remedies that the Company may have for a breach of this
Agreement, and I waive the claim or defense that the Company has an adequate
remedy at law. I shall not, in any action or proceeding to enforce any of the
provisions of this Agreement, assert the claim or defense that such an adequate
remedy at law exists.
12. NOTICES. Any notices required or permitted hereunder shall be given
to me at the address specified below or at such other address as I shall specify
in writing. Such notice shall be deemed given upon personal delivery to the
appropriate address or if sent by certified or registered mail, three days after
the date of mailing.
13. GENERAL PROVISIONS.
13.1 GOVERNING LAW. This Agreement is executed under seal and will
be governed by and construed according to the laws of the Commonwealth of
Massachusetts.
13.2 ENTIRE AGREEMENT. This Agreement is the final, complete and
exclusive agreement of the parties with respect to the subject matter hereof and
supersedes and merges all prior discussions between us. No modification or
amendment of this Agreement, nor any waiver of any rights under this Agreement,
will be effective unless in writing signed by the party to be charged. Any
subsequent change or changes in my duties, salary or compensation will not
affect the validity or scope of this Agreement. As used in this Agreement, the
period of my employment includes any time during which I may be retained by the
Company as a consultant.
13.3 SEVERABILITY. If one or more of the provisions in this
Agreement are deemed unenforceable by law, then the remaining provisions will
continue in full force and effect.
13.4 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives and will be for
the benefit of the Company, its successors, and its assigns. I may not assign
any of my rights, or delegate any of my obligations, under this Agreement.
-5-
<PAGE>
13.5 SURVIVAL. The provisions of this Agreement shall survive the
termination of my employment and the assignment of this Agreement by the
Company to any successor in interest or other assignee.
13.6 EMPLOYMENT. I agree and understand that nothing in this
Agreement shall confer on me any right with respect to continuation of my
employment with the Company, nor shall it interfere in any way with my right or
the Company's right to terminate my employment at any time, with or without
cause.
13.7 WAIVER. No waiver by the Company of any breach of this
Agreement shall be a waiver of any preceding or succeeding breach. No waiver by
the Company of any right under this Agreement shall be construed as a waiver of
any other right. The Company shall not be required to give notice to enforce
strict adherence to all terms of this Agreement.
13.8 COUNTERPARTS. This Agreement may be executed in counterparts,
all of which together shall for all purposes constitute one Agreement, binding
on each of the parties hereto notwithstanding that each such party shall not
have signed the same counterpart.
13.9 JURISDICTION AND VENUE; WAIVER OF JURY TRIAL. In case of any
dispute hereunder, the parties will submit to the exclusive jurisdiction and
venue of any court of competent jurisdiction sitting in Middlesex County,
Massachusetts, and will comply with all requirements necessary to give such
court jurisdiction over the parties and the controversy. EACH PARTY HEREBY
WAIVES ANY RIGHT TO A JURY TRIAL AND TO CLAIM OR RECOVER PUNITIVE DAMAGES WITH
RESPECT TO THIS AGREEMENT.
13.10 DISCLOSURE. Within three (3) months after the start date of my
employment with any other employer, I shall disclose the existence and terms of
this Agreement to any employer or other person that I may work for or be
engaged by after the termination of my employment or engagement at the Company.
I agree that the Company may, after notification to me, provide a copy of this
Agreement to any business or enterprise (i) which I may directly or indirectly
own, manage, operate, finance, join, control or participate in the ownership,
management, operation, financing, or control of, or (ii) with which I may be
connected with as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise, or in connection with which I may use
or permit my name to be used. I will provide the names and addresses of any of
such persons or entities as the Company may from time to time reasonably
request.
-6-
<PAGE>
This Agreement shall be effective as of the first day of my employment with
the Company, namely: 20 June , 1994.
----------- --
I UNDERSTAND THAT THIS AGREEMENT AFFECTS MY RIGHTS TO INVENTIONS I MAKE
DURING MY EMPLOYMENT, AND RESTRICTS MY RIGHTS TO DISCLOSE OR USE THE COMPANY'S
CONFIDENTIAL INFORMATION OR TO COMPETE WITH THE COMPANY DURING OR SUBSEQUENT TO
MY EMPLOYMENT.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE
COMPLETELY FILLED OUT EXHIBIT A TO THIS AGREEMENT.
Dated: 28 June , 1994. /s/ Scott M. Rocklage
------------------- -- -------------------------------------
Signature
SCOTT M. ROCKLAGE
-------------------------------------
Name of Employee
Address: 179 Sandy Pond Road
-------------------------------------
Lincoln, MA 01773
-------------------------------------
_____________________________________
ACCEPTED AND AGREED TO:
Cubist Pharmaceuticals, Inc.
By: /s/ Karin Liias Goldstein
---------------------------
Signature
Karin Liias Goldstein
---------------------------
Print
Title: HR Mgr
-------------------------
-7-
<PAGE>
EXHIBIT A
My CV with the listed patents and patent applications dated prior to 6/20/94.
[SIGNATURE ILLEGIBLE]
6/28/94
-8-
<PAGE>
SCOTT M. ROCKLAGE
-----------------
PERSONAL
- --------
Residence: 349 Los Gatos Blvd.
Los Gatos, CA 95032
Telephone: (H/O) 408/356-0692
Date of Birth: July 28, 1954
Marital Status: Married
3 children
EDUCATION
- ---------
Massachusetts Institute of Technology, Cambridge, Massachusetts
Ph.D., Organometallic Chemistry, 1981
University of California, Berkeley, California
B.S., 1978
COMPENSATION
- ------------
$170,000 base salary
up to 40% bonus
<PAGE>
Scott M. Rocklage - Page 2
DETAIL OF EXPERIENCE
--------------------
1992 to NYCOMED INTERVENTIONAL. INC.
----------------------------
Present Sunnyvale, California
PRESIDENT, CEO AND CHAIRMAN
Mr. Rocklage founded Nycomed Interventional Inc. as a spin-off of Nycomed
Salutar, Inc. with the goal of establishing the Nycomed presence in the
radiology and cardiology marketplaces through the marketing and sales of
high-end intravascular medical devices. Mr. Rocklage successfully negotiated
with the Nycomed Board of Directors for $1 million in start-up operational
financing. Mr. Rocklage's responsibilities include evaluating and negotiating
corporate partnerships with leading-edge technology based R&D companies for
exclusive worldwide product development and distribution rights.
1990 to NYCOMED SALUTAR INC.
--------------------
Present (subsidiary of Nycomed AS)
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1986-90 SALUTAR INC.
------------
Sunnyvale, California
1989-90 VICE PRESIDENT, RESEARCH
Mr. Rocklage was instrumental in the 1989 $55 million corporate acquisition of
Salutar, Inc. by Hafslund Nycomed AS from contract negotiations to due
diligence. He integrated Salutar's R&D, financial and corporate activities and
responsibilities with Hafslund Nycomed AS and Nycomed Imaging AS following the
acquisition. Mr. Rocklage negotiated with the Board of Directors for significant
growth in corporate and financial responsibilities for Salutar, Inc. that
resulted in a budget increase from $4 million to $12 million and a staff
increase from 25 to 75 in three years. In addition, Mr. Rocklage developed and
maintained corporate partnering relationships with major participants in the
diagnostic imaging industry (including Sterling Winthrop, Otsuka Pharmaceutical
Co., Ltd., Byk Gulden, and Daiichi Pharmaceutical Co., Ltd.)
1987-89 DIRECTOR, RESEARCH
<PAGE>
Scott M. Rocklage -- Page 3
SALUTAR. INC. - continued
- -------------
1986-87 MANAGER, CHEMICAL RESEARCH
Mr. Rocklage joined Salutar, Inc. in 1986 as part of the original team of
four members with the responsibility of designing and implementing novel
R&D programs in contrast-enhanced diagnostic imaging. He led the innovative
R&D effort that resulted in three novel drug products in human clinical
trials including the U.S. FDA approval of Omniscan (Licensed for U.S.
marketing to Sanofi-Winthrop). First year sales was projected at $40
million.
1981-86 CATALYTICA ASSOCIATES. INC.
---------------------------
Mountain View, California
1983-86 GROUP LEADER
1981-83 RESEARCH FELLOW
1978-81 MASSACHUSETTS INSTITUTE OF TECHNOLOGY
-------------------------------------
Cambridge, Massachusetts
RESEARCH ASSOCIATE
1976-78 UNIVERSITY OF CALIFORNIA
------------------------
Berkeley, California
RESEARCH ASSISTANT
<PAGE>
CUBIST PHARMACEUTICALS, INC.
CONSULTING AGREEMENT
--------------------
This AGREEMENT, made as of the 1st day of May, 1992, is between Cubist
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), and Paul R.
Schimmel, an individual residing at 75 Cambridge Parkway, West 900, Cambridge,
Massachusetts 02142 (the "Consultant").
1. Freedom to Contract. The Consultant represents that he is free to
------- -- --------
enter into this Agreement, that he has not made and will not make any agreements
in conflict with this Agreement, and will not disclose to the Company, or use
for the Company's benefit any inventions, trade secrets, or confidential
information which are the property of any other person, now or hereafter in the
Consultant's possession.
2. Consulting Services. The Consultant shall devote his best efforts to
-------------------
such tasks within his field of education and experience as the Company shall
designate and assign to him from time to time during the term of this Agreement.
Consultant will hold himself available for consulting services up to one day per
month or as otherwise mutually agreed upon. The Company acknowledges that the
Consultant holds a full time position as a faculty member of the Massachusetts
Institute of Technology and agrees that the Consultant may enter into consulting
arrangements with other commercial enterprises which may on occasion interfere
or conflict with the Consultant's obligations under this Agreement.
3. Compensation and Expenses. In consideration for all of the promises
-------------------------
made, obligations undertaken and to be performed by the Consultant under this
Agreement, the Company shall pay to the Consultant a consulting fee at a rate of
$2,500 per month. In addition to the foregoing, the Company may reimburse the
Consultant for certain expenses incurred by the Consultant in connection with
the services rendered hereunder, in accordance with such policies, limitations,
and requirements as the Company may establish for its consultants from time to
time. Notwithstanding any of the foregoing, the Consultant hereby agrees to
waive any consulting fees that would otherwise be payable pursuant to this
Section 3 to the Consultant during the period commencing on the date hereof and
ending on September 1, 1992.
4. Term. This Agreement shall remain in effect through September 1,
----
1992, and for successive periods of one year thereafter, unless earlier
terminated at any time by either party upon two (2) months' prior written notice
of such termination to the other.
<PAGE>
-2-
5. Inventions. All discoveries, inventions, improvements, ideas, names,
----------
trademarks, and innovations, whether or not patentable or copyrightable
(including all data and records pertaining thereto), whether or not reduced to
writings, drawings, or practice, which the Consultant may invent, discover,
originate, make or conceive, during the term of this Agreement and for a period
of six (6) months thereafter, either alone or with others and whether or not
during working hours or by the use of the facilities of the Company, and which
are related in any manner to the business or other activities carried on by the
Company or any of its subsidiaries or affiliates shall be the absolute property
and are hereby assigned to the Company ("Inventions"). The Consultant shall
promptly and fully disclose Inventions to the Company, and shall promptly record
Inventions in such form as the Company may request.
The Consultant shall execute, upon the Company's request at any time during
or after the term of this Agreement, and at the Company's expense, any
applications, assignments and other documents that the Company may deem
necessary or desirable to protect or perfect its rights, including any patent
rights in the Inventions, and shall assist the Company, at the Company's
expense, in obtaining, defending, and enforcing its rights therein, all without
further compensation to the Consultant.
6. Confidential Information. The Consultant acknowledge that all
------------------------
information acquired by the Consultant from the Company, its suppliers,
customers, or others, or developed by the Consultant, during the term of this
Agreement and until such time as such information shall be generally known to
the public (through no fault of the Consultant) and not considered confidential
by the Company, relating directly or indirectly to the present or potential
business of the Company, whether or not such information is reduced to writing
or physical form, including but not limited to ideas, know-how, data, test
results, techniques, processes, procedures, raw materials, dealer, supplier and
customer lists, and any capitalization or financial information ("Confidential
Information"), is a valuable, special, and unique asset of the Company and is
further acknowledged to be held in trust by the Consultant for the Company's
sole benefit. The Consultant shall not, at any time during or after the term of
this Agreement, use for himself or others, or disclose or communicate to any
person, firm, corporation, association, or other entity for any reason or
purpose whatsoever, any Confidential Information without the prior written
consent of the Company.
<PAGE>
-3-
7. Termination; Return of Documents. All originals, copies and
--------------------------------
summaries of manuals, memoranda, notes, notebooks, records, reports, plans,
drawings and other documents or items of any kind concerning any matters
affecting or relating to the present or potential business of the company,
whether or not they contain Confidential Information, are and shall continue to
be the property of the Company, and all of such documents or items in the actual
or potential possession or control of the Consultant shall be delivered to the
Company by the Consultant immediately upon termination of this Agreement, or at
such earlier time as the Company may request.
8. Agreement Not to Compete. In view of the unique nature and
------------------------
specialized techniques employed in the business of the company and the need of
the Company and the need of the Company to maintain its competitive advantage in
the industry through the protection of its trade secrets and proprietary
information, the Consultant agrees that during the term of this Agreement, the
Consultant shall not, within any foreign or domestic jurisdiction in which the
Company conducts or plans to conduct its business or contemplated business or
distributes its products (determined as of the date of termination of this
Agreement), engage in or own an interest in (except as a holder of 1% or less of
the issued and outstanding capital stock in any company whose stock is publicly
traded in the United States), or be employed by or consult or advise for any
entity which engages in activities in competition with the business or
contemplated business of the Company. These restrictions shall continue for a
period of eighteen (18) months after termination of this Agreement.
The time periods provided for in this section shall be extended for a
period of time equal to any period of time in which the Consultant is in
violation of any provision of this section.
9. Use of Name. The Consultant agrees that the Company shall be entitled
-----------
to use the Consultant's name or likeness in any proposals, reports, promotional
materials or any document related to the services to be performed by the
Consultant hereunder.
10. Unique Nature of Agreement; Specific Enforcement. The Company and
-----------------------------------------------
Consultant agree and acknowledge that the rights and obligations set forth in
this Agreement are of a unique and special nature and that the Company is,
therefore, without an adequate legal remedy in the event of the Consultant's
violation of the covenants set forth in this Agreement. The Company and
Consultant, therefore, agree that the covenants made by the Consultant, under
this Agreement shall be specifically enforceable in equity, in addition to all
other rights and remedies, at law or in equity, that may be available to the
Company.
<PAGE>
-4-
11. Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their such cessors and assigns. This Agreement
may be assigned by the Company to any affiliate of the Company and to a
successor of its business to which this Agreement relates (whether by purchase
or otherwise). The Consultant may not assign or transfer any or all of his
rights or obligations under this Agreement.
12. Disputes. In the event of a dispute touching or concerning this
--------
Agreement, the parties will submit to the exclusive jurisdiction of any court of
competent jurisdiction sitting in Boston, Massachusetts, and will comply with
all requirements necessary to give such court exclusive jurisdiction.
13. Miscellaneous. If any provision or provisions of this Agreement shall
-------------
be held to be unenforceable or inoperative by any court, the remaining
provisions shall be deemed severable and unaffected and shall continue in
full force and effect. This Agreement may be executed in several
counter parts, each of which is on original but all of which shall
constitute but one instrument, and in making proof of this Agreement
it shall not be necessary to produce or account for more than one such
counterpart. This Agreement may be changed, waived or terminated only
by an instrument in writing signed by the party against whom
enforcement of such change, waiver or termination is sought. This
Agreement is executed and delivered as a sealed instrument, shall be
governed by and interpreted in accordance with the laws of the
Commonwealth of Massachusetts, and represents the entire agreement
between the parties relating to the transactions and arrangements
contemplated hereby.
IN WITNESS WHEREOF, this Agreement has been executed by the Company and the
Consultant as of the date first above written.
CUBIST PHARMACEUTICALS, INC.
By: /s/ John K. Clarke
----------------------------
John K. Clarke, President
____________________________
Paul R. Schimmel
<PAGE>
CUBIST PHARMACEUTICALS, INC.
CONSULTING AGREEMENT
--------------------
This AGREEMENT, made as of the 1st day of May, 1992, is between Cubist
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), and Julius Rebek,
Jr., an individual residing at 100 Memorial Drive, Apt. 5-3A, Cambridge,
Massachusetts 02142 (the "Consultant").
1. Freedom to Contract. The Consultant represents that he is free to
------- -- --------
enter into this Agreement, that he has not made and will not make any agreements
in conflict with this Agreement, and will not disclose to the Company, or use
for the Company's benefit any inventions, trade secrets, or confidential
information which are there property of any other person, now or hereafter in
the Consultant's possession.
2. Consulting Services. The Consultant shall devote his best efforts to
-------------------
such tasks within his field of education and experience as the Company shall
designate and assign to him from time to time during the term of this Agreement.
Consultant will hold himself available for consulting services up to one day per
month or as otherwise mutually agreed upon. The Company acknowledges that the
Consultant holds a full time position as a faculty member of the Massachusetts
Institute of Technology and agrees that the Consultant may enter into consulting
arrangements with other commercial enterprises which may on occasion interfere
or conflict with the Consultant's obligations under this Agreement.
3. Compensation and Expenses. In consideration for all of the promises
-------------------------
made, obligations undertaken and to be performed by the Consultant under this
Agreement, the Company shall pay to the Consultant a consulting fee at a rate of
$2,500 per month. In addition to the foregoing, the Company may reimburse the
Consultant for certain expenses incurred by the Consultant in connection with
the services rendered hereunder, in accordance with such policies limitations,
and requirements as the Company may establish for its consultants form time to
time. Notwithstanding any of the foregoing, the Consultant hereby agrees to
waive any consulting fees that would otherwise be payable pursuant to this
Section 3 to the Consultant during the period commencing on the date hereof and
ending on September 1, 1992.
4. Term. This Agreement shall remain in effect through September 1,
----
1992, and for successive periods of one year thereafter, unless earlier
terminated at any time by either party upon two (2) months' prior written
notice of such termination to the other.
<PAGE>
-2-
5. Inventions. All discoveries, inventions, improvements, ideas, names,
----------
trademarks, and innovations, whether or not patentable or copyrightable
(including all data and records pertaining thereto), whether or not reduced to
writings, drawings, or practice, which the Consultant may invent, discover,
originate, make or conceive, during the term of this Agreement and for a period
of six (6) months thereafter, either alone or with others and whether or not
during working hours or by the use of the facilities of the during working hours
or by the use of the facilities of the Company, and which are related in any
manner to the business or other activities carried on by the Company or any of
its subsidiaries or affiliates shall be the absolute property and are hereby
assigned to the Company ("Inventions"). The Consultant shall promptly and fully
disclose Inventions to the Company, and shall promptly record Inventions in such
form as the Company may request.
The Consultant shall execute, upon the Company's request at any time during
or after the term of this Agreement, and at the Company's expense, any
applications, assignments and other documents that the Company may deem
necessary or desirable to protect or perfect its rights, including any patent
rights in the Inventions, and shall assist the Company, at the Company's
expense, in obtaining, defending, and enforcing its rights therein, all without
further compensation to the Consultant.
6. Confidential Information. The Consultant acknowledge that all
-----------------------
information acquired by the Consultant from the Company, its suppliers,
customers, or others, or developed by the Consultant, during the term of this
Agreement and until such time as such information shall be generally known to
the public (through no fault of the Consultant) and not considered confidential
by the Company, relating directly or indirectly to the present or potential
business of the Company, whether or not such information is reduced to writing
or physical form, including but not limited to ideas, know-how, data, test
results, techniques, processes, procedures, raw material, dealer, supplier and
customer lists, and any capitalization or financial information ("Confidential
Information"), is a valuable, special, and unique asset of the Company and is
further acknowledged to be held in trust by the Consultant for the Company's
sole benefit. The Consultant shall not, at any time during or after the term of
this Agreement, use for himself or others, or disclose or communicate to any
person, firm, corporation, association, or other entity for any reason or
purpose whatsoever, any Confidential Information without the prior written
consent of the Company.
<PAGE>
-3-
7. Termination; Return of Documents. All originals, copies and summaries
--------------------------------
of manuals, memoranda, notes, notebooks, records, reports, plans, drawings and
other documents or items of any kind concerning any matters affecting or
relating to the present or potential business of the company, whether or not
they contain Confidential Information, are and shall continue to be the
Confidential Information, are and shall continue to be the property of the
Company, and all of such documents or items in the actual or potential
possession or control of the Consultant shall be delivered to the Company by the
Consultant immediately upon termination of this Agreement, or at such earlier
time as the Company may request.
8. Agreement Not to Compete. In view of the unique nature and
------------------------
specialized techniques employed in the business of the Company and the need of
the Company to maintain its competitive advantage in the industry through the
protection of its trade secrets and proprietary information, the Consultant
agrees that during the term of this Agreement, the Consultant shall not, within
any foreign or domestic jurisdiction in which the Company conducts or plans to
conduct its business or contemplated business or distributes its products
(determined as of the date of termination of this Agreement), engage in or own
an interest in (except as a holder of 1% or less of the issued and outstanding
capital stock in any company whose stock is publicly traded in the United
States), or be employed by or consult or advise for any entity which engages in
activities in competition with the business or contemplated business of the
Company. These restrictions shall continue for a period of eighteen (18) months
after termination of this Agreement.
The time periods provided for in this section shall be extended for a
period of time equal to any period of time in which the Consultant is in
violation of any provision of this section.
9. Use of Name. The Consultant agrees that the Company shall be entitled
-----------
to use the Consultant's name or likeness in any proposals, reports, promotional
materials or document related to the service to be performed by the Consultant
hereunder.
10. Unique Nature of Agreement; Specific Enforcement. The Company and
------------------------------------------------
Consultant agree and acknowledge that the rights and obligations set forth in
this Agreement are of a unique and special nature and that the Company is,
therefore, without an adequate legal remedy in the event of the Consultant's
violation of the covenants set forth in this Agreement. The Company and
Consultant, therefore, agree that the covenants made by the Consultant under
this Agreement shall be specifically enforceable in equity, in addition to all
other rights and remedies, at law or in equity, that may be available to the
Company.
<PAGE>
-4-
11. Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their such cessors and assigns. This
Agreement may be assigned by the Company to any affiliate of the Company and to
a successor of its business to which this Agreement relates (whether by
purchase or otherwise). The Consultant may not assign or transfer any or all of
his rights or obligations under this Agreement.
12. Disputes. In the event of a dispute touching or concerning this
--------
Agreement, the parties will submit to the exclusive jurisdiction of any court of
competent jurisdiction sitting in Boston, Massachusetts, and will comply with
all requirements necessary to give such court exclusive jurisdiction.
13. Miscellaneous. If any provision or provisions of this Agreement shall
-------------
be held to be unenforceable or inoperative by any court, the remaining
provisions shall be deemed severable and unaffected and shall continue in full
force and effect. This Agreement may be executed in several counter parts, each
of which is an original but all of which shall constitute but one instrument,
and in making proof of this Agreement it shall not be necessary to produce or
account for more than one such counterpart. This Agreement may be changed,
waived or terminated only by an instrument in writing signed by the party
against whom enforcement of such change, waiver or termination is sought. This
Agreement is executed and delivered as a sealed instrument, shall be governed by
and interpreted in accordance with the laws of the Commonwealth of
Massachusetts, and represents the entire agreement between the parties relating
to the transactions and arrangements contemplated hereby.
IN WITNESS WHEREOF, this Agreement has been executed by the Company and the
Consultant as of the date first above written.
CUBIST PHARMACEUTICALS, INC.
By: /s/ John K. Clarke
_____________________________
John K. Clarke, President
________________________________
Julius Rebek, Jr.
<PAGE>
COLLABORATIVE RESEARCH AGREEMENT
This COLLABORATIVE RESEARCH AGREEMENT is entered into as of December 15,
1995 by and between Pfizer Inc ("Pfizer"), a Delaware corporation, having
an office at 235 East 42nd Street, New York, New York 10017 and its
Affiliates, and Cubist Pharmaceuticals, Inc. ("Cubist"), a Delaware
corporation, having an office at 24 Emily Street, Cambridge, MA 02139.
WHEREAS, Cubist has expertise in the biochemistry and molecular biology
of tRNA synthetases from microorganism and human sources; and
WHEREAS, Cubist has the scientific capability and capacity to undertake the
work described in the "Research Plan;" and
WHEREAS, Pfizer has the capability to undertake development of agents for
treatment of infectious disease; and
WHEREAS, Pfizer possesses a library of compounds and is able to determine
the enzyme inhibitory capability of each compound versus Cubist's tRNA
synthetase targets in a "Primary Screening Program;" and
WHEREAS, Pfizer desires to compensate Cubist for access to Cubist
Technology, its costs associated with preparing the tRNA synthetase targets
and conducting a "Secondary Screening Program" and by paying Cubist
additional amounts based on achievement of certain milestones and on
commercial sales;
1
<PAGE>
2
NOW, THEREFORE, the parties agree as follows:
1. Definitions
-----------
Whenever used in this Agreement, the terms defined in this Section 1 shall have
the meanings specified.
1.1 "Affiliate" means any corporation of other legal entity owning,
---------
directly or indirectly, fifty percent (50%) or more of the voting capital shares
or similar voting securities of Pfizer or Cubist; and corporation or other legal
entity fifty percent (50%) or more of the voting capital shares or similar
voting rights of which is owned, directly or indirectly, by Pfizer or Cubist or
any corporation or other legal entity fifty percent (50%) or more of the voting
capital shares or similar voting rights of which is owned, directly or
indirectly, by a corporation or other legal entity which owns, directly or
indirectly, fifty percent (50%) or more of the voting capital shares or similar
voting securities of Pfizer or Cubist.
1.2 "Research Plan" means the written plan describing the research to be
-------------
carried out by Pfizer and Cubist pursuant to this Agreement. The Research Plan
and any amendments to it will be attached to and made a part of this Agreement
as Exhibit 1.
1.3 "Research Program" is the research program conducted by Pfizer and
----------------
Cubist in accordance with the Research Plan to discover and develop new
antibacterial agents for the treatment of disease in human beings.
1.4 "Effective Date" is December 15, 1995.
--------------
1.5 "Contract Period" means the period beginning on the Effective Date and
---------------
ending on the date on which this Agreement terminates.
1.6 "Area" means research or development with respect to Antibacterial
----
Agents useful in the treatment or management of disease states in human beings.
1.7 "Cubist Confidential Information" means all information about any
-------------------------------
element of the Cubist or Joint Technology which is disclosed by Cubist to Pfizer
<PAGE>
3
and designated "Confidential" in writing by Cubist at the time of disclosure to
Pfizer to the extent that such information as of the date of disclosure to
pfizer is not (i) demonstrably known to Pfizer other than by virtue of a prior
confidential disclosure to Pfizer by Cubist; or (ii) disclosed in published
literature, or otherwise generally known to the public through no fault or
omission of Pfizer; or (iii) obtained from a third party free from any
obligation of confidentiality to Cubist.
1.8 "Pfizer Confidential Information" means all information about any
-------------------------------
element of Pfizer or Joint Technology which is disclosed by Pfizer to Cubist and
designated "Confidential" in writing by Pfizer at the time of disclosure to
Cubist to the extent that such information as of the date of disclosure to
Cubist is not (i) demonstrably known to Cubists other than by virtue of a prior
confidential to Cubist by Pfizer; or (ii) disclosed in published literature, or
otherwise generally known to the public through no fault or omission of Cubist;
or (iii) obtained from a third party free from any obligation of confidentiality
to Pfizer.
1.9 "Technology" means and includes all materials, technology, technical
----------
information, know-how, expertise and trade secrets within the Area.
1.10 "Cubist Technology" means Technology that is or was:
-----------------
(a) known and developed by employees of or consultants to Cubist
alone or jointly with third parties prior to the Effective Date; or
(b) acquired by purchase, license, assignment or other means from
third parties by Cubist prior to the Effective Date.
1.11 "Joint Technology" means Technology that is or was:
----------------
(a) developed by employees of or consultants to Pfizer or Cubist
solely or jointly with each other during the Contract Period in connection with
the performance of the Research Program or the Drug Discovery Program
<PAGE>
including, for example, but not by way of limitation, compounds previously
patented by Pfizer which Pfizer elects to develop pursuant to this Agreement; or
(b) acquired by purchase, license, assignment or other means from
third parties by Cubist or Pfizer during the Contract Period for use in the
performance of the Research Program or the Drug Discovery Program.
1.12 "Pfizer Technology" means Technology that is or was:
-----------------
(a) known and developed by employees of or consultants to Pfizer alone
or jointly with third parties prior to the Effective Date; or
(b) acquired by purchase, license, assignment or to other means from
third parties by Pfizer prior to the Effective Date.
1.13 "Patent Rights" means all inventions deemed patentable claiming Joint
-------------
Technology including all the valid claims of patent applications, whether
domestic or foreign, claiming such patentable inventions, including all
provisional applications, continuations, continuations-in-part, divisions, and
renewals, all letters patent granted thereon, and all reissues, reexaminations
and extensions thereof.
1.14 "Product" means an Antibacterial Agent the manufacture, use or sale of
-------
which would infringe Patent Rights in the absence of a license.
1.15 "Antibacterial Agent" means a compound with inhibitory activity
-------------------
against a Program tRNA Synthetase.
1.16 "Program tRNA Synthetases" means *************************************
------------------------
************************************************************************
******************************************************************
1.17 "Hit" means a compound with inhibitory activity against a screened
tRNA Synthetase which Pfizer selects for the Secondary Screening Program or as a
potential starting point for a Drug Discovery Program.
<PAGE>
5
1.18 "Primary Screening Program" means assays conducted at Pfizer as set
-------------------------
forth in Exhibit 1B.
1.19 "Secondary Screening Program" means assays conducted at Cubist as set
---------------------------
forth in Exhibit 1C.
1.20 "Drug Discovery Program" means that program for the development of an
----------------------
Antibacterial Agent the criteria for which are set forth in Exhibit 1D.
1.21 "Net Sales" means the gross amount invoiced by Pfizer and any
---------
sublicensee of Pfizer for sales to a third party or parties of Products, ****
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
*****
1.22 "NDA" means New Drug Application.
---
2. Research and Drug Discovery Programs
------------------------------------
2.1 Purpose. Cubist and Pfizer shall conduct the Research Program and the
-------
Drug Discovery Program, subject to the terms and conditions of this Agreement,
throughout the Contract Period. The objective of the Research and Drug Discovery
Programs is to discover and develop Products.
2.1.1 The Research Program. The Research Program shall proceed as
--------------------
follows:
(a) No later than *********************************************
respectively, after the execution of this Agreement, Cubist will deliver each of
three sets of two tRNA synthetases set forth in Exhibit 1A to Pfizer.
(b) Upon receipt of the six (6) tRNA synthetases, Pfizer shall employ
these tRNA synthetases in screening its compound libraries in a manner
<PAGE>
which in its sole judgment it finds suitable for such purpose; provided,
however, that Pfizer shall have completed such screening, and sent samples of
the Hits to Cubist no later than ******** after receipt of each set of the tRNA
synthetases. After the ******* screening period is completed, Cubist shall have
all rights to the Program tRNA Synthetases that have not yielded Hits.
(c) Within 30 days of receipt of the Hits, Cubist will begin a
Secondary Screening Program with respect to such Hits. The Secondary Screening
Program will be completed and the results reported to Pfizer no later than *
****** after Cubist's receipt of the Hits. After the Secondary Screening Program
is completed for each Hit, Cubist shall have all rights to the Program tRNA
Synthetases except for such tRNA synthetases, if any, that are the primary
target of a compound or compounds which enter a Drug Discovery Program.
2.1.2 The Drug Discovery Program. Upon receipt of the results of the
--------------------------
Secondary Screening Program, Pfizer shall have ******* to designate a compound
or compounds which the Research Committee recommends and Pfizer, in its sole
unfettered discretion deems worthy for development as an Antibacterial Agent or
Agents and to notify Cubist of such designation notification or to notify Cubist
that it will not designate any such compounds. Upon receipt of such notice,
Cubist shall have 30 days to notify Pfizer that Cubist elects or does not elect
to institute a Drug Discovery Program pursuant to the Research Plan if Pfizer
has designated compound for development or, if Pfizer has not designated any
compound for development, to select one compound screened in the Secondary
Screening Program for development by itself or with third parties without
further obligation to Pfizer. If Cubist elects to institute the Drug Discovery
Program, this Agreement shall remain in full force and effect and shall govern
the relationship between the parties with respect to such Antibacterial Agents.
If Cubist does not elect to institute such Drug Development
<PAGE>
Program, Pfizer shall be free to treat such Antibacterial Agents as it sees fit.
In such event, Cubist shall choose either of the payment options set forth in
Section 3.3(b) at the time it declines to institute such Drug Development
Program and Pfizer's sole remaining obligation to Cubist, if any, shall pay the
sums due upon the terms and conditions set forth pursuant to the chosen payment
option in that Section.
2.1.3 Research Plan. The Research Plan for the *********************
-------------
period is described in the attached Exhibit 1. Any amendment to the Research
Plan shall be appended to Exhibit 1 and made part of this Agreement.
2.1.4 Exclusivity.
-----------
(a) Cubist agrees that during the Research Program and in the Area,
neither Cubist nor any of its Affiliates shall engage in any research sponsored
by any third party involving the use of the Program tRNA Synthetases for primary
screening purposes without Pfizer's consent.
(b) During the period of the Drug Discovery Program, whether conducted
by Cubist or Pfizer, Cubist shall likewise refrain from using any Program tRNA
Synthetase for which a Hit has been identified, carried through a Secondary
Screening Program and selected for such Drug Discovery Program in Cubist's own
research or research sponsored by third parties in the Area.
2.2 Research Committee.
------------------
2.2.1 Purpose. Pfizer and Cubist shall establish a Research
-------
Committee (the "Research Committee"):
(a) to evaluate and recommend scientific criteria to be implemented
under the Research Plan;
(b) to evaluate Hits based on the Primary Screening Program and
recommend Hits to enter the Secondary Screening Program;
<PAGE>
8
(c) to evaluate data from the Secondary Screening Program and make a
recommendation to Pfizer to initiate Drug Discovery Program, if warranted;
(d) to review and evaluate progress under the Research Plan;
(e) to prepare amendments to the Research Plan; and
(f) to coordinate and monitor publication of research results obtained
from and the exchange of information and materials that relate to the Research
Program.
2.2.2 Membership. Pfizer and Cubist each shall appoint, in its sole
----------
discretion, three members to the Research Committee. Substitutes may be
appointed at any time.
The members initially shall be:
Pfizer Appointees:
William E. Kohlbrenner, Ph.D.
Manager, Infectious Diseases
Paul R. McGuirk, Ph.D.
Assistant Director, Medicinal Chemistry
Paul M. Sweetnam, Ph.D.
Manager, Drug Pfinder
Cubist Appointees:
Francis P. Tally, M.D.
Vice President, Research & Development
Philip A. Wendler, Ph.D.
Director, Drug Discovery
Susan K. Whoriskey, Ph.D.
Director, Molecular Biology
<PAGE>
2.2.3 Chair. The Research Committee shall be chaired by two
-----
co-chairpersons, one appointed by Pfizer and the other appointed by Cubist.
2.2.4 Meetings. The Research Committee shall meet at least quarterly,
--------
at places and on dates selected by each party in turn. Representatives of Pfizer
or Cubist or both, in addition to members of the Research Committee, may attend
such meetings at the invitation of either party.
2.2.5 Minutes. The Research Committee shall keep accurate minutes of
-------
its deliberations which record all proposed decisions and all actions
recommended or taken. Drafts of the minutes shall be delivered to all Research
Committee members within five (5) business days after each meeting. The party
hosting the meeting shall be responsible for the preparation and circulation of
the draft minutes. Draft minutes shall be edited by the co-chairpersons and
shall be issued in final form only with their approval and agreement.
2.2.6 Decisions. All technical decisions of the Research Committee
---------
shall be made by majority of the members.
2.2.7 Expenses. Pfizer and Cubist shall each bear all expenses of
--------
their respective members related to their participation on the Research
Committee.
2.3 Reports. During the Contract Period, Pfizer and Cubist each shall
-------
furnish to the Research Committee:
(a) summary written reports within fifteen (15) days after the end of
each three-month period commencing on the Effective Date, describing its
progress under the Research Plan or the Drug Discovery Program, as the case may
be; and
(b) comprehensive written reports within thirty (30) days after the
end of each year, describing in detail the work accomplished by it under the
<PAGE>
10
Research Plan or the Drug Discovery Program, as the case may be, and discussing
and evaluating the results of such work.
2.4 Laboratory Facilities and Personnel. Cubist and Pfizer each shall
-----------------------------------
provide suitable laboratory facilities, equipment and personnel for the work to
be done in carrying out the Research Program and the Drug Discovery Program.
2.5 Diligent Efforts. Pfizer and Cubist each shall use reasonably diligent
----------------
efforts to achieve the objectives of the Research Program and the Drug Discovery
Program, if performed by Cubist including without limitation the regulatory
approval, promotion and sale of Products.
3. Payments to Cubist.
------------------
3.1 Receipt of Program Synthetases. Upon receipt of the first set of tRNA
------------------------------
synthetases described in Section 2.1.1(a), Pfizer shall pay Cubist the sum of
********** ***** *** *** ** *********** set forth in Exhibit 3. The parties
acknowledge that the sum set forth in Exhibit 3 is an estimate and that actual
costs may reach **************. Accordingly, Cubist agrees to furnish to Pfizer
invoices and supporting financial documentation evidencing all expenditures
pursuant to Exhibit 3.
3.2 Secondary Screening Program. Within thirty (30) days of the initiation
---------------------------
of a Secondary Screening Program, Pfizer shall pay Cubist the sum of ***********
as set forth in Exhibit 4. The parties acknowledge that the sum set forth in
Exhibit 4 is an estimate and that actual costs may reach **************.
Accordingly, Cubist agrees to furnish to Pfizer invoices and supporting
financial documentation evidencing all expenditure pursuant to Exhibit 4.
3.3 Drug Discovery Program.
----------------------
(a) Discovery Program performed by Cubist. (i) Upon receipt of notice
-------------------------------------
that Cubist elects to perform the Drug Discovery Program, Pfizer shall
<PAGE>
11
execute a Stock Purchase Agreement and shall forward it to Cubist within fifteen
(15) days of the receipt of such notice. In turn, Cubist shall have fifteen (15)
days to execute the Stock Purchase Agreement and to return it to Pfizer. Upon
receipt of the fully executed Stock Purchase Agreement, Pfizer shall, forthwith,
wire transfer the sum ************* to Cubist in accordance with that agreement.
(ii) The purchase price ("Price") of the stock described in the Stock Purchase
Agreement shall be determined as follows: (a) If Cubist's stock is publicly
traded, the price shall ********************************************************
**************************************************************************** of
********************************************************************************
******************************************************************** and (b) If
Cubist's stock is not publicly traded, the price shall be ****** per share on
January 1, 1996 and ****** per share on December 31, 1996 and thereafter
appropriately adjusted for stock splits, reverse splits, combinations or the
like. During 1996, the price shall be pro rated on a daily basis. (iii) In
addition, if the Drug Discovery Program yields a compound which, Pfizer, *******
************************** determines to advance as an Antibacterial Agent,
Pfizer will make the following payments to Cubist on the occurrence of each
event ("Event") set forth below; provided, however, that Pfizer shall be
obligated to make only one payment with respect to each Event affecting an
Antibacterial Agent; and, further provided, that Pfizer may, in its sole,
unfettered discretion discontinue the development of any Antibacterial Agent at
any time irrespective of its scientific or medical merit:
<TABLE>
<CAPTION>
Event Payment
----- -------
<S> <C>
Pfizer Acceptance of Drug Discovery ****************
Program Results
</TABLE>
<PAGE>
12
Evaluation of Safety Data of the First *************
300 Subjects treated with the
Antibacterial Agent
Initiation of Phase III Trials *************
Filing of NDA *************
Approval of NDA *************
All payments made pursuant to this Section shall be credited against the
royalties described below. (iii) If the Antibacterial Agent described above
would in the absence of the license set forth in Section 4.3 infringe Patent
Rights, the royalty paid by Pfizer to Cubist shall be the sum of the Net Sales
in each Tier multiplied by the applicable royalty rate for that Tier:
Annual Net Sales (in $ millions)
--------------------------------
("Tiers") Percentage of Net Sales
--------- -----------------------
***************************************************
****************************************************
******************************************************
********************************************************
(iv) If Pfizer discontinues development of any Antibacterial Agent described in
this Section 3.3(a) for any reason other than results of clinical safety or
toleration studies which Pfizer, in any case, in its sole, unfettered discretion
deems unsatisfactory, or if the U.S. Food and Drug Administration ("FDA") refuse
to grant any approval required for the development of such Agent, Pfizer will,
at Cubist's option, grant to Cubist a worldwide exclusive license in the form
attached as Exhibit 5 to make, use and sell any such Antibacterial Agent under
all
<PAGE>
13
Pfizer's right, title and interest in all Cubist, Pfizer or jointly owned
patents claiming such Agent as well as information reasonably required for
registration with the FDA or equivalent foreign agencies. Cubist will pay a
royalty to Pfizer based on the state of development of each such Antibacterial
Agent as set forth in the chart below:
<TABLE>
<CAPTION>
Royalty
-------
<S> <C>
Pfizer discontinues development at any ****
time prior to completion of Phase I
Pfizer declines entry into Phase II ****
Pfizer declines entry into Phase III ****
Pfizer declines NDA registration *******
**********************************
**************
</TABLE>
If Pfizer discontinues development because of the study results or failure to
obtain FDA approval mentioned above, Pfizer shall be under no obligation to
grant the described license or any other right to Cubist with respect to the
affected Antibacterial Agent.
(b) ************************************************************
------------------------------------------------
********************************************************************************
********************************************************************
<PAGE>
14
****************************************************************************
*******************************************************************
<TABLE>
<CAPTION>
A
-
Event Payment
----- -------
<S> <C>
Initiation of a Pfizer
Discovery Program ***********
Acceptance of a Standard
Pfizer Recommendation
for Development ************
Commencement of Pfizer
Phase I Study ************
Commencement of Pfizer
Phase III Study ************
Pfizer NDA Approved *************
</TABLE>
Pfizer shall pay the sums due within thirty (30) days of the occurrence of an
Event; provided, however, that Pfizer shall be under no obligation whatever to
advance an Antibacterial Agent so that an Event occurs. ************************
**************************************************************************
********************************************************************************
**************************************************************************
****************************************************************************
************************************ In addition to the payments described
above, if Pfizer, in the sole, unfettered discretion, decides to sell such
Antibacterial Agent, Pfizer will pay Cubist **************** of Net Sales or the
Net Sales of
<PAGE>
15
its sublicensees in all countries in which the Antibacterial Agent is patented
during the life of such patents.
<TABLE>
<CAPTION>
B
-
Event Payment
----- -------
<S> <C>
Initiation of a Pfizer
Discovery Program **************
Acceptance of a Standard
Pfizer Recommendation
for Development *************
Commencement of Pfizer
Phase I Study ************
Commencement of Pfizer
Phase III Study *************
Pfizer NDA Filed *************
Pfizer NDA Approved *************
</TABLE>
Pfizer shall pay the sums due within thirty (30) days of the occurrence of an
Event; provided, however, that Pfizer shall be under no obligation whatever to
advance a Antibacterial Agent so that an Event occurs. ************************
************************************************************************
********************************************************************************
*****************************************************************************
************************************************************* If Cubist fails to
make such election, it shall be deemed to have chosen Schedule A. Pfizer shall
make or not make such payments, as the case may be, on the same terms and
conditions set forth in Section 3.3(a)(ii), above.
<PAGE>
16
4. Intellectual Property Rights. The following provisions relate to rights in
----------------------------
the intellectual property developed by Cubist or Pfizer, or both, during the
course of carrying out the Research Program.
4.1 Ownership. All Cubist Confidential Information and Cubist Technology
---------
shall be owned by Cubist. All Pfizer Confidential Information and Pfizer
Technology shall be owned by Pfizer. All Joint Technology shall be owned jointly
by Cubist and Pfizer. All Patent Rights shall be assigned to and owned by
Cubist, Pfizer or jointly by both of them in accordance with their inventorship.
4.2 Grants of Research Licenses. Cubist and Pfizer each grants to the other
---------------------------
a nonexclusive ************** worldwide, royalty-free, ********** license,
including the right to grant sublicenses to Affiliates, to make and use
Confidential Information, Technology and Patent Rights for all research purposes
other than the sale or manufacture for sale of products or processes.
4.3 License Granted to Pfizer under the Patent Rights. Cubist grants to
-------------------------------------------------
Pfizer the exclusive, worldwide license, including the right to grant
sublicenses, to manufacture, use and sell Products under all Cubist's right,
title and interest in the Patent Rights (the "License").
4.4 Term of License Grant and Payment of Royalties. Unless terminated
----------------------------------------------
earlier, the License shall commence on the Effective Date and shall terminate on
the date of the last to expire of the Patent Rights. The License shall also
terminate if (a) no Hits are identified by the Research Committee; or (b) no
compound enters the Drug Discovery Program; or (c) no compound is accepted by
Pfizer in its sole unfettered discretion for advancement for drug development;
or (d) no NDA or foreign equivalent is approved.
4.5 Pfizer Obligations. If Pfizer grants a sublicense pursuant to this
------------------
Section, Pfizer shall guarantee that any sublicense fulfills all of Pfizer's
<PAGE>
17
obligations under the Agreement; provided, however, that Pfizer shall not be
relieved of its obligations pursuant to this Agreement.
4.6 Cubist Obligations. If Cubist declines to conduct a Drug Discovery
------------------
Program, as described in Section 3.3(b), Cubist will provide technical support
to Pfizer to produce the tRNA synthetases designated for the Drug Discovery
Program, at Pfizer's cost.
5. Payments of Royalties, Accounting for Royalties Records.
-------------------------------------------------------
5.1 Royalty Obligation. Pfizer shall pay Cubist a royalty based on the Net
------------------
Sales of each Product. Such royalty shall be paid with respect to each country
of the world from the date of the first commercial sale (the date of the invoice
of Pfizer or any sublicensee of Pfizer with respect to such sale of such Product
in each country until the expiration of the last Patent Right to expire with
respect to each such country and each such Product.
5.2 Payment Dates. Royalties shall be paid by Pfizer on Net Sales within
-------------
sixty (60) days after the end of each calendar quarter in which such Net Sales
are made. Such payments shall be accompanied by a statement showing the Net
Sales of each Product by Pfizer or any sublicensee of Pfizer in each country,
the applicable royalty rate for such Product, and a calculation of the amount of
royalty due.
5.3 Accounting. The Net Sales used for computing the royalties payable to
----------
Cubist by Pfizer shall be computed and paid in U.S. dollars by check or other
mutually acceptable means. For purposes of determining the amount of royalties
due, the amount of Net Sales in any foreign currency shall be computed by (a)
converting such amount into dollars at the prevailing commercial rate of
exchange for purchasing dollars with such foreign currency as quoted by Citibank
in New York on the last business day of the calendar quarter for which
<PAGE>
the relevant royalty payment is to be made by Pfizer and (b) deducting the
amount of any governmental tax, duty, charge, or other fee actually paid in
respect of such conversion into, and remittance of dollars.
5.4 Records. Pfizer shall keep for three (3) years from the date of each
-------
payment of royalties complete and accurate records of sales by Pfizer of each
Product in sufficient detail to allow the accruing royalties to be determined
accurately. Cubist shall have the right for a period of three (3) years after
receiving any report or statement with respect to royalties due and payable to
appoint at its expense an independent certified public accountant reasonably
acceptable to Pfizer to inspect the relevant records of Pfizer to verify such
report or statement. Pfizer shall make its records available for inspection by
such independent certified public accountant during regular business hours at
such place or places where such records are customarily kept, upon reasonable
notice from Cubist, to verify the accuracy of the reports and payments. Such
inspection right shall not be exercised more than once in any calendar year nor
more than once with respect to sales in any given period. Cubist agrees to hold
in strict confidence all information concerning royalty payments and reports,
and all information learned in the course of any audit or inspection, except to
the extent necessary for Cubist to reveal such information in order to enforce
its rights under this Agreement or if disclosure is required by law. The failure
of Cubist to request verification of any report or statement during said
three-year period shall be considered acceptance of the accuracy of such report,
and Pfizer shall have no obligation to maintain records pertaining to such
report or statement beyond said three-year period. The results of each
inspection, if any, shall be binding on both parties.
<PAGE>
19
6. Legal Action.
------------
6.1 Actual or Threatened Disclosure or Infringement. When information comes
-----------------------------------------------
to the attention of Pfizer to the effect that any Patent Rights relating to a
Product have been or are threatened to be unlawfully infringed, Pfizer shall
have the right at its expense to take such action as it may deem necessary to
prosecute or prevent such unlawful infringement, including the right to bring or
defend any suit, action or proceeding involving any such infringement. Pfizer
shall notify Cubist promptly of the receipt of any such information and of the
commencement of any such suit, action or proceeding. If Pfizer determines that
it is necessary or desirable for Cubist to join any such suit, action or
proceeding, Cubist shall, at Pfizer's expense, execute all papers and perform
such other acts as may be reasonably required to permit Pfizer to act in
Cubist's name in which event Pfizer shall hold Cubist free, clear and harmless
from any and all costs of such litigation including attorney's fees. If Pfizer
brings a suit, it shall have the right first to reimburse itself out of any sums
recovered in such suit or in its settlement for all costs and expenses,
including attorney's fees, related to such suit or settlement, *****************
********************************************************************************
********************************************************************************
If Pfizer does not, within one hundred twenty (120) days after giving notice to
Cubist of the above-described information, notify Cubist of Pfizer's intent to
bring suit against any infringer, Cubist shall have the right to bring suit for
such alleged infringement, but it shall not be obligated to do so, and may join
Pfizer as party plaintiff, if appropriate, in which event Cubist shall hold
Pfizer free, clear and harmless from any and all costs and expenses of such
litigation, including attorney's fees, and any sums recovered in any such suit
or in its settlement shall belong to Cubist. ***********************************
****************************************************
<PAGE>
20
*******************************************************************************
*********************************************. Each party shall always have the
right to be represented by counsel of its own selection and at its own expense
in any suit instituted by the other for infringement under the terms of this
Section. If Pfizer lacks standing and Cubist has standing to bring any such
suit, action or proceeding, then Cubist shall do so at the request of Pfizer and
at Pfizer's expense.
7. Defense of Infringement Claims. Cubist will cooperate with Pfizer at Pfizer's
------------------------------
expense in the defense of any suit, action or proceeding against Pfizer or any
sublicensee of Pfizer alleging the infringement of the intellectual property
rights of a third party by reason of the use of Patent Rights in the
manufacture, use or sale of the Product. Pfizer shall give Cubist prompt written
notice of the commencement of any such suit, action or proceeding or claim of
infringement and will furnish Cubist a copy of each communication relating to
the alleged infringement. Cubist shall give to Pfizer all authority (including
the right to exclusive control of the defense of any such suit, action or
proceeding and the exclusive right after consultation with Cubist, to
compromise, litigate, settle or otherwise dispose of any such suit, action or
proceeding), information and assistance necessary to defend or settle any such
suit, action or proceeding; provided, however, Pfizer shall obtain Cubist's
prior consent to such part of any settlement which requires payment or other
action by Cubist or has a material adverse effect on Cubist's business. If the
parties agree that Cubist should institute or join any suit, action or
proceeding pursuant to this Section, Pfizer may, at Pfizer's expense, join
Cubist as a defendant if necessary or desirable, and Cubist shall execute all
documents and take all other actions, including giving
<PAGE>
testimony, which may reasonably be required in connection with the prosecution
of such suit, action or proceeding
8. Treatment of Confidential Information
-------------------------------------
8.1 Confidentiality
---------------
8.1.1 Pfizer and Cubist each recognize that the other's Confidential
Information constitutes highly valuable, confidential information. Subject to
the terms and conditions of the License, the obligations set forth in Section
8.3 and the publication rights set forth in Section 8.2, Pfizer and Cubist each
agree that during the term of this Agreement and for five (5) years thereafter,
it will keep confidential, and will cause its Affiliates to keep confidential,
all Cubist Confidential Information or Pfizer Confidential Information, as the
case may be, that is disclosed to it, or to any of its Affiliates pursuant to
this Agreement. Neither Pfizer nor Cubist nor any of their respective Affiliates
shall use such Confidential Information except as expressly permitted in this
Agreement.
8.1.2 Pfizer and Cubist each agree that any disclosure of the other's
Confidential Information to any officer, employee or agent of the other party or
of any of its Affiliates shall be made only if and to the extent necessary to
carry out its responsibilities under this Agreement and shall be limited to the
maximum extent possible consistent with such responsibilities. Pfizer and Cubist
each agree not to disclose the other's Confidential Information to any third
parties under any circumstance without written permission from the other party.
Each party shall take such action, and shall cause its Affiliates to take such
action, to preserve the confidentiality of each other's Confidential Information
as it would customarily take to preserve the confidentiality of its own
Confidential Information. Each party, upon the other's request, will return all
the Confidential Information disclosed to the other party pursuant to this
Agreement, including all copies and
<PAGE>
22
extracts of documents, within sixty (60) days of the request upon the
termination of this Agreement except for one (1) copy which may be kept for the
purpose of complying with continuing obligations under this Agreement.
8.1.3 Cubist and Pfizer each represent that all of its employees, and
any consultants to such party, participating in the Research Program who shall
have access to Pfizer Technology, Cubist Technology or Joint Technology and
Pfizer Confidential Information and Cubist Confidential Information are bound by
agreement to maintain such information in confidence.
8.2 Publication. Notwithstanding any matter set forth with particularity in
-----------
this Agreement to the contrary, results obtained in the course of the Research
Program may be submitted for publication following scientific review by the
Research Committee and subsequent approval by Cubist's and Pfizer's managements,
which approval shall not be unreasonably withheld. After receipt of the proposed
publication by both Pfizer's and Cubist's managements written approval or
disapproval shall be provided within thirty (30) days for a manuscript, within
fourteen (14) days for an abstract for presentation at, or inclusion in the
proceedings of a scientific meeting, and within fourteen (14) days for a
transcript of an oral presentation to be given at a scientific meeting.
8.3 Publicity. Except as required by law, neither party may disclose the
---------
terms of this Agreement nor the research described in it without the written
consent of the other party, which consent shall not be unreasonably withheld.
8.4 Disclosure of Inventions. Each party shall promptly inform the other
------------------------
about all inventions in the Area that are conceived, made or developed in the
course of carrying out the Research Program or the Drug Discovery Program if
performed by Cubist by employees of, or consultants to, either of them solely,
or jointly with employees of, or consultants to the other.
<PAGE>
23
9. Provisions Concerning the Filing, Prosecution and Maintenance of Patent
-----------------------------------------------------------------------
Rights. The following provisions relate to the filing, prosecution and
- ------
maintenance of Patent Rights during the term of this Agreement:
9.1 Filing, Prosecution and Maintenance by Cubist. With respect to Patent
---------------------------------------------
Rights in which Cubist employees or consultants, alone or together with Pfizer
employees, or consultants are named as inventors, Cubist shall have the
exclusive right and obligation:
(a) to file applications for letters patent on any invention deemed
patentable included in Patent Rights; provided, however, that Cubist shall
consult with Pfizer regarding countries in which such patent applications should
be filed and shall file patent applications in those countries where Pfizer
requests that Cubist file such applications; and, further provided, that Cubist,
at its option and expense, may file in countries where Pfizer does not request
that Cubist file such applications;
(b) to take all reasonable steps to prosecute all pending and new
patent applications included within Patent Rights;
(c) to respond to oppositions, nullity actions, re-examinations,
revocation actions and similar proceedings filed by third parties against the
grant of letters patent for such applications;
(d) to maintain in force any letters patent included in Patent Rights
by duly filing all necessary papers and paying any fees required by the patent
laws of the particular country in which such letters patent were granted; and
(e) to cooperate fully with, and take all necessary actions requested
by, Pfizer in connection with the preparation, prosecution and maintenance of
any letters patent included in Patent Rights.
Cubist shall notify Pfizer in a timely manner of any decision to
abandon a pending patent application or an issued patent included in Patent
Rights.
<PAGE>
24
Thereafter, Pfizer shall have the option, at its expense, of continuing to
prosecute any such pending patent application or of keeping the issued patent in
force:
9.1.1 Copies of Documents. Cubist shall provide to Pfizer copies of
-------------------
all patent applications that are part of Patent rights prior to filing, for the
purpose of obtaining substantive comment of Pfizer patent counsel. Cubist shall
also provide to Pfizer copies of all documents relating to prosecution of all
such patent applications in a timely manner and shall provide to Pfizer every
six (6) months a report detailing their status. Pfizer shall provide to Cubist
every six (6) months a report detailing the status of all patent applications
that are a part of Patent Rights in which Pfizer employees or consultants alone
are named as inventors.
9.1.2 Reimbursement of Costs for Filing Prosecuting and Maintaining
-------------------------------------------------------------
Patent Rights. Within thirty (30) days of receipt of invoices from Cubist,
- -------------
Pfizer shall reimburse Cubist for all the costs of filing, prosecuting,
responding to opposition and maintaining patent applications and patents in
countries where Pfizer requests that patent applications be filed, prosecuted
and maintained. Such reimbursement shall be in addition to Funding Payments.
However, Pfizer may, upon sixty (60) days notice, request that Cubist
discontinue filing or prosecution of patent applications in any country and
discontinue reimbursing Cubist for the costs of filing, prosecuting, responding
to opposition or maintaining such patent application or patent in any country.
Cubist shall pay all costs in those countries in which Pfizer does not request
that Cubist file, prosecute or maintain patent applications and patents, but in
which Cubist, at its option, elects to do so.
9.1.3 Pfizer shall have the right to file on behalf of and as an agent
for Cubist all applications and take all actions necessary to obtain patent
extensions pursuant to 35 USC Section 156 and foreign counterparts for Patent
<PAGE>
25
Rights described in this Section 9.1 licensed to Pfizer. Cubist agrees, to sign,
at Pfizer's expense, such further documents and take such further actions as may
be requested by Pfizer in this regard.
9.2 Filing, Prosecution and Maintenance by Pfizer. With respect to Patent
---------------------------------------------
Rights in which Pfizer employees or consultants alone are named as inventors,
Pfizer shall have those rights and duties ascribed to Cubist in Section 9.1.
9.3 Neither party may disclaim a Valid Claim within Patent Rights without
the consent of the other.
10. Acquisition of Rights from Third Parties. During the Contract Period,
----------------------------------------
Cubist and Pfizer shall each promptly notify each other of any and all
opportunities to acquire in any manner from third parties, technology or patents
or information which may be useful in or may relate to the Research Program or
the Drug Discovery Program, if performed by Cubist. Cubist and Pfizer shall
decide if such rights should be acquired in connection with the Research Program
and, if so, whether by Cubist, Pfizer or both.
11. Sole Agreement. This Agreement is the sole agreement with respect to the
--------------
subject matter and supersedes all other agreements and understandings between
the parties with respect to same.
12. Term, Termination and Disengagement.
-----------------------------------
12.1 Term. Unless sooner terminated or extended, this Agreement shall
----
expire on June 15, 1997.
12.2 Events of Termination. The following events shall constitute events of
---------------------
termination ("Events of Termination"):
<PAGE>
26
(a) any written representation or warranty by Cubist or Pfizer, or
any of its officers, made under or in connection with this Agreement shall prove
to have been incorrect in any material respect when made.
(b) Cubist or Pfizer shall fail in any material respect to perform
or observe any term, covenant or understanding contained in this Agreement or in
any of the other documents or instruments delivered pursuant to, or concurrently
with, this Agreement, and any such failure shall remain unremedied for thirty
(30) days after written notice to the failing party.
12.3 Termination.
-----------
12.3.1 Upon the occurrence of any Event of Termination, the party
not responsible may, by notice to the other party, terminate this Agreement.
12.3.2 If Pfizer terminates this Agreement pursuant to Section
12.3.1, *************************************************. If Cubist terminates
this Agreement pursuant to Section 12.3.1, the License shall terminate
immediately.
12.3.3 ********************************************************
***************************************************************************
*********.
13. Representations and Warranties. Cubist and Pfizer each represents and
------------------------------
warrants as follows:
13.1 It is a corporation duly organized, validly existing and is 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
the conduct of its business or the ownership of its properties requires such
qualification and has all requisite power and authority, corporate or otherwise,
to conduct its business as now being conducted, to own, lease and operate its
properties and to execute, deliver and perform this Agreement.
<PAGE>
27
13.2 The execution, delivery and performance by it of this Agreement have
been duly authorized by all necessary corporate action and do not and will not
(a) require any consent or approval of its stockholders, (b) violate any
provision of any law, rule, regulations, order, writ, judgment, injunctions,
decree, determination award presently in effect having applicability to it or
any provision of its certificate of incorporation or by-laws or (c) result in a
breach of or constitute a default under any material agreement, mortgage, lease,
license, permit or other instrument or obligation to which it is a party or by
which it or its properties may be bound or affected.
13.3 This Agreement is a legal, valid and binding obligation of it
enforceable against it in accordance with its terms and conditions, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws, from time to time in effect,
affecting creditor's rights generally.
13.4 It is not under any obligation to any person, or entity, contractual
or otherwise, that is conflicting or inconsistent in any respect with the terms
of this Agreement or that would impede the diligent and complete fulfillment of
its obligations.
13.5 It has good and marketable title to or valid leases or licenses for,
all of its properties, rights and assets necessary for the fulfillment of its
responsibilities under the Research Program, subject to no claim of any third
party other than the relevant lessors or licensors.
14. Covenants of Cubist and Pfizer Other Than Reporting Requirements.
----------------------------------------------------------------
Throughout the Contract Period, Cubist and Pfizer each shall:
14.1 maintain and preserve its corporate existence, rights, franchises and
privileges in the jurisdiction of its incorporation, and qualify and remain
<PAGE>
28
qualified as a foreign corporation in good standing in each jurisdiction in
which such qualification is from time to time necessary or desirable in view of
their business and operations or the ownership of their properties.
14.2 comply in all material respects with the requirements of all
applicable laws, rules, regulations and orders of any government authority to
the extent necessary to conduct the Research Program, except for those laws,
rules, regulations, and orders it may be contesting in good faith.
15. Indemnification. Pfizer will indemnify Cubist for damages, settlements,
---------------
costs, legal fees and other expenses incurred in connection with a claim against
Cubist based on any action, omission or the manufacture, use or sale of the
Product by Pfizer, its agents or employees related to the obligations of Pfizer
under this Agreement; provided, however, that the foregoing shall not apply (i)
if the claim is found to be based upon the negligence, recklessness or willful
misconduct of Cubist or (ii) if Cubist fails to give Pfizer prompt notice of any
claim it receives and such failure materially prejudices Pfizer with respect to
any claim or action to which Pfizer's obligation pursuant to this Section
applies. Pfizer, in its sole discretion, shall choose legal counsel, shall
control the defense of such claim or action and shall have the right to settle
same on such terms and conditions it deems advisable; provided, however, it
shall obtain Cubist's prior consent to such part of any settlement which
requires payment or other action by Cubist or is likely to have a material
adverse effect on Cubist's business.
16. Notices. All notices shall be in writing mailed via certified mail, return
-------
receipt requested, courier, or facsimile transmission addressed as follow or to
such other address as may be designated from time to time:
<PAGE>
29
If to Pfizer: To Pfizer at its address as set forth at the
beginning of this Agreement.
Attention: President, Central Research
with copy to: Office of the General Counsel.
If to Cubist: Cubist at its address as set forth at the beginning
of this Agreement.
Attention: President
Notices shall be deemed given as of the date received.
17. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York.
18. Miscellaneous.
-------------
18.1 Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties and their respective legal representatives, successors
and permitted assigns.
18.2 Headings. Paragraph headings are inserted for convenience of reference
--------
only and do not form a part of this Agreement.
18.3 Counterparts. This Agreement may be executed simultaneously in two or
------------
more counterparts, each of which shall be deemed an original.
18.4 Amendment, Waiver. This Agreement may be amended, modified, superseded
-----------------
or canceled, and any of the terms may be waived, only by a written instrument
executed by each party or, in the case of waiver, by the party or parties
waiving compliance. The delay or failure of any party at any time or times to
require performance of any provisions shall in no manner affect the rights at a
later time to enforce the same. No waiver by any party of any condition or of
the breach of any term contained in this Agreement, whether by conduct, or
otherwise, in any one or more instances, shall be deemed to be, or
<PAGE>
30
considered as, a further or continuing waiver of any such condition or of the
breach of such term or any other term of this Agreement.
18.5 No Third Party Beneficiaries. No third party including any employee of
----------------------------
any party to this Agreement, shall have or acquire any rights by reason of this
Agreement. Nothing contained in this Agreement shall be deemed to constitute the
parties partners with each other or any third party.
18.6 Assignment and Successors. This Agreement may not be assigned by
-------------------------
either party, except that each party may assign this Agreement and the rights
and interests of such party, in whole or in part, to any of its Affiliates, any
purchaser of all or substantially all of its assets or to any successor
corporation resulting from any merger or consolidation of such party with or
into such corporations.
18.7 Force Majeure. Neither Pfizer nor Cubist shall be liable for failure
-------------
of or delay in performing obligations set forth in this Agreement, and neither
shall be deemed in breach of its obligations, if such failure or delay is due
to natural disasters or any causes reasonably beyond the control of Pfizer or
Cubist.
18.8 Severability. If any provision of this Agreement is or becomes invalid
------------
or is ruled invalid by any court of competent jurisdiction or is deemed
unenforceable, it is the intention of the parties that the remainder of the
Agreement shall not be affected.
<PAGE>
31
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
PFIZER INC
By [signature appears here]
----------------------------
CUBIST PHARMACEUTICALS, INC.
By [signature appears here]
----------------------------
cc: Pfizer Inc, Legal Division, Groton, CT 06340
<PAGE>
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
This COLLABORATIVE RESEARCH AND LICENSE AGREEMENT is entered into as of June 13,
1996 by and between MERCK & CO., INC. ("MERCK"), a New Jersey corporation having
an office at One Merck Drive, Whitehouse Station, New Jersey 08889, and CUBIST
PHARMACEUTICALS, INC. ("CUBIST"), a Delaware corporation having an office at 24
Emily Street, Cambridge, Massachusetts 02139.
WHEREAS, CUBIST has expertise in the biochemistry and molecular biology of tRNA
synthetases from microorganism and human sources; and
WHEREAS, MERCK and CUBIST have the scientific expertise and capacity to
undertake the "COLLABORATION" (as defined in Article 1) contemplated by this
Agreement; and
WHEREAS, MERCK has the capability to undertake development of "ANTI-INFECTIVE
AGENTS" (as defined in Article 1); and
WHEREAS, MERCK possesses libraries of compounds and natural products and desires
to determine the enzyme inhibitory capability of each compound in such library
against CUBIST's tRNA synthetases targets in a "PRIMARY SCREENING PROGRAM" (as
defined in Article 1); and
WHEREAS, MERCK shall compensate CUBIST for access to CUBIST's technology, shall
provide to CUBIST research funding for preparing the
<PAGE>
-2-
tRNA synthetase targets and conducting the RESEARCH PLAN described in Exhibit 2
and shall pay CUBIST additional amounts based on the achievement of certain
milestones and of certain commercial sales of LICENSED PRODUCT(S).
NOW, THEREFORE, in consideration of the foregoing premises and the covenants set
forth below the parties agree as follows:
1.0 DEFINITIONS
Whenever used in this Agreement, the capitalized terms defined in this
Article 1.0 shall have the meanings specified.
1.1 "AFFILIATE" means any corporation or other legal entity owning,
---------
directly or indirectly, more than fifty percent (50%) of the voting
capital shares or similar voting securities of MERCK or CUBIST; any
corporation or other legal entity more than fifty percent (50%) of the
voting capital shares or similar voting rights of which is owned,
directly or indirectly, by MERCK or CUBIST; or any corporation or
other legal entity more than fifty percent (50%) of the voting capital
shares or similar voting rights of which is owned, directly or
indirectly, by a corporation or other legal entity which owns,
directly or indirectly, more than fifty percent (50%) of the voting
capital shares or similar voting securities of MERCK or CUBIST.
<PAGE>
-3-
1.2 "AMINOACYL-tRNA SYNTHETASES" means *********************
--------------------------
1.3 "ANTI-INFECTIVE AGENT" means any compound resulting from the
--------------------
COLLABORATION with inhibitory activity ***********************
1.4 "AREA" means research or development with respect to ANTI-INFECTIVE
----
AGENTS useful in the prevention, treatment or management of any
disease states in human beings, animals or plants.
1.5. "BASE MILESTONE PAYMENT" means that amount calculated pursuant to
----------------------
Section 3.5 hereof.
1.6 "BIOLOGICAL MATERIALS" means any material having a biological
--------------------
activity, including, but not limited to, structural genes, genetic
sequences, promoters, enhancers, probes, linkage probes, vectors,
plasmids, transformed cell lines, bacterial strains, transgenic
animals, proteins and fragments thereof, peptides, biological
modifiers, antigens, antibodies, cell lines, antagonists, agonists,
inhibitors and other biologically active materials.
<PAGE>
-4-
1.7 "COLLABORATION" means the research collaboration to be conducted by
-------------
MERCK and CUBIST pursuant to this Agreement. Exhibit 1 hereto sets
forth a diagram outlining the COLLABORATION.
1.8 "COMPOUND" means any chemical entity or natural product sample that is
--------
identified as a HIT or synthesized in the MEDICINAL CHEMISTRY AND DRUG
DISCOVERY PROGRAM; provided, however, that the term "COMPOUND" shall
-------- -------
not mean or include any RESTRICTED COMPOUND.
1.9 "CONFIDENTIAL INFORMATION" means, collectively, MERCK CONFIDENTIAL
------------------------
INFORMATION and CUBIST CONFIDENTIAL INFORMATION.
1.10 "CUBIST" means CUBIST PHARMACEUTICALS, INC. and its AFFILIATES.
------
1.11 "CUBIST CONFIDENTIAL INFORMATION" means all information which is
-------------------------------
disclosed by CUBIST to MERCK, either orally or in writing, in the
course of the COLLABORATION to the extent that such information as of
the date of disclosure to MERCK is not (i) known to MERCK (as
evidenced in its records) other than by virtue of a prior confidential
disclosure to MERCK by CUBIST; or (ii) disclosed in published
literature, or otherwise generally available to the public
<PAGE>
-5-
through no fault or omission of MERCK; or (iii) obtained from a third-
party free from any obligation of confidentiality to CUBIST; or (iv)
developed by MERCK (as evidenced in writing) independent of the CUBIST
CONFIDENTIAL INFORMATION.
1.12 "CUBIST INTELLECTUAL PROPERTY" means any and all knowledge, KNOW-HOW,
----------------------------
BIOLOGICAL MATERIALS, techniques, inventions, improvements and/or
discoveries, whether or not patentable, copyrightable or subject to
trademark protection and in whatever form kept, (i) which are
conceived, created, originated and/or first reduced to practice
pursuant to the COLLABORATION solely by CUBIST personnel or in which
CUBIST has or acquires, pursuant to the COLLABORATION, ownership
rights or a licensable interest that are or is not held jointly with
MERCK and (ii) which are necessary or useful in discovering,
developing, manufacturing, registering or marketing LICENSED PRODUCTS.
1.13 "DRUG DEVELOPMENT PROGRAM" means that program *************
------------------------
for all pre-clinical and clinical development and regulatory
filings leading to commercialization of ANTI-INFECTIVE AGENTS.
1.14 "EFFECTIVE DATE" is June 13, 1996.
--------------
<PAGE>
-6-
1.15 "HIT" means any compound in the MERCK COMPOUND LIBRARY which, in the
---
course of the PRIMARY SCREENING PROGRAM, is shown to meet the criteria
for inhibitory activity against a PROGRAM tRNA SYNTHETASE, as such
criteria is set forth in the RESEARCH PLAN.
1.16 "IND" means an Investigational New Drug application filed with the
---
United States Food and Drug Administration ("FDA"), or its equivalent
or any corresponding application filed in any country other than the
United States.
1.17 "INTELLECTUAL PROPERTY" means, collectively, the MERCK INTELLECTUAL
---------------------
PROPERTY, CUBIST INTELLECTUAL PROPERTY, JOINT INTELLECTUAL PROPERTY,
PATENT RIGHTS AND THIRD PARTY INTELLECTUAL PROPERTY.
1.18 "JOINT INTELLECTUAL PROPERTY" means any and all knowledge, KNOW-HOW,
---------------------------
BIOLOGICAL MATERIALS, techniques, inventions, improvements and/or
discoveries, whether or not patentable, copyrightable or subject to
trademark protection and in whatever form kept, which are conceived,
created, originated and/or first reduced to practice jointly by CUBIST
and MERCK personnel pursuant to the COLLABORATION or in which, during
the course of the
<PAGE>
-7-
COLLABORATION, CUBIST and MERCK otherwise acquire joint ownership
rights pursuant to applicable provisions of U.S. law concerning rights
of inventorship.
1.19 "KNOW-HOW" means all information and data not generally known, (i)
--------
which are in the possession of or available to MERCK or CUBIST,
currently or during the term of this Agreement and any future
agreements regarding LICENSED PRODUCTS, or in which MERCK and/or
CUBIST have ownership rights or a licensable interest, and (ii) which
are necessary or useful in discovering, developing, manufacturing,
registering or marketing LICENSED PRODUCTS.
1.20 "LICENSE" shall have the meaning ascribed to it in Section 5.2.
-------
1.21 "LICENSED PRODUCT" means any product that contains a COMPOUND.
----------------
1.22 "MEDICINAL CHEMISTRY AND DRUG DISCOVERY PROGRAM" means that program
----------------------------------------------
conducted for *************** the discovery and characterization of a
SAFETY ASSESSMENT CANDIDATE.
<PAGE>
-8-
1.23 "MEDICINAL CHEMISTRY NOTICE" shall have the meaning ascribed to it in
--------------------------
Section 2.1.2.
1.24 "MERCK" means MERCK & CO., INC. and its AFFILIATES.
-----
1.25 "MERCK COMPOUND LIBRARY" OR "MERCK COMPOUNDS" means those chemical
-------------------------------------------
libraries or compounds owned or licensed by, or in the possession or
control of, MERCK and composed of natural products, combinatorial
chemistry libraries and synthetic sample collections.
1.26 "MERCK CONFIDENTIAL INFORMATION" means all information which is
------------------------------
disclosed by MERCK to CUBIST, either orally or in writing, in the
course of the COLLABORATION to the extent that such information as of
the date of disclosure to CUBIST is not (i) known to CUBIST (as
evidenced in its records) other than by virtue of a prior confidential
disclosure to CUBIST by MERCK; or (ii) disclosed in published
literature, or otherwise generally known to the public through no
fault or omission of CUBIST; or (iii) obtained from a third party free
from any obligation of confidentiality to MERCK; or (iv) developed by
CUBIST (as evidenced in writing) independent of the MERCK CONFIDENTIAL
INFORMATION.
<PAGE>
-9-
1.27 "MERCK INTELLECTUAL PROPERTY" means any and all knowledge, KNOW-HOW,
BIOLOGICAL MATERIALS, techniques, inventions, improvements and/or
discoveries, whether or not patentable, copyrightable or subject to
trademark protection and in whatever form kept, which are conceived,
created, originated and/or first reduced to practice solely by MERCK
personnel or in which MERCK has ownership rights or a licensable
interest that are or is not held jointly with CUBIST.
1.28 "NDA" means a New Drug Application filed with the United States FDA,
---
or its equivalent or any corresponding application filed in any
country other than the United States.
1.29 "NET SALES" means the gross invoice price of LICENSED PRODUCT(S) sold
---------
by MERCK or its sublicensees to an independent third party after
deducting, if not already deducted in the amount invoiced:
A. *************************************************************
**********************************************************
*************************************
B. *********************************************************
******************************************************
<PAGE>
-10-
C. ************************************
D. ****************************************************************
**************************************************************
*******************************
1.30 "PATENT CLAIM" means a claim of an unexpired patent or a patent
------------
application included in the PATENT RIGHTS.
1.31 "PATENT RIGHTS" means all U.S. provisional, non-provisional,
-------------
continuation, continuation-in-part, divisional, reissue and re-
examination patent applications claiming INTELLECTUAL PROPERTY; all
patents issued from the aforementioned U.S. patent applications; and
foreign patent applications, patents, patents of addition, inventor's
certificates, utility models and other forms of protection granted or
issued by foreign countries or regional authorities (e.g., European
Patent Office) containing one or more claims which cover subject
matter in the aforementioned U.S. patent applications.
1.32 "PRIMARY AND SECONDARY SCREENING PROGRAM PAYMENT" means the payment
--------------------------------------- -------
set forth in Section 3.3 hereof.
<PAGE>
-11-
1.33 "PRIMARY SCREENING MODULE PAYMENTS" means the payments set forth in
---------------------------------
Section 3.2 hereof.
1.34 "PRIMARY SCREENING MODULES" means cloned, expressed, purified and
-------------------------
active PROGRAM tRNA SYNTHETASES and the requisite methodologies and
protocols sufficient to enable CUBIST and MERCK to perform the PRIMARY
SCREENING PROGRAM.
1.35 "PRIMARY SCREENING PROGRAM" means assays described as primary screens
-------------------------
conducted at CUBIST and MERCK as set forth in the RESEARCH PLAN (as
set forth in Exhibit 2).
1.36 "PROGRAM tRNA SYNTHETASES" means ******************************
------------------------
********************************************************************
*******************************************************************
*********************************************** to be used in the
PRIMARY SCREENING PROGRAM, subject to substitution pursuant to
Section 2.1.1(b)(iii)
1.37 "RESEARCH COMMITTEE" shall have the meaning ascribed to it in Section
------------------
2.2.
1.38 "RESEARCH PLAN" means that plan set forth in Exhibit 2 containing the
-------------
PRIMARY SCREENING PROGRAM and the SECONDARY SCREENING PROGRAM, as such
plan may be
<PAGE>
-12-
modified or supplemented by the RESEARCH COMMITTEE pursuant to this
Agreement.
1.39 "RESTRICTED COMPOUND" means ***************************************
-------------------
*******************************************************************
*******************************************************************
*******************************************************************
*******************************************************************
1.40 "SAFETY ASSESSMENT CANDIDATE" means a compound with a scientific data
---------------------------
package that is evaluated and approved by the MERCK Research
Management Committee for initiation of formal toxicology studies.
1.41 "SECONDARY SCREENING PROGRAM" means assays described as secondary
---------------------------
screens and tertiary screens conducted at CUBIST and MERCK as set
forth in the RESEARCH PLAN.
1.42 "TECHNOLOGY ACCESS FEE" means the fee payment provided for in Section
---------------------
3.1 hereof.
<PAGE>
-13-
1.43 "TERM" shall have the meaning ascribed to it in Section 11.1 of this
----
Agreement.
1.44 "THIRD PARTY INTELLECTUAL PROPERTY" means any and all knowledge,
---------------------------------
KNOW-HOW, BIOLOGICAL MATERIALS, techniques, inventions, improvements,
and/or discoveries, whether or not patentable, copyrightable or
subject to trademark protection and in whatever form kept, which are
conceived, created, originated and/or first reduced to practice by any
third party or parties and are necessary or useful in discovering,
developing, manufacturing, registering or marketing LICENSED PRODUCTS,
and in which MERCK and/or CUBIST have a licensable interest.
1.45 "UNIQUE COMPOUND" means, ********************************************
---------------
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
<PAGE>
-14-
2.0 RESEARCH PLAN AND DRUG DEVELOPMENT PROGRAM
2.1 Purpose. The objective of the RESEARCH PLAN, the MEDICINAL CHEMISTRY
-------
AND DRUG DISCOVERY PROGRAM and the DRUG DEVELOPMENT PROGRAM is to
discover, develop and commercialize LICENSED PRODUCTS.
2.1.1 The Screening Program. The PRIMARY SCREENING PROGRAM and the
---------------------
SECONDARY SCREENING PROGRAM shall proceed as follows:
(a) Production of Screening Modules No later than ************
after the EFFECTIVE DATE, CUBIST shall complete production
of the three PRIMARY SCREENING MODULES set forth in the
RESEARCH PLAN.
(b) PRIMARY SCREENING PROGRAM
i) Upon completion of the production of the three
PRIMARY SCREENING MODULES, CUBIST and MERCK shall
employ these PRIMARY SCREENING MODULES in a PRIMARY
SCREENING PROGRAM to screen the MERCK COMPOUND
LIBRARIES in a manner which, in the sole judgment of
the RESEARCH
<PAGE>
-15-
COMMITTEE, is suitable for such purpose; provided,
however, that CUBIST shall have completed the
PRIMARY SCREENING PROGRAM to identify HITS, in a
diligent manner, no later than ************** after
CUBIST's receipt of each set of the MERCK COMPOUND
LIBRARIES. All such samples from the MERCK COMPOUND
LIBRARIES shall be provided to CUBIST in coded form.
It is understood that this timeline is based on
CUBIST performing up to ********* assays using the
MERCK COMPOUND LIBRARIES in the PRIMARY SCREENING
PROGRAM; therefore, if additional samples are
screened, the timeline will be reviewed and
additional agreed upon time will be granted to
CUBIST by MERCK.
ii) ****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
<PAGE>
-16-
iii) During the PRIMARY RESEARCH PROGRAM, the RESEARCH
COMMITTEE of xxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
<PAGE>
-17-
********************************************************
********************************************************
********************************************************
********************************************************
********************************************************
********************************************************
********************************************************
********************************************************
********************************************************
********************************************************
(c) SECONDARY SCREENING PROGRAM
i) ************************************************
********************************* CUBIST will begin
a
<PAGE>
-18-
SECONDARY SCREENING PROGRAM with respect to such
HITS. The SECONDARY SCREENING PROGRAM will be
completed in a diligent manner, and, with respect to
each HIT, the results of such SECONDARY SCREENING
PROGRAM will be reported to MERCK ***************
*************************************************
ii) **************************************************
**************************************************
**************************************************
**************************************************
**************************************************
iii) It is understood that if during the course of
conducting the SECONDARY SCREENING PROGRAM, a HIT is
characterized that
<PAGE>
-19-
the RESEARCH COMMITTEE has the option of selecting
that specific HIT to enter a MEDICINAL CHEMISTRY AND
DRUG DISCOVERY PROGRAM.
2.1.2 The Medicinal Chemistry And Drug Discovery Program. *******
--------------------------------------------------
************************************************************
******************** the RESEARCH COMMITTEE shall promptly
designate a HIT or HITS which it recommends for further
evaluation as an ANTI-INFECTIVE AGENT or AGENTS in a MEDICINAL
CHEMISTRY AND DRUG DISCOVERY PROGRAM and shall notify CUBIST
and MERCK of such designation (the "MEDICINAL CHEMISTRY
NOTICE"). Subject to Sections 2.1.3(i) or 2.1.3(ii) hereof, as
applicable, CUBIST shall conduct the medicinal chemistry
activities during the course of the MEDICINAL CHEMISTRY AND
DRUG DISCOVERY PROGRAM. Subject to Section 2.1.3 and within
thirty (30) days of its receipt of the MEDICINAL CHEMISTRY
NOTICE, MERCK shall reveal to CUBIST the identity and chemical
structure of the HIT being developed, provided however, MERCK
shall not be obligated to make such disclosure if CUBIST
elects, pursuant to 2.1.3(i), not to pursue the MEDICINAL
CHEMISTRY AND DRUG DISCOVERY PROGRAM.
<PAGE>
-20-
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
<PAGE>
-21-
2.1.3 Party Responsible for the Medicinal Chemistry And Drug
------------------------------------------------------
Discovery Program.
-----------------
*****************************************************************
*****************************************************************
*****************************************************************
*****************************************************************
*****************************************************************
*****************************************************************
*****************************************************************
*****************************************************************
*****************************************************************
*****************************************************************
<PAGE>
-22-
*******************************************************************************
*******************************************************************************
*******************************************************************************
*******************************************************************************
*******************************************************************************
*******************************************************************************
*******************************************************************************
*******************************************************************************
*******************************************************************************
*******************************************************************************
<PAGE>
-23-
**************************************************************
**************************************************************
**************************************************************
**************************************************************
**************************************************************
2.1.4 Drug Development Program.
------------------------
**************************************************************
**************************************************************
**************************************************************
**************************************************************
**************************************************************
<PAGE>
-20-
***********************************************************
***********************************************************
***********************************************************
***********************************************************
***********************************************************
***********************************************************
***********************************************************
2.2 Research Committee.
------------------
2.2.1 Purpose. MERCK and CUBIST shall establish a RESEARCH COMMITTEE
-------
(the "RESEARCH COMMITTEE"):
(a) to evaluate, recommend and modify scientific criteria to
be implemented under the PRIMARY and SECONDARY SCREENING
PROGRAMS;
(b) to prioritize HITS based on the PRIMARY SCREENING PROGRAM
and identify specific HITS to enter the SECONDARY
SCREENING PROGRAM;
(c) to evaluate data from the SECONDARY SCREENING PROGRAM and
make a recommendation to MERCK and CUBIST to initiate a
MEDICINAL CHEMISTRY AND DRUG DISCOVERY PROGRAM;
<PAGE>
-25-
(d) to review and evaluate progress under the PRIMARY and
SECONDARY SCREENING PROGRAMS; and
(e) to prepare amendments to the PRIMARY and SECONDARY
SCREENING PROGRAMS, as necessary.
2.2.2 Membership. MERCK and CUBIST each shall appoint, in its sole
----------
discretion, three members to the RESEARCH COMMITTEE.
Substitutes for such appointees may be appointed at any time by
MERCK or CUBIST, as appropriate. The members initially shall
be:
MERCK Appointees: John Kozarich, James Heck and
[_______]
CUBIST Appointees: Arthur F. Kluge, Philip Wendler
and Susan Whoriskey
2.2.3 Chair. The RESEARCH COMMITTEE shall be chaired by two co-
-----
chairpersons, one appointed by MERCK and the other appointed by
CUBIST, each selected from the RESEARCH COMMITTEE membership.
<PAGE>
-26-
2.2.4 Meetings. The RESEARCH COMMITTEE shall meet at such times and
--------
in such places as the parties deem appropriate, provided that
the RESEARCH COMMITTEE shall meet at least semi-annually until
the earlier of (a) the commencement of the DRUG DEVELOPMENT
PROGRAM or (b) the exercise by CUBIST of its election pursuant
to Section 2.1.3(i)(A). or 2.1.3(i)(B). Representatives of
MERCK or CUBIST or both, in addition to members of the RESEARCH
COMMITTEE, may attend such meetings at the invitation of either
party.
2.2.5 Minutes. The RESEARCH COMMITTEE shall keep accurate and
-------
complete minutes of its deliberations which record all proposed
decisions and all actions recommended or taken. Drafts of the
minutes shall be prepared in accordance with such procedures as
the RESEARCH COMMITTEE shall determine, and copies of such
drafts shall be delivered to all RESEARCH COMMITTEE members.
Draft minutes shall be edited by the co-chairpersons and shall
be issued in final form only with the approval and agreement of
the co-chairpersons.
2.2.6 Decisions. All decisions of the RESEARCH COMMITTEE shall be
---------
made by a majority of the
<PAGE>
-27-
members. In the event the RESEARCH COMMITTEE is unable to
achieve a majority with respect to any such decision, the
President of CUBIST, acting as a duly authorized representative
of CUBIST, and the Executive Vice President of Merck Research
Laboratories, acting as a duly authorized representative of
MERCK, shall discuss the matter and attempt, in good faith, to
reach agreement with respect to such decision. In the event
that the President of Cubist and the Executive Vice President
of Merck Research Laboratories shall be unable to reach
agreement, MERCK shall, in its sole discretion, make the final
decision.
2.2.7 Expenses. MERCK and CUBIST shall each bear all expenses of
--------
their respective members related to their participation on the
RESEARCH COMMITTEE.
2.3 Reports. During the PRIMARY SCREENING PROGRAM, the SECONDARY
-------
SCREENING PROGRAM and the MEDICINAL CHEMISTRY AND DRUG DISCOVERY
PROGRAM (but, in the case of the MEDICINAL CHEMISTRY AND DRUG
DISCOVERY PROGRAM, only to the extent that CUBIST has not exercised
its rights under Section 2.1.3(i) hereof), MERCK and CUBIST each shall
furnish to the RESEARCH COMMITTEE summary written reports within
fifteen (15)
<PAGE>
-28-
days after the end of each quarter commencing on the
EFFECTIVE DATE, which written reports shall provide all screening data
and describe progress under the PRIMARY SCREENING PROGRAM, the
SECONDARY SCREENING PROGRAM or the MEDICINAL CHEMISTRY AND DRUG
DISCOVERY PROGRAM, as the case may be.
2.4 Laboratory Facilities and Personnel. CUBIST and MERCK each shall
-----------------------------------
provide suitable laboratory facilities, equipment and personnel for
the work to be done in carrying out the PRIMARY SCREENING PROGRAM, the
SECONDARY SCREENING PROGRAM and the MEDICINAL CHEMISTRY AND DRUG
DISCOVERY PROGRAM.
2.5 Diligent Efforts. MERCK shall use reasonably diligent efforts,
----------------
consistent with its overall research, development and business
objectives, to discover, develop and market LICENSED PRODUCTS in all
countries where MERCK determines that it is commercially viable to do
so.
2.6 Biological Materials, Merck Compound Library And Information
-------------------------------------------------------------
2.6.1 All compounds provided by MERCK hereunder shall: (1) be
distributed only to CUBIST employees who have a need to receive
such compounds to carry out the
<PAGE>
-29
terms of this Agreement; (2) be used solely for purposes
expressly set forth in this Agreement; (3) be returned to MERCK
upon MERCK's request and (4) not be disclosed or distributed to
any third party without the prior written consent of MERCK.
2.6.2 BIOLOGICAL MATERIALS transmitted to MERCK by CUBIST shall: (1)
be distributed only to MERCK employees who have a need to
receive them to carry out the terms of this Agreement; (2) be
used solely for purposes expressly set forth in this Agreement;
(3) be returned promptly to CUBIST upon CUBIST's request and
(4) not be disclosed or distributed to any third party without
the prior written consent of CUBIST.
2.6.3 Either party to this Agreement may use any information
generated by the other party in conducting research and/or
development pursuant to this Agreement for any purpose
expressly set forth in this Agreement, including the use in
obtaining or defending its patents.
3.0 PAYMENTS TO CUBIST
3.1 Technology Access Fee. Within thirty (30) days of the EFFECTIVE DATE,
---------------------
MERCK will pay CUBIST the sum of
<PAGE>
-30-
********** as a TECHNOLOGY ACCESS FEE to enter into this Agreement.
The funds shall be wired to a bank account specified by CUBIST on the
EFFECTIVE DATE.
3.2 Primary Screening Module Payment. Within thirty (30) days of the
--------------------------------
EFFECTIVE DATE, MERCK will pay CUBIST ********** for the purpose of
providing funding to CUBIST for providing and supplying the PRIMARY
SCREENING MODULES.
3.3. Primary and Secondary Screening Program Payment. MERCK will pay
-----------------------------------------------
CUBIST *************** for the purpose of providing funding to CUBIST
for conducting the PRIMARY AND SECONDARY SCREENING PROGRAMS. It is
understood that such payment is based on CUBIST conducting **********
assays in the PRIMARY SCREENING PROGRAM. Therefore, if MERCK elects
to conduct or have conducted additional assays, the costs of such
additional assays will be negotiated in good faith by the parties.
All PRIMARY AND SECONDARY SCREENING PROGRAM PAYMENTS shall be paid by
MERCK to CUBIST within thirty (30) days following MERCK's receipt of a
quarterly invoice from CUBIST.
3.4 Screening Program Milestones. Subject to the limitations otherwise
----------------------------
set forth below in this Article 3, MERCK will pay
<PAGE>
-31-
CUBIST ********** scientific milestone payment upon the successful
completion of a SECONDARY SCREENING PROGRAM that yields a compound
that satisfies the criteria outlined in the RESEARCH PLAN attached
hereto as Exhibit 2. This *********** scientific milestone payment
---------
shall be payable only upon the initial achievement of such milestone
and no amounts shall be due hereunder for subsequent or repeated
achievement of such milestone. Any payments pursuant to this Section
3.4 shall be wired to a bank account specified by CUBIST within thirty
(30) days following MERCK's receipt of the SECONDARY SCREENING PROGRAM
profiling results meeting the above-referenced scientific criteria.
3.5 Drug Development Milestones and Royalties. If the MEDICINAL CHEMISTRY
-----------------------------------------
AND DRUG DISCOVERY PROGRAM yields a SAFETY ASSESSMENT CANDIDATE which
MERCK, in its sole discretion, determines to advance to a DRUG
DEVELOPMENT PROGRAM, MERCK will make BASE MILESTONE PAYMENTS to CUBIST
with respect to each milestone set forth in the table below
("MILESTONE"), as follows:
i) Compounds First to Achieve a Milestone. With respect only to
--------------------------------------
each COMPOUND that is the first COMPOUND to achieve a given
MILESTONE, MERCK shall pay to
<PAGE>
-32-
CUBIST a BASE MILESTONE PAYMENT equal to ******************* of
the amount set forth in the table below (the "MILESTONE TABLE")
corresponding to such MILESTONE, *****************************
******************************************
ii) Successor Compounds: The Second, Third and Fourth Compounds.
-----------------------------------------------------------
(a) Second Compound. With respect to each COMPOUND that is the
---------------
second UNIQUE COMPOUND to achieve a given MILESTONE, MERCK
shall pay to CUBIST a BASE MILESTONE PAYMENT equal to
************************** of the amount set forth in the
MILESTONE TABLE corresponding to such MILESTONE, ********
******************************************************
***********
(b) Third Compound. With respect to each COMPOUND that is the
--------------
third UNIQUE COMPOUND to achieve a given MILESTONE, MERCK
shall pay to CUBIST a BASE MILESTONE PAYMENT equal to
******************* of the amount set forth in the
MILESTONE TABLE corresponding to such
<PAGE>
-33-
MILESTONE, ***********************************************
**************************
(c) Fourth Compound. With respect to each COMPOUND that is the
---------------
fourth UNIQUE COMPOUND to achieve a given MILESTONE, MERCK
shall pay to CUBIST a BASE MILESTONE PAYMENT equal to
************************* of the amount set forth in the
MILESTONE TABLE corresponding to such MILESTONE, ********
*****************************************************
***********
iii) No Other Base Milestone Payments. Except as expressly provided
--------------------------------
in subsections (i) and (ii) of this Section 3.5, MERCK shall not
be required to pay to CUBIST any BASE MILESTONE PAYMENTS for any
COMPOUNDS that may achieve a MILESTONE.
MILESTONE TABLE
<TABLE>
<CAPTION>
Base Milestone
--------------
Milestone Payment ($)
--------- -----------
<S> <C>
Approval of SAFETY ASSESSMENT CANDIDATE
by MERCK's Research Management *********
Committee
Initiation of Phase II Clinical Trials *********
Initiation of Phase III Clinical Trials *********
</TABLE>
<PAGE>
-34-
<TABLE>
<S> <C>
Filing of NDA *********
Approval of NDA *********
</TABLE>
All BASE MILESTONE PAYMENTS required to be made by MERCK under this
Section 3.5 shall be made within thirty (30) days of MERCK's receipt
of written notice of the achievement of a MILESTONE by the applicable
COMPOUND. MERCK shall be obligated to make the BASE MILESTONE
PAYMENTS required under this Section 3.5 upon the achievement of a
MILESTONE by the applicable COMPOUND, regardless of whether the
development of such COMPOUND is discontinued at any time after the
achievement of such MILESTONE. Subject to Sections 3.6 and 3.7
hereof, *************************************************************
********************************************************************
*********************************************************************
******************* post-NDA approval in the United States.
In addition to the BASE MILESTONE PAYMENTS that MERCK is required to
make pursuant to the foregoing provisions of this Section 3.5, MERCK
shall pay royalties to CUBIST for all LICENSED PRODUCTS, which
royalties shall be equal to the sum of the worldwide annual NET SALES
for all LICENSED PRODUCTS multiplied by the applicable royalty rate:
<PAGE>
-35-
<TABLE>
<CAPTION>
Annual Net Sales (in millions) ("Tiers") Percentage Of Net Sales
---------------------------------------- -----------------------
<S> <C>
********************* ***********************
********************* ***********************
********************* ***********************
</TABLE>
3.6 **********************************************************************
----------------------------------------------------------------------
*********************************************************************
----------------------
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
***************************
3.7 *********************************************************************
-------------------------------------------------------------------
*********************************************************************
----------------------
***************************
<PAGE>
-36-
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
4.0 PAYMENTS OF ROYALTIES; ACCOUNTING FOR ROYALTIES; AND RECORDS
4.1 Payment Term. MERCK shall pay CUBIST a royalty based on the aggregate
------------
NET SALES of all LICENSED PRODUCTS. Such royalty shall be paid (as
determined in Section 3.5 hereof), with respect to NET SALES in each
country of the
<PAGE>
-37-
world where a LICENSED PRODUCT is sold, from the date of the first
commercial sale (the date of the invoice of MERCK or a sublicensee of
MERCK with respect to such sale) of such LICENSED PRODUCT in such
country and continuing until the expiration of the term of the LICENSE
with respect to such country pursuant to Section 5.3 hereof.
4.2 Payment Dates. Royalties shall be paid by MERCK on NET SALES within
-------------
forty-five (45) days after the end of each calendar quarter in which
such NET SALES are made. Such payments shall be accompanied by a
statement showing all relevant sales information including the
information employed to calculate NET SALES of each LICENSED PRODUCT
by MERCK and every sublicensee of MERCK in each country, the
applicable royalty rate for such LICENSED PRODUCT, and a calculation
of the amount of royalty due.
4.3 Accounting. The NET SALES used for computing the royalties payable to
----------
CUBIST by MERCK shall be computed and paid in U.S. dollars by wire or
other mutually acceptable means. ********************************
******************************************************************
******************************************************************
******************************************************************
***********************************************************
<PAGE>
-38-
******************************************************************
**************
4.4 Records. MERCK shall keep for a period of three (3) years from the
-------
date of each payment of royalties complete and accurate records of
sales and all other information necessary to calculate NET SALES of
each LICENSED PRODUCT in sufficient detail to allow the accrued
royalties to be determined accurately. CUBIST shall have the right to
cause an independent, certified public accountant to audit such
records to confirm MERCK's or MERCK sublicensee's NET SALES and
royalty payments for any year; provided, however, that such auditor
-------- -------
shall not disclose MERCK's CONFIDENTIAL INFORMATION to CUBIST. Such
audits may be exercised once a year, within three (3) years after the
royalty period to which such records relate, upon notice from CUBIST
to MERCK and during normal business hours. CUBIST shall bear the full
cost of such audit unless such audit discloses a variance of more than
five percent (5%) from the amount of the NET SALES or royalties. In
such case, MERCK shall bear the full cost of such audit. MERCK shall
include in each sublicense granted by it pursuant to this Agreement a
provision requiring the sublicensee to make reports to MERCK, to keep
and maintain records of sales made pursuant to such sublicense and to
grant access to such records by CUBIST's independent accountant to the
same
<PAGE>
-39-
extent required by MERCK under this Agreement. Upon the expiration of
three (3) years following the end of any year, the calculation of
royalties payable with respect to such year shall be binding and
conclusive upon CUBIST, and MERCK and its sublicensee shall be
released from any liability or accountability with respect to
royalties for such year. The terms of this Section 4.4 shall survive
any termination or expiration of this Agreement for a period of three
(3) years.
5.0 INTELLECTUAL PROPERTY RIGHTS AND MERCK LICENSE
5.1 Ownership. All CUBIST INTELLECTUAL PROPERTY shall be owned by CUBIST.
---------
All MERCK INTELLECTUAL PROPERTY shall be owned by MERCK. All JOINT
INTELLECTUAL PROPERTY shall be owned jointly by CUBIST and MERCK. All
rights of inventorship shall be determined in accordance with U.S.
law.
5.2 License Grant. CUBIST grants to MERCK an exclusive, worldwide
-------------
royalty-bearing license, including the right to grant sublicenses, to
make, have made, use, offer for sale, sell, have sold and import
LICENSED PRODUCTS in the AREA under all of CUBIST's licensable rights
in the INTELLECTUAL PROPERTY and PATENT RIGHTS (the "LICENSE").
<PAGE>
-40-
5.3 Term Of License Grant. Unless terminated earlier pursuant to any
---------------------
provision set forth elsewhere in this Agreement, the LICENSE shall
commence on the EFFECTIVE DATE and shall continue with respect to each
LICENSED PRODUCT and each country of the world until the later of (i)
the expiration date of the last to expire patents in such country that
covers, in whole or in part, such LICENSED PRODUCT, (ii) the
expiration date of the last to expire patents that covers, in whole or
in part, such LICENSED PRODUCT in the country or countries of its
manufacture or (iii) ************** following the date of the first
commercial sale (the date of the invoice of MERCK or a sublicensee of
MERCK with respect to such sale) of such LICENSED PRODUCT in such
country.
5.4 Merck Obligations With Respect to Sublicensees. If MERCK grants one
----------------------------------------------
or more sublicenses pursuant to the LICENSE, such sublicenses shall
not have terms that are inconsistent with the term of this Agreement
and the LICENSE. Any such sublicense or sublicenses shall not relieve
MERCK of its obligations pursuant to this Agreement.
5.5 Rights with Respect to Aminoacyl- tRNA Synthetases.
---------------------------------------------------
5.5.1 Subject to the provisions set forth below in Section 5.5.2,
CUBIST shall at all times retain all rights to the
<PAGE>
-41-
PROGRAM tRNA SYNTHETASES (including, without limitation, the
right to use such PROGRAM tRNA SYNTHETASES in research
sponsored by CUBIST or any third party).
5.5.2 CUBIST agrees that during the TERM, and in the AREA, CUBIST
**************************************************************
**************************************************************
**************************************************************
provided, however. that the restrictions imposed on CUBIST by
-------- -------
the foregoing provisions of this Section 5.5.2 shall terminate,
as to any PROGRAM tRNA SYNTHETASE, on the earlier of (i) the
date on which an NDA is filed with the FDA in connection with
any HIT with respect to such PROGRAM tRNA SYNTHETASE or in
connection with any analog of such HIT, or (ii) the date that
MERCK notifies CUBIST in writing that MERCK is abandoning its
programs relating to such PROGRAM tRNA SYNTHETASE.
5.5.3 Notwithstanding anything expressed or implied in this Agreement
to the contrary, CUBIST retains the right at all times to
engage in a screening program sponsored by CUBIST or any third
party and, in connection therewith, to use the PROGRAM tRNA
<PAGE>
-42-
SYNTHETASES with non-MERCK compounds as long as such compounds
were initially identified through screening for inhibitors of
AMINOACYL-tRNA SYNTHETASES ***********************************
************************************
6.0 LEGAL ACTION
6.1 Actual or Threatened Disclosure or Infringement. If information comes
-----------------------------------------------
to the attention of MERCK to the effect that any PATENT RIGHTS
relating to a LICENSED PRODUCT are being, have been or are threatened
to be infringed, MERCK shall have the right (but not the obligation)
at its expense to take such action as it may deem necessary to
prosecute or prevent such infringement, including the right to bring
or defend any suit, action or proceeding involving any such
infringement. MERCK shall notify CUBIST promptly of the receipt of
any such information and of the commencement of any such suit, action
or proceeding. If MERCK determines that it is necessary or desirable
for CUBIST to join any such suit, action or proceeding, CUBIST shall,
at MERCK's expense, execute all papers and perform such other acts as
may be reasonably required to permit MERCK to act in CUBIST's name,
and MERCK shall pay for any and all reasonable costs and expenses
incurred by CUBIST in connection with such
<PAGE>
-43-
litigation, including reasonable attorney's fees. If MERCK brings
suit, it shall have the right first to reimburse itself out of any
sums recovered in such suit or in its settlement for all reasonable
costs and expenses, including reasonable attorney's fees paid, related
to such suit or settlement, and ********************* of any funds
that shall remain from said recovery shall be paid to CUBIST and the
balance of such funds shall be retained by MERCK. If MERCK does not,
within sixty (60) days after giving notice to CUBIST of the above-
described information, bring suit against any infringer, CUBIST shall
have the right to bring suit for such alleged infringement, but it
shall not be obligated to do so. If CUBIST determines that it is
necessary or desirable for MERCK to join any such suit, action or
proceeding, MERCK shall, at CUBIST's expense, execute all papers and
perform such other acts as may reasonably be required to permit CUBIST
to act in MERCK's name, and CUBIST shall pay for any and all
reasonable costs and expenses incurred by MERCK in connection with
such litigation, including reasonable attorney's fees. If CUBIST
brings suit, it shall have the right first to reimburse itself out of
any sums recovered in such suit or in its settlement for all
reasonable costs and expenses, including reasonable attorney's fees
paid, related to such suit or settlement, and *************** of any
funds that shall remain from said recovery shall be paid to MERCK and
the balance of such funds shall be retained by
<PAGE>
-44-
CUBIST. Each party shall always have the right to be represented by
counsel of its own selection and at its own expense in any suit
instituted by the other for infringement under the terms of this
Section 6.1.
7.0 DEFENSE OF INFRINGEMENT CLAIMS
CUBIST will cooperate with MERCK, at MERCK's expense, in the defense of any
suit, action or proceeding against MERCK or any sublicensee of MERCK
alleging an infringement of intellectual property rights of a third party
by reason of the manufacture, use or sale of LICENSED PRODUCTS. MERCK
shall give CUBIST prompt written notice of the commencement of any such
suit, action, or proceeding or claim of infringement and will furnish
CUBIST a copy of each communication relating to the alleged infringement.
CUBIST shall give to MERCK all authority (including the right to exclusive
control of the defense of any such suit, action or proceeding and the
exclusive right, after consultation with CUBIST, to compromise, litigate,
settle or otherwise dispose of any such suit, action or proceeding),
information and assistance necessary to defend or settle any such suit,
action or proceeding; provided, however, MERCK shall obtain CUBIST's prior
written consent to all or such part of any settlement which requires
payment or other action by CUBIST or which may have a material adverse
effect on CUBIST's business or income pursuant to this Agreement. If the
parties agree that CUBIST should join any suit, action or
<PAGE>
-45-
proceeding pursuant to this Section, MERCK may, at MERCK's expense, join
CUBIST as a defendant if necessary or desirable, in which event MERCK shall
hold CUBIST free, clear and harmless from any and all costs and expenses of
such litigation, including reasonable attorney's fees and CUBIST shall
execute all documents and take all other actions, including giving
testimony, which may reasonably be required in connection with the
prosecution of such suit, action or proceeding.
8.0 TREATMENT OF CONFIDENTIAL INFORMATION
8.1 Confidentiality
---------------
8.1.1 MERCK and CUBIST each recognize that the other's Confidential
Information constitutes highly valuable, confidential
information. Subject to the terms and conditions of the
LICENSE, the obligations set forth in Section 8.3 and the
publication rights set forth in Section 8.2, MERCK and CUBIST
each agree that, during the TERM of this Agreement and for ****
********* thereafter, it will keep confidential, and will cause
its AFFILIATES to keep confidential, all CONFIDENTIAL
INFORMATION that is disclosed to it or to any of its AFFILIATES
pursuant to this Agreement. Neither MERCK nor CUBIST nor any of
their respective AFFILIATES shall use such
<PAGE>
-46-
CONFIDENTIAL INFORMATION except as expressly permitted in this
Agreement.
8.1.2 MERCK and CUBIST each agree that any disclosure of the other's
CONFIDENTIAL INFORMATION to any officer, employee or agent of,
or consultant to, the other party or of any of its AFFILIATES
shall be made only if and to the extent necessary to carry out
its responsibilities under this Agreement and shall be limited
to the maximum extent possible consistent with such
responsibilities. MERCK and CUBIST each agree not to disclose
the other's CONFIDENTIAL INFORMATION to any third parties under
any circumstance without the prior written permission from the
other party (which permission shall not be unreasonably
withheld or delayed if but only if any such disclosure shall be
required by applicable law). Each party shall take such action,
and shall cause its AFFILIATES to take such action, to preserve
the confidentiality of each other's CONFIDENTIAL INFORMATION as
it would customarily take to preserve the confidentiality of
its own CONFIDENTIAL INFORMATION. Each party, upon the other's
request, will return all the CONFIDENTIAL INFORMATION disclosed
to the other party pursuant to this Agreement, including all
copies and extracts of
<PAGE>
-47-
documents, within sixty (60) days of the request upon the
termination of this Agreement except for one (1) copy which may
be kept for the purpose of complying with continuing
obligations under this Agreement.
8.1.3 CUBIST and MERCK each represent that all of its employees, and
any consultants to such party, participating in the
COLLABORATION, are bound by the obligations of confidentiality
set forth herein.
8.2 Publication. Notwithstanding any matter set forth with particularity
-----------
in this Agreement to the contrary, results obtained in the course of
the COLLABORATION may be submitted for publication following
scientific review and approval by MERCK and CUBIST, which approval
shall not be unreasonably withheld, provided however, either party
shall have the right to (a) propose modifications to the publication
for patent, trade secret or business reasons, and/or (b) request a
reasonable delay (not to exceed ninety (90) days) in publication or
presentation in order to protect patentable information. After
receipt of the proposed publication by MERCK and CUBIST, written
approval or disapproval shall be provided within thirty (30) days.
8.3 Publicity. Except as required by law and as provided below or in
---------
Section 8.2 of this Agreement, neither party may
<PAGE>
-48-
disclose the terms of this Agreement or the research described in it
without the prior written consent of the other party, which consent
shall not be unreasonably withheld. It is understood that the
existence of this Agreement is anticipated to form the basis of a
press release that will be released promptly following the EFFECTIVE
DATE and that will be mutually satisfactory to the parties, provided
that in no event shall such press release disclose the financial terms
set forth in this Agreement.
8.4 Disclosure of Inventions. Each party shall promptly inform the other
------------------------
in writing about all inventions in the AREA that are conceived,
actually reduced to practice or developed in the course of carrying
out the COLLABORATION.
9.0 PROVISIONS CONCERNING THE FILING, PROSECUTION AND MAINTENANCE OF PATENT
RIGHTS
The following provisions relate to the filing, prosecution and maintenance
of PATENT RIGHTS during the term of this Agreement:
9.1 Filing, Prosecution and Maintenance of Patents Rights by Cubist.
---------------------------------------------------------------
Patent applications and granted patents naming CUBIST employees and/or
consultants exclusively (the "CUBIST
<PAGE>
-49-
PATENT RIGHTS") shall be filed, prosecuted and maintained by CUBIST.
Patent applications and granted patents naming both MERCK and CUBIST
employees and/or consultants (the "JOINT PATENT RIGHTS") shall also be
filed, prosecuted and maintained by CUBIST, subject to the provisions
set forth below. To the extent that CUBIST notifies MERCK in writing
that CUBIST does not desire to continue filing, prosecuting and/or
maintaining JOINT PATENT RIGHTS, CUBIST's obligation to continue to
file, prosecute and/or maintain such JOINT PATENT RIGHTS shall
terminate and MERCK shall have the right, exercisable in its sole
discretion, to file, prosecute and maintain such JOINT PATENT RIGHTS.
Patent applications and granted patents naming MERCK employees and/or
consultants exclusively ("MERCK PATENT RIGHTS") shall be filed,
prosecuted and maintained by MERCK.
With respect to CUBIST PATENT RIGHTS and JOINT PATENT RIGHTS, CUBIST
shall have the exclusive right:
(a) to file applications for letters patent on any invention
included in CUBIST PATENT RIGHTS and JOINT PATENT RIGHTS;
provided, however, that CUBIST shall consult with MERCK
regarding the content of such patent applications, as further
provided below, and regarding the countries in which such
patent
<PAGE>
-50-
applications should be filed and shall file patent applications
in those countries where MERCK requests that CUBIST file such
applications; and, further provided, that CUBIST, at its option
and expense, may file in countries where MERCK does not request
that CUBIST file such applications;
(b) to take all reasonable steps to prosecute all pending and new
patent applications included within CUBIST PATENT RIGHTS and
JOINT PATENT RIGHTS;
(c) to respond to oppositions, nullity actions, re-examinations,
revocation actions and similar proceedings filed by third
parties against the grant of letters patent for such
applications or against letters patent granted; and
(d) to maintain in force any letters patent included in CUBIST
PATENT RIGHTS and JOINT PATENT RIGHTS by duly filing all
necessary papers and paying any fees required by the patent
laws of the particular country in which such letters patent
were granted.
9.1.2 Review by Merck. *************************************
---------------
*****************************************************
<PAGE>
-51-
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
9.1.2 Copies of Documents. CUBIST shall provide to MERCK
-------------------
copies of all patent applications that are part of
CUBIST PATENT RIGHTS and JOINT PATENT RIGHTS, for the
purpose of obtaining substantive comment of MERCK's
patent counsel pursuant to Section 9.1.1 hereof. CUBIST
shall also provide to MERCK copies of all documents
relating to prosecution of all such patent applications
in a timely manner and shall
<PAGE>
-52-
provide MERCK every six (6) months a report detailing
their status.
9.1.3 Reimbursement of Costs for Filing, Prosecuting and
--------------------------------------------------
Maintaining PATENT RIGHTS. Within thirty (30) days of
-------------------------
receipt of invoices from CUBIST, MERCK shall reimburse
CUBIST for XXXXXXXXXXXXXXXXXXXXXXX of all the costs
(including reasonable attorney's fees) incurred by
CUBIST in connection with preparing, filing,
prosecuting, responding to oppositions, nullity actions,
protests, reexaminations, revocation actions,
participating in interferences and similar proceedings
and maintaining patent applications and patents included
within CUBIST PATENT RIGHTS and JOINT PATENT RIGHTS, in
countries where MERCK requests that patent applications
be filed, prosecuted and maintained. Such reimbursement
shall be in addition to any other payments due CUBIST.
However, MERCK may, upon sixty (60) days notice, request
that CUBIST discontinue filing or prosecuting patent
applications in any country and discontinue reimbursing
CUBIST for the costs of filing, prosecuting, responding
to opposition or maintaining such patent application or
patent in
<PAGE>
-53-
any country. CUBIST shall pay all costs in those
countries in which MERCK does not request that CUBIST
file, prosecute or maintain patent applications and
patents, but in which CUBIST, at its option, elects to
do so.
9.1.4 MERCK shall have the right to file on behalf of and as
an agent for CUBIST all applications and take all
actions necessary to obtain patent extensions pursuant
to 35 USC Section 156 and foreign counterparts for
CUBIST PATENT RIGHTS and JOINT PATENT RIGHTS described
in this Section 9.1 licensed to MERCK. CUBIST agrees to
sign, at MERCK's expense, such further documents and
take such further actions as may be requested by MERCK
in this regard.
9.2 Filing, Prosecution and Maintenance of Patent Rights by MERCK. With
-------------------------------------------------------------
respect to MERCK PATENT RIGHTS, MERCK shall have those rights ascribed
to CUBIST, and CUBIST shall have those rights and duties ascribed to
MERCK, in Section 9.1 hereof; provided, however, that in no event
-------- -------
shall CUBIST have any of the obligations that MERCK has under Section
9.1.3.
<PAGE>
-54-
9.3 Cooperation. The parties agree to cooperate, to the extent
-----------
practicable, with each other in connection with the preparation,
prosecution, maintenance and defense of any patent applications and
patents included in PATENT RIGHTS.
9.4 Abandonment of Patent Rights. The parties agree to notify each other
----------------------------
in a timely manner of any decision to abandon a pending patent
application or an issued patent included in PATENT RIGHTS.
Thereafter, the non-abandoning party shall have the option, at its own
expense, to prosecute any such pending patent application or to keep
the issued patent in force.
10.0 SOLE AGREEMENT
This Agreement is the sole agreement with respect to the COLLABORATION and
supersedes all other agreements and understandings between the parties with
respect to same.
11.0 TERM, TERMINATION AND DISENGAGEMENT
11.1 Term. This Agreement shall become effective on the EFFECTIVE DATE
----
and shall, unless earlier terminated by one of the parties in
accordance with the terms of this Agreement, expire when MERCK is no
longer obligated to pay
<PAGE>
-55-
royalties to CUBIST in any country pursuant to this
Agreement (the "TERM").
11.2 Termination. This Agreement may be terminated as follows:
-----------
A. Upon any material breach by either party under this Agreement,
the non-breaching party may terminate this Agreement by giving
ninety (90) calendar days prior written notice to the breaching
party, specifying the material breach. The termination shall
become effective at the end of the ninety (90) calendar days.
Notwithstanding any of the foregoing provisions of this Section
11.2(A), if at any time during such ninety (90) calendar days,
the breaching party cures any such material breach, then this
Agreement shall not terminate but shall continue in full force
and effect in accordance with its terms.
B. Notwithstanding any other provisions of this Agreement to the
contrary, this Agreement may be terminated by either MERCK OR
CUBIST, in its sole discretion, upon thirty (30) calendar days
prior written notice to the other if (i) no HITS are identified
pursuant to the PRIMARY SCREENING PROGRAM, (ii) no compound
enters a MEDICINAL CHEMISTRY AND DRUG DISCOVERY PROGRAM pursuant
to, and in accordance with, the provisions of this Agreement or
<PAGE>
-56-
(iii) no compound enters a DRUG DEVELOPMENT PROGRAM pursuant, and
in accordance with, the provisions of this Agreement. The
parties hereby mutually agree that prior to either of them
exercising the termination rights provided in this Section
11.2(B), the parties shall discuss the proposed termination and
the reasons therefor.
C. **************************************************************
***************************************************************
**********************************************************
*************************************************************
******************
11.3 Rights Upon Termination.
-----------------------
11.3.1 If this Agreement is terminated by either MERCK or CUBIST
pursuant to Section 11.2(A), 11.2(B) or 11.2(C) hereof, as
applicable, then, on the effective date of such termination,
both parties' rights and obligations under this Agreement
shall terminate and be of no further force or effect
whatsoever, except to the extent otherwise provided in
Section 11.3.3, Section
<PAGE>
-57-
11.3.4, Section 11.3.5, Section 11.3.6 or Section 11.3.7
hereof.
11.3.2 Upon termination of this Agreement by CUBIST pursuant to
Section 11.2(A), upon termination of this Agreement by MERCK
or CUBIST pursuant to Section 11.2(B) or upon termination of
this Agreement by MERCK pursuant to Section 11.2(C), the
LICENSE shall automatically terminate with respect to all
countries of the world and all LICENSED PRODUCTS, effective
as of the effective date of the termination of this
Agreement.
11.3.3 *********************************************************
************************************************************
************************************************************
**********************************************************
*********************************************************
******************************************************
************************************************************
********************************************************
**********************************************************
****************
<PAGE>
-58-
11.3.4 Neither the termination of this Agreement by either party
nor the expiration of the TERM shall terminate the
obligation of either party to make all payments accrued
prior to such termination or expiration. Neither the
termination of this Agreement by either party nor the
expiration of the TERM shall operate to release either party
from any liability arising from (i) such party's failure, at
any time prior to the effective date of such termination or
expiration, to perform or observe in any material respect
any term, covenant, representation, warranty, provision or
understanding contained in this Agreement or (ii) such
party's failure at any time (including, without limitation,
at any time after the termination of this Agreement or the
expiration of the TERM) to perform or observe in any
material respect any term, covenant, representation,
warranty, provision or understanding contained in this
Agreement and that, by its own terms, shall survive such
termination or expiration. Following any such termination or
expiration, each party shall be entitled to exercise any
remedies that are available, at law or in equity, to such
party
<PAGE>
-59-
against the other party in connection with such other
party's failure to perform or observe in any material
respect any term, covenant, representation, warranty,
provision or understanding herein at any time prior to such
termination or expiration or, if and to the extent that such
term, covenant, representation, warranty, provision or
understanding survives such termination or expiration by the
express terms of any other provision of this Agreement, at
any time thereafter.
11.3.5 The provisions of Section 2.6.1, Section 4.4, Section 5.1,
the first two sentences of Article 7, Section 8.1, Section
8.3, Section 11.3, Section 11.4, Article 13, Article 15 and
Section 16.10 shall survive the termination of this
Agreement.
11.3.6 If this Agreement is terminated by either MERCK or CUBIST
pursuant to Section 11.2(B) or by MERCK pursuant to Section
11.2(C), CUBIST may request and MERCK, in its sole
discretion, may extend to CUBIST the opportunity to enter
into good faith negotiations to provide CUBIST the right to
(a) select one or more compound(s) identified in the
SECONDARY
<PAGE>
-60-
SCREENING PROGRAM or the MEDICINAL CHEMISTRY AND
DRUG DISCOVERY PROGRAM for development by itself or with
third parties and (b) enter into a worldwide exclusive
license agreement under commercially reasonable terms.
11.4 Dispute. Without in any way limiting the generality of the
-------
provisions of Section 16.10 hereof, the parties hereby agree that, in
the event of a dispute between the parties as to whether a material
breach has occurred under this Agreement entitling a party to
exercise its right to terminate this Agreement pursuant to Section
11.2(A), the dispute shall be resolved pursuant to the dispute
resolution procedures set forth in 16.10 hereof.
12.0 REPRESENTATIONS AND WARRANTIES
CUBIST and MERCK each represents and warrants as follows:
12.1 It is a corporation duly organized, validly existing and is in good
standing under the laws of its jurisdiction of incorporation, is
qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the conduct of its business
or the ownership of its properties
<PAGE>
-61-
requires such qualification and has all requisite power and
authority, corporate or otherwise, to conduct its business as now
being conducted, to own, lease and operate its properties and to
execute, deliver and perform this Agreement.
12.2 The execution, delivery and performance by it of this Agreement have
been duly authorized by all necessary corporate action and do not and
will not (a) require any consent or approval of its stockholders, (b)
violate any provision of any law, rule, regulations, order, writ,
judgment, injunctions, decree, determination or award presently in
effect having applicability to it or any provision of its certificate
of incorporation or by-laws or (c) result in a breach of or
constitute a default under any material agreement, mortgage, lease,
license, permit or other instrument or obligation to which it is a
party or by which it or its properties may be bound or affected.
12.3 This Agreement is a legal, valid and binding obligation of it
enforceable against it in accordance with its terms and conditions,
except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws,
from time to time in effect, affecting creditor's rights generally.
<PAGE>
-62-
13.0 INDEMNIFICATION
13.1 MERCK's Obligation to Indemnify. MERCK will indemnify CUBIST for
-------------------------------
damages, settlements and reasonable costs, legal fees and other
expenses incurred in connection with any claim against CUBIST based
on any action or omission of MERCK, its agents or employees related
to the obligations of MERCK under this Agreement, excluding such
damages, costs, legal fees and expenses arising from the negligence
of CUBIST. MERCK, in its sole discretion, shall choose legal counsel,
shall control the defense of such claim or action and shall have the
right to settle same on such terms and conditions it deems advisable;
provided however, it shall obtain CUBIST's prior written consent to
all or such part of any settlement which requires payment or other
action by CUBIST or which may have a material adverse effect on
CUBIST's business or income pursuant to this Agreement. In the event
of any product liability claim in connection with any LICENSED
PRODUCT based in whole or in part upon any LICENSED PRODUCT made,
sold, or distributed by MERCK, any AFFILIATE or any sublicensee of
MERCK, MERCK will indemnify and hold CUBIST harmless against all
damages, reasonable costs, reasonable expenses and reasonable
attorneys' fees arising therefrom or connected therewith, excluding
such damages, costs, expenses and attorneys' fees arising as a result
of the negligence of CUBIST.
<PAGE>
-63-
13.2. CUBIST's Obligation to Indemnify. CUBIST will indemnify MERCK for
--------------------------------
damages, settlements and reasonable costs, legal fees and other
expenses incurred in connection with any claim against MERCK based
on any action or omission of CUBIST, its agents or employees related
to the obligations of CUBIST under this Agreement, excluding such
damages, costs, expenses and attorneys' fees arising as a result of
the negligence of MERCK. CUBIST, in its sole discretion, shall
choose legal counsel, shall control the defense of such claim or
action and shall have the right to settle same on such terms and
conditions it deems advisable; provided however, it shall obtain
MERCK's prior written consent to all or such part of any settlement
which requires payment or other action by MERCK or which may have a
material adverse effect on MERCK's business or income pursuant to
this Agreement.
14.0 NOTICES
All notices shall be in writing mailed via certified mail, return receipt
requested, courier, or facsimile transmission addressed as follow, or to
such other address as may be designated from time to time:
If to MERCK: To MERCK at its address as set forth at the beginning of
this Agreement.
Attention: Patrick McDonald,
Executive Director, Corporate
Licensing
<PAGE>
-64-
with copy to: Office of the General Counsel.
If to CUBIST: To CUBIST at its address as set forth at the beginning of
this Agreement.
Attention: Scott M. Rocklage, President
with copy to: Justin P. Morreale
Bingham, Dana & Gould
150 Federal Street
Boston, MA 02110-1726
Notices shall be deemed given as of the date received.
15.0 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
16.0 MISCELLANEOUS
16.1 Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of the parties and their respective legal
representatives, successors and permitted assigns.
16.2 Headings. Paragraph headings are inserted for convenience of
--------
reference only and do not form a part of this Agreement.
16.3 Counterparts. This Agreement may be executed simultaneously in two
------------
or more counterparts, each of which shall be deemed an original.
<PAGE>
-65-
16.4 Amendment and Waiver. This Agreement may be amended, modified,
---------------------
superseded or canceled, and any of the terms may be waived, only by a
written instrument executed by each party or, in the case of waiver,
by the party or parties waiving compliance. The delay or failure of
any party at any time or times to require performance of any
provisions shall in no manner affect the rights at a later time to
enforce the same. No waiver by any party of any condition or of the
breach of any term contained in this Agreement, whether by conduct,
or otherwise, in any one or more instances, shall be deemed to be, or
considered as, a further or continuing waiver of any such condition
or of the breach of such term or any other term of this Agreement.
16.5 No Third Party Beneficiaries. No third party including any employee
----------------------------
of any party to this Agreement, shall have or acquire any rights by
reason of this Agreement. Nothing contained in this Agreement shall
be deemed to constitute the parties partners with each other or any
third party.
16.6 Assignment and Successors. This Agreement may not be assigned by
-------------------------
either party without the prior written consent of the other party
(which consent shall not be unreasonably withheld), except that each
party may assign this Agreement and the rights and interests of such
party, in whole or in part,
<PAGE>
-66-
to any of its AFFILIATES, to any purchaser of the assets to which
this Agreement relates or to any successor business resulting from
any purchase, merger or consolidation of such party with or into such
businesses.
16.7 Force Majeure. Neither MERCK nor CUBIST shall be liable for failure
-------------
of or delay in performing obligations set forth in this Agreement,
and neither shall be deemed in breach of its obligations, if such
failure or delay is due to natural disasters or any causes beyond the
reasonable control of MERCK or CUBIST.
16.8 Severability. If any provision of this Agreement is or becomes
------------
invalid or is ruled invalid by any court of competent jurisdiction or
is deemed unenforceable, it is the intention of the parties that the
remainder of the Agreement shall not be affected.
16.9 Gender and Number, Whenever the context may require, any pronouns
-----------------
used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names, defined terms and
pronouns shall include the plural and vice-versa.
16.10 Dispute Resolution. The parties agree to attempt initially to solve
------------------
all claims, disputes, or controversies arising under, out
<PAGE>
-67-
of, or in connection with this Agreement by conducting good faith
negotiations. If the parties are unable to settle the matter between
themselves, the matter shall thereafter be resolved by alternative
dispute resolution (ADR), starting with mediation and including, if
necessary, a final and binding arbitration in Boston, Massachusetts
or at such other location as the parties may agree upon. The parties
agree in the case of arbitration to select a single arbitrator who
will establish the rules and procedures of the arbitration under the
applicable Rules of the American Arbitration Association. In the
event of an arbitration, the prevailing party shall be entitled to
fees and expenses including attorney's fees.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives.
MERCK & CO., INC.
By
-----------------------------
CUBIST PHARMACEUTICALS, INC.
By
-----------------------------
<PAGE>
Collaborative Research and License Agreement
between
Bristol-Myers Squibb Company
and
Cubist Pharmaceuticals, Inc.
<PAGE>
TABLE OF CONTENTS
1.0 DEFINITIONS.....................................................
2.0 RESEARCH PLAN AND DRUG DEVELOPMENT
PROGRAMS.......................................................
2.1 Purpose....................................................
2.2 Research Committee.........................................
2.3 Reports....................................................
2.4 Laboratory Facilities and Personnel........................
2.5 Materials and Use of Information...........................
3.0 PAYMENTS TO CUBIST..............................................
3.1 Equity Purchase............................................
3.2 Research Funding...........................................
3.3 Screening Program Milestones...............................
3.4 Preclinical Lead Profile Milestones........................
3.5 Drug Development Milestones................................
3.6 Royalties..................................................
3.7 Adjustments................................................
3.8 Interest on Late Payments..................................
4.0 [INTENTIONALLY OMITTED].........................................
5.1 License Rights.............................................
5.2 Ownership Rights...........................................
5.3 Sublicensing...............................................
6.0 PAYMENTS OF ROYALTIES, ACCOUNTING FOR
ROYALTIES, RECORDS.............................................
6.1 Payment Term...............................................
6.2 Payment Dates..............................................
6.3 Accounting.................................................
6.4 Records....................................................
7.0 INFRINGEMENT BY THIRD PARTIES...................................
7.1 Actual or Threatened Infringement of a
Covered Product...........................................
7.2 Actual or Threatened Infringement of a Cubist
Patent Rights.............................................
8.0 DEFENSE OF INFRINGEMENT CLAIMS..................................
8.1 Defense of Infringement Claims Pertaining
<PAGE>
-ii-
to Lead Compounds, Approved PLP
Compounds, and Products...................................
8.2 Defense of Infringement Claims Pertaining to
Patent Rights Owned or Controlled by Cubist...............
9.0 TREATMENT OF CONFIDENTIAL INFORMATION...........................
9.1 Confidentiality............................................
9.2 Publication................................................
9.3 Publicity..................................................
10.0 PROVISIONS CONCERNING THE FILING,
PROSECUTION AND MAINTENANCE OF
PATENT RIGHTS..................................................
10.1 Inventions Pertaining to Primary Screening Modules.........
10.2 Inventions Pertaining to Hits and Products.................
11.0 REPRESENTATIONS, WARRANTIES AND COVENANTS.......................
11.1 Mutual Representations and Warranties......................
11.2 Cubist Technology Representations and Warranties...........
11.3 Mutual Indemnification.....................................
11.4 BMS Product Indemnification................................
11.5 Representations and Warranties of BMS......................
12.0 TERM AND TERMINATION............................................
12.1 Term.......................................................
12.2 Termination By Mutual Agreement...........................
12.3 Termination for Cause......................................
12.4 Termination upon Acquisition...............................
12.5 Effect of Bankruptcy.......................................
12.6 Effect of Expiration or Termination........................
13.0 DISPUTE RESOLUTION..............................................
13.1 Disputes...................................................
13.2 Dispute Resolution Procedures..............................
14.0 MISCELLANEOUS...................................................
14.1 Assignment.................................................
14.2 Binding Effect.............................................
14.3 Force Majeure..............................................
14.4 Notices....................................................
14.5 Governing Law..............................................
14.6 Waiver.....................................................
14.7 Severability...............................................
14.8 Independent Contractors....................................
<PAGE>
-iii-
14.9 Counterparts...............................................
14.10 Entire Agreement.........................................
14.11 No Third Party Beneficiaries.............................
<PAGE>
DRAFT DATED: June 7,1996
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
THIS AGREEMENT is entered into as of the Effective Date (as defined below)
by and between BRISTOL-MYERS SQUIBB COMPANY, a Delaware corporation having
offices at Route 206 at Province Line Road, P.O. Box 4000, Princeton, New Jersey
08543-4000 ("BMS"), and between CUBIST PHARMACEUTICALS, INC., a Delaware
corporation having an office at 24 Emily Street, Cambridge, MA 02139 ("Cubist").
Recitals
--------
WHEREAS, Cubist has expertise in the biochemistry and molecular biology of
tRNA synthetases from microbial and human sources; and
WHEREAS, Cubist has the scientific expertise and capacity to undertake the
alliance activities described below; and
WHEREAS, BMS has the capability to undertake development of antimicrobial
agents and drug products for treatment of infectious diseases; and
WHEREAS, BMS possesses a library of compounds and natural products, and is
capable of determining the enzyme inhibitory capability of samples taken from
such library versus Cubist's tRNA synthetase targets in a Primary Screening
Program (as defined below).
NOW, THEREFORE, in consideration of the foregoing premises and of the
covenants, representations and agreements set forth below, the parties agree as
follows:
1.0 DEFINITIONS
As used herein, the following terms shall have the following meanings:
"Affiliate" means, with respect to any Person, any other Person which directly
or indirectly controls, is controlled by, or is under common control with, such
Person. A Person shall be regarded as in control of another Person if it/he/she
owns, or directly or indirectly controls, fifty percent (50%) or more of the
voting securities (or comparable equity interests) or other ownership interests
of the other Person, or if it/he/she directly or indirectly possesses the power
to direct or cause the direction of the management or policies of the other
Person, whether through the
-5-
<PAGE>
-2-
ownership of voting securities, by contract or any other means whatsoever.
"Agreement" means this agreement, together with all appendices, exhibits
and schedules hereto, and as the same may be amended or supplemented from time
to time hereafter by a written agreement duly executed by authorized
representatives of each party hereto.
"Alliance" is the collaboration to be conducted by BMS and Cubist pursuant
to this Agreement. Exhibit 1.1 hereto sets forth a diagram outlining the
Alliance.
"Aminoacyl-tRNA Synthetases means those enzymes responsible for the
aminoacylation of tRNA molecules with their cognate amino acids.
"Area" means research or development of compounds or agents having
Inhibitory Activity useful in the treatment, prevention, or management of
disease states in human beings.
"Biological Materials" shall mean any material having a biological
activity, including, but not limited to, structural genes, genetic sequences,
promoters, enhancers, probes, linkage probes, vectors, plasmids, transformed
cell lines, transgenic animals, proteins and fragments thereof, peptides,
biological modifiers, antigens, antibodies, cell lines, antagonists, agonists,
inhibitors and other biologically active materials.
"BMS Materials Library" means the sample collection library owned or
Controlled by BMS and which comprises synthetic and semi-synthetic compounds and
pure and mixed natural products.
"BMS Test Materials" means samples selected by BMS from its Materials
Library.
"commercially reasonable and diligent efforts" of a party will mean those
efforts consistent with the exercise of prudent scientific and business judgment
as applied to other research efforts and products of similar scientific and
commercial potential within the research programs and relevant product lines of
such party.
"Confidential Information" means all information, compounds, data, and
materials received by either party from the other party pursuant to this
Agreement and all information, compounds, data, and materials developed in the
course of the Collaboration, including, without limitation, Know-How and
Technology of each party, subject to the exceptions set forth in Article 9.
<PAGE>
-3-
"Contract Period" means the period beginning on the Effective Date and
ending on the date on which this Agreement terminates.
"Control" means possession of the ability to grant a license or sublicense
or to provide Biological Materials, as provided for herein, without violating
the terms of any agreement with any Third Party.
"Covered Product" means a product approved for marketing in a country for
the diagnosis, treatment or prevention of human disease indications and:
(i) which has Inhibitory Activity against an Aminoacyl-tRNA Synthetase,
provided that the active substance in such product (or, if such active
substance is an analog of the original active substance in such product,
then such original active substance) shall not have been identified by, or
was not known to, BMS or any of its Affiliates or funded research
collaborators, and was not generally known to the public, as possessing
Inhibitory Activity against such Aminoacyl-tRNA Synthetase prior to the
date that such active substance was first identified as having Inhibitory
Activity against an Aminoacyl-tRNA Synthetase by reason of the Primary
and/or Secondary Screening Programs conducted by a party under this
Agreement; and
(ii) for which the right to make, have made, use or sell such product or
the active substance in such product has not been licensed to BMS or its
Affiliates by a Third Party (A) who had identified or ascertained,
independently of any activity conducted by BMS or Cubist pursuant to this
Agreement, that the active substance in such product (or, if such active
substance is an analog of another active substance in such product provided
by such Third Party, then such original active substance) possessed
significant Inhibitory Activity against an Aminoacyl-tRNA Synthetase for
which such substance or product is targeted, and (B) who had identified or
ascertained same prior to the date that said active substance was first
identified as having Inhibitory Activity against an Aminoacyl-tRNA
Synthetase by reason of the Primary and/or Secondary Screening Programs
conducted by a party under this Agreement; and
(iii) is not an approved PLP compound or marketed drug 4s of the Effective
Date.
"Cubist Patent Rights" means all Patent Rights pertaining to an Invention
which are owned by or come under the Control of Cubist or its
<PAGE>
-4-
Affiliates, which Invention is conceived or reduced to practice at any time
prior to the termination of this Agreement, and which Invention is necessary or
useful to the performance by BMS of its duties under the Research Plan and Drug
Development Program or to the full exercise of the rights and benefits accorded
BMS under this Agreement.
"Cubist Technology" means Technology that is owned by or comes under the
Control of Cubist or any of its Affiliates at any time prior to the end of the
termination of this Agreement, and which is necessary or useful to the
performance by BMS of its duties under the Research Plan and Drug Development
Program or to the full exercise of the rights and benefits accorded BMS under
this Agreement.
"Drug Development Program" means that program conducted by BMS at its cost
and discretion for all pre-clinical and clinical development, regulatory
filings, and commercialization of an Approved PLP Compound.
"Effective Date" means the date that this Agreement shall have been
executed by both parties and delivered to each other.
"...exclusive...." means, with respect to the grant of a license or
sublicense, or to the appointment of a distributor, a license, sublicense, or
appointment whereby the licensee's, sublicensee's or appointee's rights are sole
and entire, and, except as set forth in this Agreement, operates to exclude all
others, including the licensor, sublicensor and appointor (except as expressly
provided in this Agreement), as the case may be, and may be exercised by the
licensee or through one or more of its Affiliates, but may be sublicensed to
Third Parties only as expressly permitted herein.
"FDA" shall mean the United States Food and Drug Administration, or any
successor agency having regulatory jurisdiction over the manufacture,
distribution and sale of drugs in the United States.
"Field" means the use of a Hit, Lead Compound, Approved PLP Compound or
Product in the research, testing, prevention, diagnosis and treatment of human
disorders, diseases, and conditions.
"First Commercial Sale" of a Covered Product shall mean the first
commercial sale for use or consumption of such Covered Product in a country
after required marketing and, if applicable, pricing approval has been granted
by the applicable regulatory authority(ies) of such country.
"Hit" means any BMS Test Material which, in the course of the Primary
Screening Program: (A) is shown to meet certain threshold
<PAGE>
-5-
criteria for Inhibitory Activity, said criteria to be set forth in or determined
in the manner provided for in the Research Plan or as determined, changed, or
supplemented hereafter by the Research Committee from time to time in writing,
or (B) although not meeting all such threshold criteria, is determined by BMS in
good faith to have demonstrated a documented level of Inhibitory Activity
sufficient to warrant further Secondary Screening and/or development as a Lead
Compound hereunder.
"IND" means an Investigational New Drug application filed with the United
States Food and Drug Administration ("FDA"), or its equivalent or any
corresponding application filed in any country other than the United States.
"Inhibitory Activity" means, with respect to the active compound in a BMS
Test Material or an analog of such compound (or with respect to any compound of
a Third Party where a provision of this Agreement, by its intent or meaning, so
references the Inhibitory Activity of same), such compound's principal method of
action as a direct antagonist or agonist against a Program tRNA Synthetase, or
if discovered in a Secondary Screening Program to have such activity, as a
direct antagonist or agonist against a non-Program tRNA Synthetase, as the case
may be.
"Invention" means any new and useful process, machine, manufacture, or
composition of matter.
"Know-How" means all information and data which is not generally known to
the public, including without limitation, information and data pertaining to or
comprising: materials and chemicals, inventions, techniques, practices,
machinery and equipment, reagents, processes, methods, knowledge, know-how,
skill, experience, preclinical. and clinical data (including pharmacological and
toxicological test data), analytical and quality control data, patent
application data or descriptions, and marketing, sales and manufacturing data.
"Lead Compound" has the meaning set forth in section 2.1.2.
"Lead Compound Development Program" means that program, conducted by or
through BMS in accordance with this Agreement, for the further characterization
and pre-clinical development of a Lead Compound and where formal assignment of
chemistry resources for a fully integrated discovery program have been assigned
to such Lead Compound as reflected in the minutes of the meetings of the BMS
Drug Development Management Committee ("DDMC"). The Lead Compound Development
Program shall continue until such time as any such Lead Compound is
<PAGE>
-6-
approved as an Approved PLP Compound or its further development is terminated or
abandoned by BMS.
"NDA" means a New Drug Application or Product License Application, as
appropriate, and all supplements filed pursuant to the requirements of the FDA,
including all documents, data and other information concerning Covered Products
which are necessary for full FDA approval to market a Covered Product, or the
equivalent in any other country.
"Net Sales" of a Covered Product shall mean the invoiced sales price of the
Covered Product billed by BMS or its Affiliates (or, where applicable, by
licensees of BMS) to customers of BMS (or its licensees) who are not Affiliates,
less (to the extent incurred and absorbed by BMS, its Affiliates, or any such
licensee): *********************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
***
<PAGE>
-7-
********* Sales by BMS to an Affiliate or licensee shall constitute a sale
for purposes of this definition if the Affiliate or licensee is the end user of
the Covered Product. Notwithstanding the foregoing, any Covered Products used
(but not sold for consideration) for promotional or advertising purposes or used
for clinical or other research purposes shall not be considered Net Sales
hereunder.
***************************************************************************
***********************************************************************
*****************************************************************************
********************************************************************************
*****************************************************************************
*******************************************************************************
********************************************************************************
****************************************************************************
****************************************************************************
**************************************************************************
**********************************************************************
****************************************************************************
*****************************************************************************
**************************************************************************
***************************************************************************
*****************************************************************************
*****************************************************************************
*******************************************************************************
******************************************************************************
****************************************************************************
************************************************************************
***********************************************
"Patent Rights" means all U.S. or foreign (including regional authorities
such as the European Patent Office) regular or provisional patent applications,
including any continuation, continuation-in-part, or division thereof or any
substitute application therefor or equivalent thereof, and any patent issuing
thereon, including any reissue, reexamination or extension thereof and any
confirmation patent or registration patent or patent of additions based on any
such patent, containing one or more claims to an Invention (and in the case of
an issued patent, containing one or more Valid Claims), and which a party hereto
owns or Controls, individually or jointly, any title thereto or rights
thereunder.
<PAGE>
-8-
"Person" shall mean an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock company,
joint venture, pool, syndicate, sole proprietorship, unincorporated
organization, governmental authority, or any other form of entity not
specifically listed herein.
"PLP" means a data package, termed a Preclinical Lead Profile, that
describes a particular Lead Compound and is presented to the BMS Pharmaceutical
Group Operating Committee ("BMSPGOC") in accordance with its procedures,
approval of which is necessary for such Lead Compound to be put on a development
track. The data package will typically contain, without limitation,
(i) synthesis and physico-chemical properties of the compound, (ii) in vitro
activity, (ii) in vivo activity in appropriate animal models, (iv) metabolism,
absorption and pharmacokinetics data, (v) limited toxicology data, (vi) summary
of competition, (vii) patent status, and (viii) business plans for the product.
The candidate Lead Compound covered by the PLP becomes an "Approved PLP
Compound" when the approval by the BMSPGOC of the PLP candidate Lead Compound
has been documented in the BMSPGOC meeting minutes.
"Primary Screening Modules" means cloned, expressed, purified and active
PSM-Program tRNA Synthetases and the requisite methodologies and protocols, as
well as all materials and reagents required to carry out same (including
specifications for the purity and stability of the enzymes for reagents supplied
and, if available, reaction kinetics where the reaction is in its linear range),
sufficient to enable BMS to perform not less than I million assays for each PSM-
Program tRNA Synthetase in a Primary Screening Program using BMS Test Materials.
A Primary Screening Module must be usable in high throughput screens by BMS in
accordance with its customary requirements, such requirements being previously
communicated by BMS to Cubist.
"Primary Screening Program" means assays described as primary screens
conducted at BMS using BMS Test Materials for purposes of determining Inhibitory
Activity against the PSM-Program tRNA Synthetases, as set forth in the Research
Plan (and as more fully described in Exhibit 1.2).
"Product" means any final form or dosage of any drug product that
incorporates a Lead Compound and that will be sold or used within the Field.
"Product Invention Rights" has the meaning in section 5.2.3.
<PAGE>
-9-
"Program tRNA Synthetases" mean ******************************************
**** *******************************************************************
******************************************************************************
******************************************. The specific Program tRNA
Synthetases may be changed or supplemented, pursuant to, and in accordance with
the provisions of, section 2.1.1(a) hereof The Program tRNA Synthetases which
will be used in preparing the Primary Screening Modules to be provided by to BMS
under section 2.1.1(a) hereof shall be ******************************
*************************************************************************
***************************************************************************,
****************************************************************************
************************************************ (hereinafter referred to as the
"PSM-Program tRNA Synthetases"). The specific PSM-Program tRNA Synthetases may
be changed or supplemented, pursuant to, and in accordance with the provisions
of, section 2.1.1(a) hereof
"Research Committee" shall have the meaning ascribed to it in Section 2.2.
"Research Plan" means that plan set forth in Exhibit 1.2 containing the
Primary Screening Program and the Secondary Screening Program, as such plan may
be supplemented or more fully described by the provisions of this Agreement.
"Research Term" means the period commencing on the Effective Date and
ending on the third anniversary of the Effective Date, subject to extension by
mutual agreement or at BMS' election as provided for in Section 3.2 and subject
to early termination as herein provided.
"Royalty Term" means, in the case of any Covered Product and as to any
country, the period of time commencing on the First Commercial Sale in such
country and ending upon the later of (i) the date that there no longer exists a
Valid Claim owned or controlled by BMS or its Affiliates covering the
manufacture, use or sale of such Covered Product in such country, or (ii) the
tenth (10th) anniversary of the date of First Commercial Sale of the Covered
Product in such country.
"Secondary Screening Program" means assays described as secondary screens
and tertiary screens (IC\\50\\, selectivity, Aminoacyl-tRNA Synthetase spectrum,
mechanism of action, etc.) conducted by or through Cubist as set forth herein
(and as more fully described in the Research Plan).
<PAGE>
-10-
"Technology" means and includes all inventions, materials (including
Biological Materials, chemicals or compounds), technology, technical
information., Know-How, expertise and trade secrets relating to the Area.
"Territory" means all countries of the world.
"Third Party" means any entity other than (i) Cubist or BMS, or (ii) any of
their Affiliates.
"Valid Claim" means: (a) an issued claim under an issued Patent, which has
not (i) expired or been canceled, (ii) been declared invalid by an unreversed
and unappealable decision of a court or other appropriate body of competent
jurisdiction, (iii) been admitted to be invalid or unenforceable through
reissue, disclaimer or otherwise, and/or (iv) been abandoned in accordance with
or as permitted by the terms of this Agreement or by mutual written agreement;
or (b) a claim included in a pending Patent application that is being actively
prosecuted in accordance with this Agreement and which has not been (v)
canceled, (vi) withdrawn from consideration, (vii) finally determined to be
unallowable by the applicable governmental authority for whatever reason (and
from which no appeal is or can be taken), and/or (viii) abandoned in accordance
with or as permitted by the terms of this Agreement or by mutual written
consent.
2.0 RESEARCH PLAN AND DRUG DEVELOPMENT PROGRAMS
2.1 Purpose. Cubist and BMS shall conduct the Research Plan, the Lead
-------
Compound Development Program and the Drug Development Program, subject to
the terms and conditions of this Agreement, as follows:
2.1.1 The Screening Program. The screening program shall proceed as
---------------------
follows:
(a) Delivery of Screening Modules
(i) Subject to and upon the delivery terms set forth below, Cubist
will deliver the Primary Screening Modules to BMS. *** of the
Primary Screening Modules will be delivered by Cubist no later than
**************** after the Effective Date, an additional *** Primary
Screening Modules will be delivered by Cubist no later than ***
************************* after the Effective Date and the remaining
*** Primary Screening Modules will be delivered by Cubist no later
than
<PAGE>
-11-
****************************** after the Effective Date. BMS will
communicate to Cubist in a timely fashion any particular requirements BMS
may have in order for Cubist to develop appropriate Primary Screening
Modules tailored to BMS' needs.
All such Primary Screening Modules must be reasonably acceptable to BMS.
Promptly following receipt of each such Primary Screening Module, BMS will
test same for acceptability in terms of effectiveness, accuracy,
reliability, conformity to specifications, and usefulness in high
throughput screening. BMS shall notify Cubist in writing as to whether BMS
accepts each such Primary Screening Module within 60 days after receipt by
BMS (and if not, BMS will provide Cubist with a list of the deficiencies
found by BMS so that Cubist may develop an acceptable Module). Cubist will
remedy such deficiencies and provide an acceptable Module within 60 days
thereafter.
If Cubist is unable to develop an acceptable Primary Screening Module for a
PSM-Program tRNA Synthetase, then BMS shall have the right to select and
substitute another Aminoacyl-tRNA Synthetase from those non-Program tRNA
Synthetases that are not then the subject of an agreement between Cubist
and a Third Party that precludes same. The non-Program tRNA Synthetase so
selected by BMS shall thereafter replace said PSM-Program tRNA Synthetase
and be treated as a PSM-Program tRNA Synthetase for all purposes under this
Agreement. Within 90 days following such selection, Cubist will deliver to
BMS a Primary Screening Module based on said substitute non-Program tRNA
Synthetase, subject to acceptance as herein provided.
(ii) Subject to section 2.1.1(a)(iii), if at anytime during the period
commencing on the date of acceptance of a Primary Screening Module by BMS
and ending on the expiration date of the Research Term, any such Primary
Screening Module for whatever reason loses its effectiveness or efficacy or
is no longer biologically active, Cubist will replace same as promptlyas
practicable at no additional cost to BMS (unless the replacement is
required as a result of negligence on the part of BMS, in which event BMS
will reimburse Cubist for its direct costs incurred to manufacture and
supply same, plus ***).
<PAGE>
-12-
(iii) In the event that at any time during the Research Term, or one year
thereafter, BMS requires Primary Screening Modules to conduct more than *
******* assays for a PSM-Program tRNA Synthetase in a Primary Screening
Program, Cubist will use commercially reasonable and diligent efforts to
deliver same to BMS as promptly as practicable (but in any event within 90
days after receipt of BMS' request), and BMS will reimburse Cubist for its
direct costs to manufacture and supply same plus *************************.
(iv) Improvements to a Primary Screening Module that may be made by Cubist
following delivery to and acceptance by BMS of such Module shall be made
available to BMS at no additional charge during the Research Term.
(v) In the event that the parties, in their discretion, mutually agree that
Cubist will develop and provide to BMS additional primhry screening
module(s) for one or more additional Non-Program tRNA Synthetases, then
such Non-Program tRNA Synthetase(s) shall become, and be treated for all
purposes hereafter, as a PSM-Program tRNA Synthetase, and all references to
a limit of six PSM-Program tRNA Synthetases shall be adjusted to reflect
the addition of such new non-Program tRNA Synthetases to the list of PSM-
Program tRNA Synthetases subject to this Agreement.
(b) Primary Screening Program
(i) Upon receipt of each Primary Screening Module, BMS will use
commercially reasonable and diligent efforts to employ each such Module in
a Primary Screening Program to screen such BMS Test Materials as BMS deems
appropriate for such purpose. BMS will use commercially reasonable and
diligent efforts in conducting the Primary Screening Program, and will send
samples of all the Hits obtained therefrom to Cubist within a reasonable
time (but not later than 60 days) after identification of such Hit. Cubist
will hold and use all such samples provided by BMS subject to and in
accordance with its obligations under section 2.5 and article 9 hereof.
(ii) Without BMS' prior written consent, Cubist agrees that, during the
Research Term, neither Cubist nor any of its Affiliates shall engage in any
research or drug development activities involving the use of any Program
tRNA Synthetase
<PAGE>
-13-
for any primary screening purpose similar to the Primary Screening Program
conducted by BMS, whether conducted with Cubist (or any such Affiliate's)
own funds or whether conducted under contract or other arrangement with, on
behalf of, or sponsored by any Third Party, or grant license rights to any
Third Party in violation of the rights licensed to BMS hereunder. It is
understood that, after the Research Term, Cubist and its Affiliates may
engage in any or all of the activities prohibited during the Research Term
by the preceding sentence, so long as any agreements entered by Cubist with
a Third Party thereafter do not conflict with the remaining terms and
conditions of this Agreement.
(c) Secondary Screening Program
Within ******* of receipt of a sample of any Hit, Cubist will begin a
Secondary Screening Program as described in Exhibit 1.2 with respect to
such Hit. Such Secondary Screening Program activities shall include the
screening of Hits, Lead Compounds and Approved PLP Compounds against all
eubacterial, fungal and human Aminoacyl-tRNA Synthetases. If, at the time
that Cubist commences a Secondary Screening Program with respect to a Hit,
Cubist does not then have one or more eubacterial, fungal or human
Aminoacyl-tRNA Synthetases available for Secondary Screening, Cubist will
perform such Secondary Screening for such Hit at such later data(s) within
the Research Term (or as provided in section 2.1.1(c)(iii)) at BMS' request
as and when such Secondary Screen becomes available to it.
Cubist will use commercially reasonable and diligent efforts to conduct the
Secondary Screening Program and will report the results to BMS no later
than ************** after Cubist's receipt of a sample. During the course
of the Secondary Screening Program conducted by Cubist on a Hit, BMS will
use commercially reasonable and diligent efforts to perform such
microbiological assays and animal studies as BMS may determine to perform
in its sole discretion on any such Hit.
(ii) Notwithstanding the rights exclusively licensed to BMS by Cubist
pursuant to subparagraph (A) of section 5.1.1 hereof, Cubist retains the
right at all times to use the Program tRNA Synthetases with non-BMS
compounds in a secondary screening program conducted at Cubist (whether
<PAGE>
-14-
sponsored by Cubist or by any Third Party) under the condition that such
non-BMS compounds shall have been first identified as having inhibitory
activity against a non-Program tRNA Synthetase in a primary screening
program for inhibitors of such non-Program tRNA Synthetases and where the
objective criteria under such primary screening program as to the compounds
constituting a "hit" were substantially similar in terms of scientific
threshold to those required for a Hit in the Primary Screening Program
hereunder.
(iii) At all times during the term of this Agreement, Cubist will use
commercially reasonable and diligent efforts to perform such Secondary
Screening Program activities (**************************************
************************************) as BMS may request on Hits, Lead
Compounds and Approved PLP Compounds (and any analogs of any of the
foregoing made by or for BMS); provided, however, that if Cubist is
requested by BMS following the end of the Research Term to conduct any such
Secondary Screening activities, BMS will reimburse Cubist quarterly in
arrears for all direct costs incurred by Cubist to conduct such Secondary
Screening Program activities, plus *************************.
(iv) It is understood that if, during the course of conducting the
Secondary Screening Program, the data so obtained reveals that a Hit has
superior properties (such as IC\\50\\, selectivity, etc.) in targeting an
Aminoacyl-tRNA Synthetase that is not a PSM-Program tRNA Synthetase, BMS
has the option of selecting that specific Hit to enter a Lead Compound
Development Program and to develop that Hit into a drug product that
inhibits the activity of such Aminoacyl-tRNA Synthetase.
(v) BMS will use reasonable efforts to notify Cubist promptly of any of
compound or other substance identified by BMS as a Hit for which BMS
intends to seek Secondary Screening Program services hereunder, but which
BMS or its Affiliates had previously identified or knew as having
Inhibitory Activity against an Aminoacyl-tRNA Synthetase.
<PAGE>
-15-
(d) Cubist Summary Report
Cubist will report monthly to BMS in reasonable detail with respect to
its activities by providing an updated copy of a report in the form
attached as Exhibit 2.1.1(d) hereto.
2.1.2 The Lead Compound Development Program. Based on the results of the
-------------------------------------
Secondary Screening Program for a Hit conducted by Cubist and the related
research activities conducted by BMS under section 2.1.1(c)(i) in
conjunction with such Secondary Screening Program, BMS will in its sole
discretion determine which, if any, such Hit(s) will be approved as Lead
Compounds and developed further in a Lead Compound Development Program
conducted by BMS. BMS shall be responsible for all medicinal chemistry
activities during the course of the Lead Compound Development Program for
such Lead Compound, as well as following any approval of an Approved PLP
Compound. At BMS' request and in accordance with section 2.1.1(c)(iii),
Cubist will continue to run the biochemical assays outlined in the
Secondary Screening Program portion of the Research Plan against analogs
and other new chemical entities arising from the BMS medicinal chemistry
program on such Lead Compound (and any Approved PLP Compound resulting
from such Lead Compound Development Program). The conduct of the Lead
Compound Development Program and all medicinal chemistry activities shall
be solely within the control and discretion of BMS, and it is understood
and agreed that BMS may in its discretion suspend or terminate, in whole
or in part, the Lead Compound Development Program for a Lead Compound at
any time. It is further understood that any analogs of a Hit or Lead
Compound that BMS may make from time to time and which are approved for
development under a Lead Compound Development Program shall also be
considered "Lead Compounds" hereunder.
BMS will report to Cubist on the progress of the discovery and
development of any Lead Compound through the quarterly meetings of the
Research Committee (annually after approval of an Approved PLP Compound
by BMS). All such reports by BMS shall be treated as BMS Confidential
Information hereunder.
<PAGE>
-16-
BMS will be responsible for all pre-clinical development, toxicology and
clinical development, including all regulatory filings, of Hits, Lead
Compounds, and Approved PLP Compounds arising out of this Agreement.
In the event that BMS discontinues further development of a Hit (on which
Cubist has completed all Secondary Screening Program activities
hereunder), Lead Compound or Approved PLP Compound, BMS agrees to discuss
with Cubist whether, and upon what terms, BMS might be willing to license
rights in such compound to Cubist for further development so long as BMS
is not then developing any competing compound; provided, however that BMS
shall not be under any obligation, express or implied, to enter into or
negotiate any such agreement.
2.1.3 PLP Approval and Product Development. BMS shall have sole and
------------------------------------
absolute discretion and control over the conduct of, and all activities
associated with, the development or abandonment of any Lead Compound, the
approval of a Lead Compound as an Approved PLP Compound, the development
or abandonment of any Approved PLP Compound, all regulatory activities
relating to the manufacture, use or sale of any Approved PLP Compound or
Product, and the commercialization and marketing of any Product in any
country. All INDs, NDAs and other regulatory filings made or filed by BMS
for any Approved PLP Compound or Product shall be owned solely by BMS.
BMS will provide annual summary reports to Cubist on the status of any
Approved PLP Compound then in development. Other than royalty reports
required hereunder, no reports shall be required of BMS with respect to
any activities connected with the commercialization of any Covered
Product approved for marketing in any country.
2.1.4 Ownership of Data. All results and data generated by BMS in
-----------------
connection with this Agreement, and all results and data generated by
Cubist hereunder with respect to any Hits, Lead Compounds and Approved
PLP Compounds (and analogs of any of the foregoing made and provided by
BMS), shall be owned exclusively by BMS and shall be treated as BMS
Confidential Information hereunder.
<PAGE>
-17-
2.2 Research Committee.
------------------
2.2.1 Purpose. BMS and Cubist shall establish a Research Committee (the
-------
"Research Committee"):
(a) to evaluate and recommend scientific criteria to be implemented
under the Primary and Secondary Screening Programs;
(b) to make recommendations as to the prioritization of Hits based
on the Primary Screening Program and the specific Hits to enter
the Secondary Screening Program;
(c) to evaluate data from the Secondary Screening Program and make
a recommendation to BMS to initiate a Lead Compound Development
Program for a particular Hit;
(d) to review and evaluate progress under the Primary and Secondary
Screening Programs;
(e) to prepare amendments to the Primary and Secondary Screening
Programs; and
(f) to coordinate and monitor publication of research results
obtained from and the exchange of information and materials
that relate to the Alliance.
2.2.2 Membership. BMS and Cubist each shall appoint, in its sole
----------
discretion, three (3) members to the Research Committee. Substitutes
may be appointed at any time.
2.2.3 Chair. The Research Committee shall be chaired by two co-
-----
chairpersons, one appointed by BMS and the other appointed by
Cubist.
2.2.4 Meetings. The Research Committee shall meet at least quarterly, at
--------
places selected by each party in turn and on a mutually acceptable
date to the Chairpersons. Representatives of BMS or Cubist or both,
in addition to members of the Research Committee, may attend such
meetings at the invitation of either party. Meetings may also be
called by either party on fifteen (15) days written notice to the
other unless such notice is waived by the parties. The Research
Committee may also convene or be polled or consulted from time to
time by means of telecommunication or correspondence.
2.2.5 Minutes. The party designating the location for a meeting will
-------
appoint one of its members to serve as secretary for such
<PAGE>
-18-
meeting and to take minutes of that meeting describing in reasonable
detail the discussion had at that meeting and a list of any actions,
decisions, or determinations approved by the Research Committee, and
shall be responsible for circulation of the draft minutes. Draft
minutes shall be edited by the co-chairpersons and shall be issued
in final draft form sufficiently in advance of the next meeting to
allow adequate review and comment prior to the meeting. Minutes of a
meeting shall be approved or disapproved, and revised as necessary,
at the next meeting.
2.2.6 Decisions. Subject to section 13.2.1, all decisions of the Research
---------
Committee shall be made by a majority of the members.
2.2.7 Expenses. BMS and Cubist shall each bear all expenses of their
--------
respective members related to their participation on the Research
Committee.
2.3 Reports. During the Contract Period, BMS and Cubist each shall
-------
furnish to the Research Committee:
2.3.1 summary written reports within thirty (30) days after the end of
each quarter commencing on the Effective Date, providing all
screening data and describing progress under the Primary and
Secondary Screening Programs, and
2.3.2 comprehensive written reports within thirty (30) days after the end
of each year, describing in detail the work accomplished by it under
the Primary and Secondary Screening Programs, and discussing and
evaluating the results of such work.
2.4 Laboratory Facilities and Personnel. Cubist and BMS each shall
-----------------------------------
provide suitable and sufficient laboratory facilities, equipment and
personnel for the work to be done in carrying out their obligations under
this Agreement.
2.5 Materials and Use of Information
--------------------------------
2.5.1 Subject to articles 2.5.3, 5.1 and 5.3, each party shall retain all
rights, title and interest to any and all Biological Materials,
compounds or other substances created prior to or during the term of
this Agreement by or for such party.
<PAGE>
-19-
2.5.2 Biological Materials, compounds and other substances transmitted to
a party by the other shall: (1) be used solely for purposes
consistent with this Agreement; and (2) not be distributed to any
Third Party, other than employees, agents, consultants and
contractors of the receiving party or its Affiliates who work at a
facility owned or leased by the receiving party or its Affiliates,
who have reason to receive them in order to assist the receiving
party to screen, research, and develop any Hit, Lead Compound or
Approved PLP Compound in accordance with such party's obligations
under this Agreement, and who are bound by the terms of this
Agreement in the same manner as the receiving party.
2.5.3 With respect to any Hits, Lead Compounds or other compounds provided
to Cubist by BMS, Cubist agrees not to make any derivatives,
analogs, conjugates or other modifications from or with same
(collectively, "Modifications"), and agrees, to the extent not
already published, not to sequence, analyze or otherwise determine
the chemical structure or physical properties of same. If Cubist
does so in violation of the foregoing sentence, all such
Modifications, and all rights, title and interests in and to same,
shall belong exclusively to BMS.
2.5.4 Subject to article 5 hereof, either party to this Agreement may use
any information generated by the other party in conducting pre-
clinical and clinical research and/or development pursuant to this
Agreement for any purpose consistent with this Agreement, including
the use in prosecuting or defending its patents and, in the case of
BMS, use in marketing or obtaining regulatory approval for a product
or in conducting pre-clinical and clinical studies.
3.0 PAYMENTS TO CUBIST
3.1 Equity Purchase. On the Effective Date, BMS and Cubist will execute
a Stock Purchase Agreement, in the form set forth in Exhibit 3.1,
providing for the purchase by BMS of shares of Cubist's capital stock
for a total purchase price of $4,000,000. Such aggregate purchase
price shall be wired to a bank account specified by Cubist on the
Effective Date.
3.2 Research Funding. BMS will pay to Cubist ********** per calendar
year for ********* years (with an option at BMS' election for *
********** year at the same ********** level) (i) to support Cubist
in
<PAGE>
-20-
making the Primary Screening Modules, in fulfilling its obligations
under the Primary and Secondary Screening Programs during the term of
this Agreement, and otherwise in fulfilling its obligations hereunder,
and (ii) for any other research purpose that Cubist, in its sole
discretion, deems necessary, so long as Cubist is able to fulfill its
obligations under (i). Payments shall be wired to a bank account
specified by Cubist. Each annual amount shall be payable in advance in
four equal quarterly installments relating to each calendar quarter
occurring during the Research Term. Payments will be made on or before
January 15, April 15, July 15 and October 15 for the first, second,
third and fourth calendar quarters, respectively. Any payment for a
portion of a calendar quarter shall be made on a pro rata basis. The
first such payment shall be made on the Effective Date. If BMS elects
to proceed with ******** year, such option must be exercised, if at
all, by BMS not later than 90 days prior to the end of the ***** year
and shall be paid to Cubist in the same manner as payments during the
first ***** years.
3.3 Screening Program Milestones. Subject to section 3.7:
----------------------------
(a) Primary Screening Modules: BMS will pay Cubist *****************
*************************** upon the delivery of each Primary
Screening Module accepted by BMS pursuant to Section 2.1.1(a)(i).
Payments shall be wired to a bank account specified by Cubist
within thirty (30) days following such acceptance. Such payment
shall be made only once with respect to a Primary Screening Module
for each of the six (6) PSM-Program tRNA Synthetases (i.e., if
Cubist develops and provides to BMS an improved Primary Screening
Module for one previously accepted by BMS and for which BMS has
already paid the ******** fee, BMS shall not be obligated to again
pay such fee for such Module).
(b) Lead Compound Development Program., Where, pursuant to section
2.1.2, BMS has determined that a Hit should become a Lead Compound
and enter a Lead Compound Development Program conducted by BMS,
BMS will promptly notify Cubist of same and will pay to Cubist
*********************************************** for each such Lead
Compound; provided, however, that such payments will only be made
once with respect to any specific Program tRNA Synthetase and only
with respect to the first such Lead Compound that was identified
in the Primary Screening Program as a Hit having Inhibitory
Activity against such specific Program
<PAGE>
-21-
tRNA Synthetase. Accordingly, no more than six (6) such payments
in the aggregate may be made under this paragraph 3.3(b), and only
one with respect to a particular Program tRNA Synthetase (i.e., if
two Lead Compounds were both first identified in the Primary
Screening Program as Hits having Inhibitory Activity against the
same Program tRNA Synthetase, no ******** payment will be due on
the second such Lead Compound). Payments shall be wired to a bank
account specified by Cubist within thirty (30) days following
BMS's determination that a Hit should become a Lead Compound and
enter a Lead Compound Development Program.
3.4 Preclinical Lead Profile Milestones. BMS will promptly notify Cubist
-----------------------------------
of each Approved PLP Compound approved for further development by the
BMSPGOC. Subject to section 3.7 hereof, BMS will pay Cubist **********
*********************************** for each Approved PLP Compound so
approved for further development by the BMSPGOC; provided, however,
that such payments will only be made once with respect to any specific
Program tRNA Synthetase and only for the first such Approved PLP
Compound that was identified in the Primary Screening Program as a Hit
having Inhibitory Activity against such specific Program tRNA
Synthetase. Accordingly, no more than six (6) such payments in the
aggregate may be made under this paragraph 3.4, and only one with
respect to a particular Program tRNA Synthetase (i.e., if two Approved
PLP Compounds were both identified in the Primary Screening Program as
Hits having Inhibitory Activity against the same Program tRNA
Synthetase, no ******** payment will be due on the second such
Approved PLP Compound). Payments shall be wired to a bank account
specified by Cubist within thirty (30) days following such BMSPGOC
approval.
3.5 Drug Development Milestones. Subject to section 3.7 hereof, if an
---------------------------
Approved PLP Compound should reach the following milestones, BMS will
promptly notify Cubist of same and will pay the following amounts to
Cubist:
<TABLE>
<CAPTION>
Event Payment (US$)
----- -------------
<S> <C>
Initiation of Phase II Clinical Trials in any country *********
Initiation of Phase III Clinical Trials in any country *********
Filing of NDA in the U.S., Japan, France, Germany,
Great Britain, Italy, Spain or pursuant to the
</TABLE>
<PAGE>
-22-
<TABLE>
<S> <C>
coordinated EMEA filing process *********
Approval of NDA in the U.S., Japan, France, Germany,
Great Britain, Italy, Spain or pursuant to the
coordinated EMEA filing process *********
</TABLE>
provided, however, that if an Approved PLP Compound should reach a
particular milestone, but is thereafter dropped from further
development by BMS for whatever reason, then no more milestone
payments shall be due with respect to any subsequent Approved PLP
Compound that targets the same Program tRNA Synthetase as the
abandoned compound, unless and until such subsequent Approved PLP
Compound reaches the milestone next following the last milestone on
which a payment was made for the abandoned compound. For example,
milestone payments would not be required for a subsequent Approved PLP
Compound targeting the same Program tRNA Synthetase as an abandoned
compound until the filing of the NDA in one of the designated
countries, if milestone payments had been made on the abandoned
compound through initiation of Phase III clinical trials. Payments
shall be wired to a bank account specified by Cubist within thirty
(30) days following attaining each such milestone.
3.6 Royalties.
---------
3.6.1 With respect to each Covered Product, BMS shall pay a royalty
on Net Sales of such Covered Product during the Royalty Term
for such Covered Product, as follows (based on the sum of the
worldwide Net Sales in each Tier multiplied by the applicable
royalty rate for that Tier):
<TABLE>
<CAPTION>
Annual Net Sales (in US$ millions) ("Tiers") Percentage of Net Sales
-------------------------------------------- -----------------------
<S> <C>
********* **
*********** **
*************** **
</TABLE>
Where the potential use or application for a non-infectious
disease indication of any compound or analog thereof that is
incorporated as the active substance in a Covered Product was
identified (whether in laboratory notebooks, patent
applications), or otherwise) by BMS prior to the date that such
compound or analog was identified as a Hit hereunder, then no
royalty shall be due on such Covered Product to the extent sold
for the treatment or prevention of diseases or conditions other
than infectious diseases.
<PAGE>
-23-
In the event that (i) the manufacture, use or sale of a Covered
Product in a country is not covered by a Valid Claim owned or
controlled by BMS or any of its Affiliates, and (ii) a generic
competitive product has been approved in such country, then the
royalty rates set forth above shall be reduced by ***** percent
(e.g., ******************************) in such country.
Royalties for Net Sales of any Covered Product in any given
country shall be due and payable only during the Royalty Term
for such Covered Product in such country; thereafter, BMS shall
be entitled to continue to sell such Covered Product in such
country without further compensation to Cubist.
3.6.2 In the event that BMS must make royalty payments under a
license from a Third Party in respect of any patents that are
necessary to make, have made, use or sell a Covered Product,
then BMS may reduce the royalty otherwise owing on Net Sales of
such Covered Product by *** of the amount paid as a royalty to
such Third Party, but in no event shall the royalty payable
hereunder with respect to such Covered Product be reduced by
more than *** of the royalty otherwise payable hereunder during
any quarter (with carryover of any excess, unused royalty
credit to ensuing quarters). Where the royalty payable to such
Third Party is not tied specifically to Net Sales of such
Product or where the fee to obtain such license is based on
other factors (such as up-front licensing fees), the allocation
of such amounts or royalties payable by such party to such
Third Party will be determined in an equitable manner. If the
parties cannot mutually agree upon same within 90 days after
either party serves written notice on the other as to same, the
dispute shall be determined by binding arbitration in
accordance with this Agreement.
3.7 Adjustments. No payments will be due under sections 3.3(b), 3.4 and
-----------
3.5:
(i) where the active substance in such Lead Compound, Approved PLP
Compound or Covered Product (or, if such active substance is an analog
of the original active substance in such Lead Compound, Approved PLP
Compound or Covered Product, then such original active substance) was
known to or had been identified by BMS or any of its Affiliates or
funded research collaborators, or was
<PAGE>
-24-
generally known to the public, as possessing Inhibitory Activity
against an Aminoacyl-tRNA Synthetase for which such Lead Compound,
Approved PLP Compound, or Covered Product is targeted prior to the
date that such active substance was first identified as having
Inhibitory Activity against an Aminoacyl-tRNA Synthetase by reason of
the Primary and/or Secondary Screening Programs conducted by a party
under this Agreement; or
(ii) where the right to make, have made, use or sell such Lead
Compound, Approved PLP Compound, Covered Product, or the active
substance in same (or, if such active substance in such Lead Compound,
Approved PLP Compound or Covered Product is an analog of the another
active substance, then such original active substance) was or is
licensed to BMS or its Affiliates by a Third Party (A) who had
identified or ascertained, independently of any activity conducted by
BMS or Cubist pursuant to this Agreement, that such Lead Compound,
Approved PLP Compound, Covered Product, or the active substance in
same (or, if such active substance in such Lead Compound, Approved PLP
Compound or Covered Product is an analog of the another active
substance, then such original active substance), possessed Inhibitory
Activity against an Aminoacyl-tRNA Synthetase for which such Lead
Compound, Approved PLP Compound, or Covered Product is targeted, and
(B) who had identified or ascertained same prior to the date that such
active substance was first identified as having Inhibitory Activity
against an Aminoacyl-tRNA Synthetase by reason of the Primary and/or
Secondary Screening Programs conducted by a party under this
Agreement, or
(iii) where the Lead Compound or Approved PLP Compound that would
otherwise trigger such milestones was an Approved PLP Compound or a
marketed drug as of the Effective Date.
3.8 Interest on Late Payments. In the event that BMS fails to make any
-------------------------
payment required under this Article 3 when due, interest on the unpaid
balance shall accrue at an annual rate equal to the lesser of (i) ten
percent (10%) per annum. or (ii) the maximum amount permitted by
applicable law, commencing as of the due date.
<PAGE>
-25-
4.0 [INTENTIONALLY OMITTED]
5.0 INTELLECTUAL PROPERTY RIGHTS
The following provisions relate to rights in the intellectual property developed
by Cubist or BMS, or both, during the term of this Agreement:
5.1 License Rights.
--------------
5.1.1 Subject to section 2.1.1(c)(ii), Cubist grants to BMS and its
Affiliates a worldwide right and license under any Cubist Technology
and Cubist Patent Rights (A) to run the Primary Screening Program to
identify inhibitors of any Program tRNA Synthetase, and (B) to
conduct research and drug development of Hits, Lead Compounds and
Approved PLP Compounds resulting from the Primary and/or Secondary
Screening Programs pursuant to, and in accordance with, the terms
and conditions of this Agreement. Such rights shall be subject to
all payments required in article 3 hereof, and shall continue until,
and to the extent, terminated in accordance with article 12 hereof.
Subject to section 2.1.1(c)(ii) hereof, such rights granted under
subparagraph (A) of this section 5.1.1 shall be exclusive during the
Research Term and non-exclusive thereafter. The rights granted under
subparagraph (B) of this section 5.1.1 shall be non-exclusive and do
not encompass rights granted pursuant to section 5.1.2 hereof.
5.1.2 Subject to article 12 hereof, Cubist grants to BMS and its
Affiliates a worldwide, non-exclusive right and license under any
Cubist Technology and Cubist Patent Rights to screen Hits, Lead
Compounds and Approved PLP Compounds in a Secondary Screening
Program in order to identify inhibitors of any eubacterial, fungal
and human Arninoacyl-tRNA Synthetases; provided, that BMS may
exercise the rights granted under this section 5.1.2 Only to the
extent that Cubist is not fulfilling its obligations under section
2.1.1(c) hereof. In the event that BMS is entitled to exercise such
rights, Cubist will assist BMS by providing to BMS, without charge
(but only to the extent such Biological Materials may be then
already available to Cubist), such Biological Materials as are
necessary to effectuate same. Such rights shall be subject to all
payments required in article 3 hereof, and shall continue until, and
to the extent, terminated in accordance with article 12 hereof.
<PAGE>
-26-
5.1.3 If, in the course of conducting the Research Program, BMS should
make any improvement to the Screening Modules provided by Cubist to
BMS hereunder, BMS hereby grants to Cubist a fully paid-up, royalty-
free, irrevocable, non-exclusive, worldwide and perpetual right and
license to use and practice such improvement (including under any
patent rights that BMS may obtain covering such improvement) for any
purpose that is not inconsistent with the other terms and conditions
of this Agreement.
5.2 Ownership Rights.
----------------
5.2.1 Except as provided in sections 2.5.3 and 5.2.3, nothing in this
Agreement is intended to convey or transfer ownership by one party
to the other of any rights, title or interest in any Confidential
Information, know-how, Technology, or patent rights owned or
Controlled by a party. Except as expressly provided for in sections
2.1, 5.1 and 5.3 of this Agreement, nothing in this Agreement shall
be construed as a license or sublicense by one party to the other of
any rights in any Biological Materials, Technology or Patent Rights
owned or Controlled by a party or its Affiliates.
5.2.2 BMS shall own all Inventions and other Technology made solely by its
employees and agents, and all patent applications and patents
claiming such Inventions. Subject to section 5.2.3, Cubist shall own
all Inventions and other Technology made solely by its employees and
agents, and all patent applications and patents claiming such
Inventions. Subject to Section 5.2.3, all Inventions and other
Technology made jointly by employees or agents of BMS and employees
or agents of Cubist shall be owned jointly by BMS and Cubist. All
joint Inventions (and all Patent Rights obtained thereon) and all
Technology jointly developed by Cubist and BMS during the Research
Term may be freely exploited by either party without further
obligation to the other, subject to section 5.2.3 and the remaining
terms and conditions of this Agreement. Determinations of
inventorship shall be made in accordance with U.S. patent law.
5.2.3 All rights, title and interest owned or Controlled by Cubist or its
Affiliates in any Inventions and Technology pertaining to any
indication or use of any Hit, Lead Compound, Approved PLP Compound
or Covered Product (or of analogs of the class
<PAGE>
-27-
of compounds to which the same may pertain) that may be conceived or
reduced to practice at any time during the Contract Period solely by
Cubist employees or by a Third Party under contract with Cubist, or
jointly by any of them with others, in connection with the
activities conducted by Cubist under this Agreement, and all rights,
title and interest Cubist may have in any Patent Rights that may be
obtained on any of the foregoing (collectively, "Product Invention
Rights"), shall be owned exclusively by BMS, and shall be deemed to
be and have been automatically assigned to BMS by reason of Cubist's
execution of this Agreement. Cubist shall promptly report any such
Invention to BMS in sufficient detail to enable BMS to assess
whether a patent application should be filed. If BMS desires to file
patent applications on any such Invention, it will do so at its
option and expense, and Cubist will provide reasonable cooperation
as BMS may request (with BMS reimbursing Cubist for any out-of-
pocket costs so incurred) in obtaining and filing for any patent
protection thereon in BMS name and will execute any documents or
other instruments as may be reasonably requested by BMS to fully
vest exclusive ownership of such Product Invention Rights in BMS.
BMS shall be under no obligation, express or implied, to develop,
market, or otherwise utilize any such Product Invention Rights.
5.3 Sublicensing. BMS shall have the right to sublicense any of the
------------
rights licensed to it by Cubist hereunder to any Affiliate of BMS and,
subject to Cubist's approval (not to be unreasonably withheld), to a
Third Party, provided that such Affiliate or Third Party shall have
agreed to adhere to the terms and conditions of this Agreement and
provided that BMS shall not be relieved of its obligations pursuant to
this Agreement.
6.0 PAYMENTS OF ROYALTIES, ACCOUNTING FOR ROYALTIES, RECORDS
6.1 Payment Term. BMS shall pay Cubist a royalty based on the Net Sales
------------
of each Covered Product as provided in section 3.6 hereof. Such royalty
shall be paid with respect to each country of the world from the date of
the First Commercial Sale of such Covered Product in each country for the
duration of the Royalty Term with respect to such country; thereafter, BMS
shall be entitled to continue to sell such Covered Product in such country
without further compensation to Cubist hereunder.
<PAGE>
-28-
6.2 Payment Dates. Royalties shall be paid by BMS on Net Sales within
-------------
sixty (60) days after the end of each calendar quarter in which such Net
Sales are made. Such payments shall be accompanied by a statement showing
all relevant sales information including the information employed to
calculate Net Sales of each Covered Product in each country, and the
calculation of the amount of royalty due.
6.3 Accounting. The Net Sales used for computing the royalties payable to
----------
Cubist by BMS shall be computed in U.S. dollars and paid by wire transfer
or other mutually acceptable means. For purposes of determining the amount
of royalties due, the amount of Net Sales in any foreign currency shall be
computed by converting such amount into dollars at the prevailing
commercial rate of exchange for purchasing dollars with such foreign
currency as quoted by the Wall Street Journal at the close of the last
business day of the calendar quarter for which the relevant royalty payment
is to be made by BMS.
6.4 Records. BMS shall keep for three (3) years from the date of each
-------
payment of royalties complete and accurate records of sales and all other
information necessary to calculate Net Sales of each Covered Product in
sufficient detail to allow the accrued royalties to be determined
accurately. Cubist shall have the right to cause an independent, certified
public accountant (who has executed a confidentiality agreement with BMS
reasonably acceptable to BMS) to audit such records at the place or places
of business where such records are customarily kept in order to verify the
accuracy of the reports of Net Sales and royalty payments for the preceding
three years. Such audits may be exercised during normal business hours once
a year upon 30 days' advance written notice to BMS. Cubist shall bear the
full cost of such audit unless such audit discloses a variance of more than
5% from the amount of the royalties due under this Agreement, in which
event, BMS shall bear the full cost of such audit. Cubist agrees not to
disclose confidential information concerning royalty payments and reports,
and all information learned in the course of any audit or inspection,
except to the extent necessary for Cubist to reveal such information in
order to enforce its rights under this Agreement or if disclosure is
required by law.
7.0 INFRINGEMENT BY THIRD PARTIES
7.1 Actual or Threatened Infringement of a Covered Product. If
------------------------------------------------------
information comes to the attention of BMS or Cubist to the effect
<PAGE>
-29-
that any Patent Rights owned or Controlled by BMS or its Affiliates
relating to a Covered Product are being, have been or are threatened to be
infringed by a Third Party not Affiliated with BMS, BMS shall have the sole
right, at its expense, to take and control all action as BMS may deem
necessary or appropriate to prosecute or prevent such unlawful
infringement, including the right to bring, defend, settle, compromise, or
appeal any suit, action or proceeding involving any such infringement. If
BMS determines that it is necessary or desirable to bring an infringement
action and for Cubist to join any such suit, action or proceeding, Cubist
shall, at BMS's expense, execute all papers, provide full cooperation and
assistance to BMS in connection with such proceeding, and, if necessary,
take such other actions as may be reasonably required to permit BMS to act
in Cubist's name (including the furnishing of a power of attorney), and BMS
will reimburse Cubist for any out-of-pocket costs incurred in connection
therewith; provided, however, that BMS may not settle any patent
infringement litigation under this Section 7.1 in a manner that adversely
affects Cubist's Patent Rights or Technology or that would constitute an
amendment of this Agreement without Cubist's written consent (not to be
unreasonably withheld or delayed). Any recovery realized as a result of
such litigation, after reimbursement of any litigation expenses of BMS and
Cubist, *******************************************************************
***************************************************************************
*******************************************************************
*************************************************************.
7.2 Actual or Threatened Infringement of a Cubist Patent Rights.
-----------------------------------------------------------
7.2.1 BMS and Cubist shall promptly notify the other in writing of any
alleged or threatened infringement of any Patent Rights owned or
Controlled by Cubist or its Affiliates that are licensed to BMS
under this Agreement of which either becomes aware. Both parties
shall use their best efforts in cooperating with each other to
terminate such infringement without litigation. Cubist shall have
the first right to bring and control any action or proceeding with
respect to such infringement at its own expense and by counsel of
its own choice as to any such Patent Rights, and BMS shall have the
right, at its own expense, to be represented in any action involving
any such Patent Rights using counsel of its own choice.
<PAGE>
-30-
7.2.2 If, during the Research Term, Cubist fails to bring an action or
proceeding within (i) 120 days following receipt of written notice
from BMS with respect to such alleged infringement or (ii) 10 days
before the time limit, if any, set forth in the appropriate laws and
regulations for the filing of such actions, whichever comes first,
with respect to those Patent Rights as to which Cubist has the first
right to bring and control an action under section 7.2.1 above and
which are exclusively licensed to BMS hereunder, BMS shall have the
right to bring and control any such action at its own expense and by
counsel of its own choice, and Cubist shall have the right, at its
own expense, to be represented in any such action by counsel of its
own choice.
7.2.3 In the event a party brings an infringement action under this
section 7.2, the other party shall cooperate fully, including if
required to bring such action, the furnishing of a power of
attorney. Neither party shall have the right to settle any patent
infringement litigation under this Section 7.2 in a manner that
diminishes the rights licensed to the other party hereunder or which
would constitute an amendment of this Agreement, without the consent
of such other party (not to be unreasonably withheld or delayed).
Except as otherwise agreed to by the parties as part of a cost
sharing arrangement, any recovery realized as a result of such
litigation, ********************************************************
*********************************************************
8.0 DEFENSE OF INFRINGEMENT CLAIMS
8.1 Defense of Infringement Claims Pertaining to Lead Compounds, Approved
---------------------------------------------------------------------
PLP Compounds. and Products.
---------------------------
Cubist will cooperate with BMS, at BMS's expense, in the defense of any
suit, action or proceeding against Cubist, BMS, any BMS Affiliate, or any
licensee of BMS alleging the infringement of the intellectual property
rights of a third party by reason of the manufacture, use or sale of a Lead
Compound, Approved PLP Compound, or Covered Product. Cubist shall give to
BMS all authority (including the right to exclusive control of the defense
of any such suit, action or proceeding and the exclusive right to
compromise, litigate, settle or otherwise dispose of any such suit, action
or proceeding), information and assistance necessary to
<PAGE>
-31-
defend or settle any such suit, action or proceeding; provided, however,
BMS shall obtain Cubist's prior written consent to all or such part of any
settlement which requires payment or other action by Cubist (or any of its
Affiliates or licensees) or which may have an adverse effect on the
continuing use of Cubist's Technology or Patent Rights by Cubist, its
Affiliates or licensees; and provided, further, that if BMS should require
that Cubist (or any of its Affiliates or licensees) should institute or
join in any such suit, action or proceeding pursuant to this Section 8.1,
BMS shall hold Cubist (and any such Affiliate or licensee, as applicable)
free, clear and harmless from any and all costs and expenses of such
litigation, including reasonable attorneys' fees, and Cubist shall execute
all documents, provide pertinent records, and take all other actions,
including requiring persons within its control to give testimony, which may
be reasonably required in connection with such litigation. Subject to the
foregoing, Cubist (and such Affiliates and licensees) may participate in
any such litigation or other proceeding using attorneys of their choice and
at their expense.
8.2 Defense of Infringement Claims Pertaining to Patent Rights Owned or
-------------------------------------------------------------------
Controlled by Cubist.
--------------------
BMS will cooperate with Cubist, at Cubist's expense, in the defense of any
suit, action or proceeding against Cubist, any Cubist Affiliate, BMS, any
BMS Affiliate, or any licensee of BMS alleging the infringement of the
intellectual property rights of a third party by reason of the use of the
Primary Screening Modules or of the Patent and Technology rights licensed
by Cubist to BMS under this Agreement. Cubist shall give BMS prompt written
notice of the commencement of any such suit, action, proceeding or claim of
infringement and will furnish BMS a copy of each communication relating to
the alleged infringement. BMS shall give to Cubist all authority (including
the right to exclusive control of the defense of any such suit, action or
proceeding and the exclusive right, after consultation with BMS, to
compromise, litigate, settle or otherwise dispose of any such suit, action
or proceeding), information and assistance necessary to defend or settle
any such suit, action or proceeding; provided, however, Cubist shall obtain
BMS's prior written consent to all or such part of any settlement which
requires payment or other action by BMS, its Affiliates, or licensees, or
which may have an adverse effect on the continuing use of such Modules or
the rights granted hereunder by BMS, its Affiliates or licensees or which
would permit the use by a Third Party of such rights and Modules in a
manner that competes with BMS' use of
<PAGE>
-32-
same hereunder in violation of this Agreement. If Cubist should require
that BMS (or any of its Affiliates or licensees) should institute or join
any such suit, action or proceeding pursuant to this Section 8.1.2, Cubist
shall hold BMS (and such Affiliates and licensees) free, clear and harmless
from any and all costs and expenses of such litigation, including
reasonable attorneys' fees, and BMS shall execute all documents, provide
pertinent records, and take all other actions, including requiring persons
within its control to give testimony, which may reasonably be required in
connection with the prosecution of such suit, action or proceeding.
9.0 TREATMENT OF CONFIDENTIAL INFORMATION
9.1 Confidentiality
---------------
9.1.1 BMS and Cubist each recognize that the other's Confidential
Information constitutes highly valuable, confidential information.
Subject to the terms and conditions of this Agreement, BMS and
Cubist each agree that, during the term of this Agreement and for
five (5) years thereafter, it will use all reasonable efforts to
keep confidential, and will cause its Affiliates to use reasonable
efforts to keep confidential, all Cubist Confidential Information or
BMS Confidential Information, as the case may be, that is disclosed
to it or to any of its Affiliates pursuant to this Agreement.
Neither BMS nor Cubist nor any of their respective Affiliates shall
use such Confidential Information except as expressly permitted in
this Agreement.
9.1.2 BMS and Cubist each agree that any disclosure of the other's
Confidential Information to any officer, employee, contractor,
consultant, sublicensee, or agent of the other party or of any of
its Affiliates shall be made only if and to the extent necessary to
carry out its responsibilities under this Agreement and to exercise
the rights granted to it hereunder and shall be limited to the
maximum extent possible consistent with such responsibilities and
rights. BMS and Cubist may disclose the other's Confidential
Information to any Third Parties under the preceding sentence,
provided that such Third Party shall have first executed an
agreement with the party disclosing such Confidential Information to
it that obligates such Third Party to maintain same in confidence in
the same manner as the party disclosing same to it is required to do
so hereunder. Each party shall take
<PAGE>
-33-
such action, and shall cause its Affiliates to take such action, to
preserve the confidentiality of each other's Confidential
Information as it would customarily take to preserve the
confidentiality of its own Confidential Information. Each party,
upon the other's request, will return all the Confidential
Information disclosed to the other party pursuant to this Agreement,
including all copies and extracts of documents, within sixty (60)
days of the request upon the termination of this Agreement except
for one (1) copy which may be kept for the purpose of complying with
continuing obligations under this Agreement.
9.1.3 Cubist and BMS each represent that all of its employees, and any
consultants to such party, participating in the Primary and
Secondary Screening Programs or any other phase of the Alliance, who
shall have access to BMS Confidential Information or Cubist
Confidential Information are bound by agreement to maintain such
information in confidence.
9.1.4 Confidential Information shall not include any information which the
receiving party can prove by competent evidence:
(i) is now, or hereafter becomes, through no act or failure to
act on the part of the receiving party, generally known or
available;
(ii) is known by the receiving party at the time of receiving such
information, as evidenced by its records;
(iii) is hereafter furnished to the receiving party without
restriction as to disclosure or use by a Third Party lawfully
entitled to so furnish same;
(iv) is independently developed by the employees, agents or
contractors of the receiving party without the aid,
application or use of the disclosing party's Confidential
Information; or
(v) is the subject of a written permission to disclose provided
by the disclosing party; or
(vi) is provided by the disclosing party to a Third Party without
restriction as to confidentiality.
<PAGE>
-34-
A party may also disclose Confidential Information of the other where
required to do so by law or legal process, provided that, in such event,
the party required to so disclose shall give maximum practical advance
notice of same to the other party and will seek, at the request and expense
of the other party, all confidential treatment and protection for such
disclosure as is permitted by applicable law.
The parties agree that the material financial terms of this Agreement will
be considered Confidential Information of both parties. Notwithstanding the
foregoing, either party may disclose such terms as are required to be
disclosed in its financial statements or by law or under strictures of
confidentiality to bona fide potential sublicensees. Either party shall
have the further right to disclose the material financial terms of this
Agreement under strictures of confidentiality to any potential acquiror,
merger partner, bank, venture capital firm, or other financial institution
to obtain financing, or other bona fide potential strategic partner.
9.2 Publication. Notwithstanding any matter set forth with particularity
-----------
in this Agreement to the contrary but subject to section 9.1 hereof,
results obtained in the course of the Primary and Secondary Screening
Programs may be submitted for publication following scientific review by
the Research Committee and subsequent approval by both Cubist's and BMS's
managements, which approval shall not be unreasonably withheld. After
receipt of the proposed publication by both BMS's and Cubist's managements,
written approval or disapproval shall be provided within thirty (30) days
for a manuscript, within fourteen (14) days for an abstract for
presentation at, or inclusion in the proceedings of a scientific meeting,
and within fourteen (14) days for a transcript of an oral presentation to
be given at a scientific meeting. All publications pertaining to the
research and development (other than the results obtained in the Primary
and Secondary Screening Programs) of any Lead Compound, Approved PLP
Compound and any Product shall be made, approved, and determined solely by
BMS.
9.3 Publicly. Except as required by law and as provided in this article
--------
9, neither party may disclose the terms of this Agreement nor the research
contemplated hereunder without
<PAGE>
-35-
the written consent of the other party, which consent shall not be
unreasonably withheld. It is understood that the existence of this
Agreement is anticipated to form the basis of a mutual press release
that will be released by both parties promptly following the
Effective Date.
10.0 PROVISIONS CONCERNING THE FILING, PROSECUTION AND MAINTENANCE OF
PATENT RIGHTS
10.1 Inventions Pertaining to Primary Modules. With respect to an
----------------------------------------
Invention conceived or reduced to practice by either party at any
time prior to the end of the Research Term that relates to the
manufacture or use of the Primary Screening Modules or to the Patent
Rights owned or Controlled by Cubist or its Affiliates that are
licensed to BMS hereunder, the inventing party shall promptly notify
the other party, and the parties shall discuss such Invention and
the desirability of filing patent applications covering such
Invention. Cubist shall have the first right to file, prosecute,
maintain, and enforce Patent Rights for any such Inventions that are
made solely by it or jointly by it with BMS or others, at Cubist's
expense, and Cubist shall consider in good faith the requests and
suggestions of the BMS with respect to strategies for filing and
prosecuting such patent applications. BMS shall have the right to
file, prosecute, maintain and enforce Patent Rights for any such
Inventions made solely by BMS or its affiliates that relate to the
manufacture or use of the Primary Screening Modules or to the Patent
Rights owned or Controlled by Cubist or its Affiliates that are
licensed to BMS hereunder. Subject to the remaining provisions of
this section 10.1, the party having the right to control the
prosecution and filing of any such Invention shall file and
prosecute same in the name(s) of the inventors. The party
controlling such filing and prosecution shall keep the other party
informed of progress with regard to the filing, prosecution,
maintenance, enforcement, and defense of patents and patent
applications that are subject to this Section 10.1, and, if the
inventing party decides not to pursue protection at any time for any
such Invention in any particular country, it shall give the other
party reasonable notice to this effect. After that notice, the other
party may, at its expense, file, prosecute, maintain and enforce a
patent application or patent covering such Invention in such country
and shall own such patent applications or patents, subject to any
license rights expressly
<PAGE>
-36-
granted hereunder. In such case, the inventing party shall also
assign its rights in such patent applications or patents to the
other party as necessary to convey ownership to the other party.
Each party shall fully cooperate with the other party controlling
such filing, prosecution and maintenance, and will execute such
documents or other instruments as may be requested by the
controlling party in order to fully vest the rights associated with
any such Invention as set forth herein. The controlling party will
reimburse the other party for any out-of-pocket costs incurred by
the other party in connection therewith.
Where the non-controlling party is the licensee hereunder of any
rights that are or will be licensed to it under the patent
application being filed for an Invention, the party controlling such
filings and prosecutions shall provide to the other copies of all
patent applications that are part of Patent Rights covered by this
section 10.1 prior to filing, for the purpose of obtaining
substantive comment of the other party's patent counsel. The
controlling party shall also provide to such other party copies of
all documents relating to prosecution of all such patent
applications in a timely manner and shall also provide a report
every six (6) months detailing their status.
BMS shall have the right to file on behalf of and as a agent for
Cubist all applications and take all actions necessary to obtain
patent extensions pursuant to 35 USC Section 156 and foreign
counterparts for Patent Rights described in this Section 10.1 that
are licensed to BMS hereunder. Cubist agrees, to sign, at BMS's
expense, such further documents and take such further actions as may
be requested by BMS in this regard.
10.2 Inventions Pertaining to Hits and Products. BMS shall have the sole
------------------------------------------
right to file, prosecute, maintain and enforce patents in its own
name for any Inventions invented solely by BMS or jointly by BMS with
Cubist or others, or that are assigned by Cubist to BMS pursuant to
article 5 hereof, at BMS own expense, pertaining to the manufacture,
use or sale of any Hit, Lead Compound, Approved PLP Compound, or
Product (or analogs of the same class as the foregoing), and to take
any and all actions, including abandonment of claims, as
<PAGE>
-37-
BMS may deem necessary or appropriate in its sole and absolute
discretion. BMS shall keep Cubist informed of progress with regard to
the filing, prosecution, issuance, maintenance, enforcement and
defense of patents and patent applications subject to this Section
10.2, but shall not be required to provide copies of any applications
or consult with Cubist with regard to filing, prosecution, or
maintenance of same.
11.0 REPRESENTATIONS, WARRANTIES AND COVENANTS
11.1 Mutual Representations and Warranties. The parties make the
-------------------------------------
following representations and warranties to each other:
11.1.1 Each party hereby represents and warrants that such party (a) is
duly organized and validly existing under the laws of the state of
its incorporation and has full corporate power and authority to
enter into this Agreement and to carry out the provisions hereof,
(b) has the requisite power and authority and the legal right to
own and operate its property and assets, to lease the property and
assets it operates under lease, and to carry on its business as it
is now being conducted; and (c) is in compliance with all
requirements of applicable law, except to the extent that any
noncompliance would not have a material adverse. effect on the
properties, business, financial or other condition of it and would
not materially adversely affect its ability to perform its
obligations under the Agreement.
11.1.2 Due Authorization. Each party hereby represents and warrants that
-----------------
such party (a) has the requisite power and authority and the legal
right to enter into the Agreement and to perform its obligations
hereunder;. and (b) has taken all necessary action on its part to
authorize the execution and delivery of the Agreement and the
performance of its obligations hereunder.
11.1.3 Binding Agreement. Each party hereby represents and warrants to
-----------------
the other that:
(a) this Agreement has been duly executed and delivered on its behalf
and is a legal and valid obligation binding upon it and is enforceable
in accordance with its terms; (b) the execution, delivery and
performance of this Agreement by such party does not conflict with any
agreement, instrument
<PAGE>
-38-
or understanding, oral or written, to which it is a party or by which
it may be bound, nor violate any law or regulation of any court,
governmental body or administrative or other agency having authority
over it; and (c) all necessary consents, approvals and authorizations
of all governmental authorities and other persons required to be
obtained by it in connection with the Agreement have been obtained.
11.2 Cubist Technology Representations and Warranties. Cubist represents
------------------------------------------------
and warrants to BMS as of the Effective Date the following:
11.2.1 The Patent Rights listed on Exhibit 11.2 list all Cubist Patent
Rights owned or Controlled by Cubist in the Territory, and such
Exhibits specify the jurisdiction(s) by or in which such right
has been issued or registered or in which an application for
such issuance or registration has been filed, including
respective registration or application numbers. To the best
knowledge of the current officers and directors of Cubist, the
issued Patent Rights are valid and in full force and effect.
11.2.2 Except as disclosed on Exhibit 11.2, to the best knowledge of
Cubist's current officers and directors, (i) the use of the
Cubist Technology and any Cubist Patent Rights in the exercise
by BMS of the rights granted to it hereunder does not infringe
upon any patent rights, copyrights or other proprietary rights
of any Affiliate of Cubist or any Third Party in the Territory;
(ii) Cubist has no knowledge of any infringement by any Third
Party of any of the Patent Rights in the Territory; and (iii)
Cubist and each of its Affiliates are not subject to any
outstanding order, judgment or decree of any court or
administrative agency, and each has not entered into any
stipulation or agreement, restricting (A) its use of the Patent
Rights in connection with the manufacture, development, use, or
licensing of the Primary Screening Modules, or (B) Cubist's
ability to perform its obligations under this Agreement
(including without limitation its obligations hereunder with
respect to the Primary and Secondary Screening Programs).
11.2.3 There is no action, suit or proceeding pending or, to the
knowledge of its current officers and directors, that has been
threatened in writing by any Third Party against Cubist or
<PAGE>
-39-
its Affiliates which, if adversely determined, would have a
material adverse effect upon the ability of BMS to fully
utilize or exercise the Cubist Patent Rights or Cubist
Technology licensed to it hereunder.
11.2.4 The Cubist Technology and Cubist Patent Rights licensed by
Cubist to BMS pursuant to this Agreement have not been obtained
by Cubist or its Affiliates in violation of any contractual or
fiduciary obligation to which Cubist or any of its Affiliates
or any of its or their employees or, to the best knowledge of
the current officers and directors of Cubist, its or their
contractors or predecessors-in-interest (and the employees of
such contractors or predecessors-in-interests), is or was a
party, or by misappropriation of the trade secrets of any Third
Party, and the exercise by BMS or its Affiliates of the rights
licensed by Cubist to it hereunder will not violate any such
contractual or fiduciary obligation owed to any such Third
Party or render BMS liable for the payment of any royalty
attributable to or arising out of any such contractual or
fiduciary obligation or any such misappropriation. There are no
predecessors-in-interest to Cubist.
11.2.5 Other than the Patent Rights listed on Exhibit 11.2 and the
Cubist Technology, there are no licenses under any patent
rights, and, to the best knowledge of the current officers and
directors of Cubist, under any other intellectual property or
other proprietary rights owned or controlled by any Cubist
Affiliate or Third Party which are used by Cubist in connection
with the manufacture, development, use or sale of the Primary
Screening Modules for PSM-Program tRNA Synthetases.
11.2.6 Cubist has not as of the Effective Date agreed, and during the
Research Term will not agree, with any Third Party that it may
make or use any Primary Screening Modules for primary screening
purposes or that Cubist will supply Primary Screening Modules
to such Third Party for primary screening purposes. Cubist will
permit such Third Party to make or use such Primary Screening
Modules only for secondary screening purposes on terms that art
consistent with the secondary screening terms granted BMS
hereunder.
<PAGE>
-40-
Cubist further represents and warrants that:
(A) as of the Effective Date it has not licensed, and that
during the term of this Agreement it will not license, to
any Third Party any Technology or Patent Rights owned or
Controlled by Cubist to allow such Third Party to make or
use, and
(B) Cubist has not as of the Effective Date agreed to supply to
a Third Party or otherwise permit a Third Party to use, and
that during the term of this Agreement it will not supply
or otherwise permit a Third Party to use,
primary screening modules in any primary screening program
targeting Inhibitory Activity against Non-PSM-Program tRNA
Synthetases, the terms of which would limit or restrict Cubist
in any way from conducting in accordance with this Agreement
the Secondary Screening Program against any such Non-PSM-
Program tRNA Synthetase on Hits arising hereunder.
11.3 Mutual Indemnification. Each party hereby agrees to indemnify,
----------------------
defend and hold the other party, its Affiliates, its licensees, and
its and their officers, directors, employees, consultants,
contractors, sublicensees and agents (collectively, the
"Indemnitees") harmless from and against any and all damages or
other amounts payable to a Third Party, as well as any reasonable
attorneys' fees and costs of litigation incurred by such Indemnitee
as to such Claim until the indemnifying party has acknowledged that
it will provide indemnification hereunder with respect to such Claim
as provided below, (collectively, "Damages") resulting from claims,
suits, proceedings or causes of action ("Claims") brought by such
Third Party based on any research activities conducted by or through
the indemnifying party or any use by an Indemnitee of any of the
rights licensed to such Indemnitee pursuant to Article 5 hereof,
except to the extent such Damages are attributable to: (i) a
violation of law by any Indemnitee, (ii) a violation of any
contractual or fiduciary duty owed by any Indemnitee to a third
party, (iii) the misappropriation by any such Indemnitee of the
trade secrets of any third party, (iv) any negligent or wrongful act
or omission of any Indemnitee, or (v) any breach of this Agreement
or misrepresentation contained herein by an Indemnitee.
It shall be a condition precedent to an Indemnitee's right to seek
indemnification under this Section 11.3 that it shall inform the
<PAGE>
-41-
indemnifying party of a Claim as soon as reasonably practicable
after it receives notice of the Claim; shall, if the indemnifying
party acknowledges that such Claim falls within the scope of its
indemnification obligations hereunder, permit the indemnifying party
to assume direction and control of the defense, litigation,
settlement, appeal or other disposition of the Claim (including the
right to settle the claim solely for monetary consideration), and
provided, that the indemnifying party shall seek the prior written
consent (not to be unreasonably withheld or delayed) of any such
Indemnitee as to any settlement which would restrict such
Indemnitee's continuing business operations or reduce the scope of
or adversely affect the rights licensed to such Indemnitee under
this Agreement; and shall fully cooperate (including providing
access to and copies of pertinent records and making available for
testimony relevant individuals subject to its control) as requested
by, and at the expense of, the indemnifying party in the defense of
the Claim. Provided that an Indemnitee has complied with the
foregoing, the indemnifying party shall provide attorneys reasonably
acceptable to the Indemnitee to defend against any such Claim for
which the indemnifying party has acknowledged its indemnification
obligation hereunder with respect to such Claim. Subject to the
foregoing, an Indemnitee may participate in any proceedings
involving such Claim using attorneys of its/his/her choice and at
its/his/her expense.
11.4 BMS Product Indemnification. BMS agrees to indemnify, defend and
---------------------------
hold Cubist, its Affiliates, and its and their officers, directors,
employees, consultants, contractors, and agents (collectively, the
"Cubist Indemnitees") harmless from and against any and all damages
or other amounts payable to a Third Party, as well as any reasonable
attorneys' fees and costs of litigation incurred by such Cubist
Indemnitee as to such Claim until BMS has acknowledged that it will
provide indemnification hereunder with respect to such Claim as
provided below, (collectively, "Damages") resulting from claims,
suits, proceedings or causes of action ("Claims") brought by such
Third Party based on any manufacture, use or sale of an Approved PLP
Compound or Covered Product by or through BMS, except to the extent
such Damages are attributable to: (i) a violation of law by any
Cubist Indemnitee, (ii) a violation of any contractual or fiduciary
duty owed by any Cubist Indenmitee to a third party, (iii) the
misappropriation by any such Cubist Indemnitee of the trade secrets
of any third party, (iv) any negligent or wrongful act or omission
of any Cubist Indemnitee, or (v) any
<PAGE>
-42-
breach of this Agreement by an Cubist Indemnitee or
misrepresentation contained herein.
It shall be a condition precedent to an Cubist Indemnitee's right to
seek indemnification under this Section 11.4 that it shall inform
BMS of a Claim as soon as reasonably practicable after it receives
notice of the Claim; shall, if BMS acknowledges that such Claim
falls within the scope of its indemnification obligations hereunder,
permit BMS to assume direction and control of the defense,
litigation, settlement, appeal or other disposition of the Claim
(including the right to settle the claim solely for monetary
consideration), and provided, that BMS shall seek the prior written
consent (not to be unreasonably withheld or delayed) of any such
Cubist Indemnitee as to any settlement which would restrict such
Cubist's Indemnitee's continuing business operations or reduce the
scope of or adversely affect the Cubist Patent Rights licensed to
BMS under this Agreement; and shall fully cooperate (including
providing access to and copies of pertinent records and making
available for testimony relevant individuals subject to its control)
as requested by, and at the expense of, BMS in the defense of the
Claim. Provided that the Cubist Indemnitee complies with the
foregoing, BMS shall provide attorneys reasonably acceptable to
Cubist to defend against any such Claim for which BMS has
acknowledged its indemnification obligation hereunder. Subject to
the foregoing, an Cubist Indenmitee may participate in any
proceedings involving such Claim using attorneys of its/his/her
choice and at its/his/her expense.
11.5 Representations and Warranties of BMS. Except for cispentacin and
-------------------------------------
indolmycin (and analogs thereof), BMS represents and warrants to
Cubist that, as of the Effective Date, to the best knowledge of the
officers and directors of BMS, no compounds or other substances in
BMS' Materials Library have been identified by, or are known to, BMS
or its Affiliates as having Inhibitory Activity against any
Arninoacyl-tRNA Synthetase.
12.0 TERM AND TERMINATION
12.1 Term. The term of this Agreement will begin on the Effective Date
----
and shall continue until **************************************************
**************************
12.2 Termination By Mutual Agreement. The parties may at any time
-------------------------------
terminate this Agreement, in whole or in part, by written agreement
executed by both Cubist and BMS. In such event, the
<PAGE>
-43-
document effecting such termination shall specify the continuation or
termination of any license rights granted hereunder, as well as any other
terms agreed to by both parties.
12.3 Termination for Cause.
---------------------
12.3.1 Termination by BMS. In the event that Cubist materially breaches
------------------
any of the rights granted to it, or any of the material duties or
obligations imposed on Cubist, under this Agreement (for example,
but without limiting the scope of the foregoing, breach of articles
2.1.1, 2.5, 5.1, 5.2, and 9.1 hereof), and such breach is not cured
within 90 days following receipt of written notice from BMS to
Cubist specifying such breach, then, BMS may either
(i) terminate this Agreement and/or seek any damages and remedies
available to it at law or in equity, or
***********************************************************
***********************************************************
**************************************************************
*********************************************************
**********************************************************
*************************
**************************************************************
***
**************************************************************
********************************************************
********************************************************
******************************
**************************************************************
*********************************************************
**************************
12.3.2 Termination by Cubist. In the event that BMS materially breaches
---------------------
any of the rights granted to it, or any of the material duties and
obligations imposed on it, under this Agreement (for example, but
without limiting the scope of the foregoing, breach of articles
2.1.1, 3.2-3.6, 5.1, 5.2, and 9.1 hereof), and such breach is not
cured within 90 days
<PAGE>
-44-
following receipt of written notice from Cubist to BMS specifying
such breach, then, in lieu of any and all other rights and remedies
available to Cubist at law or in equity, Cubist may either
(i) pursue any remedies and damages available to it at law or in
equity (other than termination of this Agreement and/or any rights
licensed to BMS hereunder), or
(ii) terminate this Agreement and/or any rights licensed to BMS
hereunder; provided, that in such event:
***********************************************************
********************************************************
************************
***************************************************************
**************************************************
********************************************************
*******************************************************
********************************************************
*********************************************************
**********************************************************
*********************************************************
*************************************************
*********************************************************
**********************************************************
*******************************************************
*********************************************************
*********************************************************
*****************************************************
*********************************************************
*********************************************************
**********************************************************
****************
**********************************************************
**********************************************************
*******************************************************
**********************************************************
*************
<PAGE>
-45-
*******************************************************
**********************************************************
*****************
*************************************************************
*********************************************************
************************
12.3.3 Dispute, In the event of a dispute between the parties as to
-------
whether a material breach has occurred under this Agreement
entitling a party to exercise its rights under section 12.3.1 or
12.3.2 hereof, the dispute shall be resolved pursuant to the dispute
resolution procedures set forth in section 13.0 hereof.
12.3.4 No Waiver. An election of remedy by a party for material breach of
---------
this Agreement under this section 12.3 on one occasion shall not
constitute a waiver as to any other remedy that may be available
under this section 12.3 as to any material breach by the other party
on another occasion.
************************************************************************
******************************
*************************************************************************
***********************************************************************
*********************************************************************
***********************************************************************
************************************************************************
*********************************************************************
***********************************************************************
******************************************************************
************************************************************************
******************************************:
*********************************************************************
**********************************************
*****************************************************************
*************************************************************
**************************************************************
************************************************************
*************************************************************
***********************************
<PAGE>
-46-
*****************************************************************
**************************************************************
**********************************************************
**************************************************************
*************************************************************
****************************************************************
****************************************************************
*************************************************************
***************************************************************
************************************************************
************************************************************
**************************************************************
****************************************************************
*************************************************************
**********************************************************
*************************************************************
******************************************************
************************************************
********************************************************************
***********************
**
*************************************************************************
*******************************************************************
********************************************************
*******************************************************************
**************************************************************
****************************************************************
**************************************************************
**************************************************************
***************************************************************
****************************************************************
****************************************************************
************************************************************
<PAGE>
-47-
***********************************************************
**********************************************************
***************************************************************
***********************************************************
*******************************************************************
************************
*****************************************************************
************************************************************
*********************************************************
*************************************************************
***************************************************************
*************************************************************
****************************************************************
************************************************************
*********************************************************
************************
12.5 Effect of Bankruptcy. If a party becomes insolvent or admits in
--------------------
writing its inability to pay its debts as they mature or applies for
or consents to the appointment of a receiver or trustee for any of
its properties; or a receiver or trustee is appointed for such party
or a substantial portion of its properties and is not discharged
within ninety (90) days; or any bankruptcy, reorganization, debt
arrangement, dissolution, liquidation or other proceeding under any
bankruptcy or insolvency law is instituted by or against such party
and, if instituted against such party, it is consented to by such
party or remains undismissed for ninety (90) days, then
12.5.1 Notwithstanding any such event, such party shall remain
obligated to fulfill its obligations and covenants hereunder,
and any failure to do so or other breach hereunder shall
entitle the other party to terminate this Agreement in
accordance with section 12.3 hereof; and
12.5.2 It is the parties desire that, if any such receiver, trustee,
judge, arbitrator or other adjudicator conducting or
controlling such proceedings on behalf of a party should hold
that any obligations, covenants or duties of such party
hereunder should be suspended or declared unenforceable, in
whole or in part, then the rights and benefits granted to the
other party hereunder shall remain in full force and effect,
<PAGE>
-48-
and that any such obligations, covenants or duties shall be reformed
by such receiver, trustee, judge, arbitrator or other adjudicator so
as to be enforceable to the maximum extent permitted by applicable
law and to permit any suspension to be lifted at the earliest
practicable time.
12.6 Effect of Expiration or Termination.
-----------------------------------
12.6.1 Expiration or termination of this Agreement shall not relieve the
parties of any obligation accruing prior to such expiration or
termination. The obligations and rights of the parties under
sections 2.1.4, 2.5, 5.1.3, 5.2, 6.0, 7.0, 8.0, 9.0, 10.0, 11.3,
11.4, 12.3, 12.4, 12.5, 13, and 14 hereof, as well as any sections,
which, by their intent or meaning are intended to so survive, shall
survive termination or expiration of this Agreement. Except as
expressly provided in this Agreement, the rights and obligations of
the parties under Article 5 hereof shall terminate and be of no
further force or effect whatsoever upon any termination of this
Agreement.
12.6.2 In the event that either party terminates rights granted to the
other pursuant to Section 12.3 hereof, the defaulting party shall
promptly return to the other party all Confidential Information and
Biological Materials of the other party pertaining to the rights so
terminated.
13.0 DISPUTE RESOLUTION
13.1 Disputes. The parties recognize that disputes as to certain matters
--------
may from time to time arise during the term of this Agreement which relate
to either party's rights and/or obligations hereunder or thereunder. It is
the objective of the parties to establish procedures to facilitate the
resolution of disputes arising under this Agreement in an expedient manner
by mutual cooperation and without resort to litigation. To accomplish this
objective, the parties agree to follow the procedures set forth in this
Article 13 if and when a dispute arises under this Agreement (including
without limitation under Article 12 hereof) between the parties or among
the Research Committee.
13.2 Dispute Resolution Procedures.
-----------------------------
13.2.1 If the parties or the Research Committee cannot resolve the dispute
within 20 days of formal request by either party to the other, any
party may, by written notice to the other, have
<PAGE>
-49-
such dispute referred to their respective officers designated below
or their successors, for attempted resolution by good faith
negotiations within 30 days after such notice is received. The
designated officer of BMS shall have the tie-breaking vote with
respect to all matters pertaining to the research, development,
manufacture, use and sale of Hits, Lead Compounds, Approved PLP
Compounds, and Products; provided, that the such tie-breaking vote
shall not encompass any matters pertaining to the designation or
change of the Program tRNA Synthetases that are the subject of this
Agreement or as to any matter involving the scope or validity of any
rights licensed to BMS hereunder. Said designated officers are as
follows:
For BMS: President of the Pharmaceutical Research Institute with
regard to scientific and technical issues; President of the
Pharmaceutical Group with regard to all other matters
For Cubist: President
13.2.2 Any such dispute arising out of or relating to this Agreement which
is not resolved between the parties or the Steering Committee or the
designated officers of the parties pursuant to section 13.2.1 shall
be resolved by final and binding arbitration conducted in New York,
New York under the then current Licensing Agreement Arbitration
Rules of the American Arbitration Association ("AAA"). The
arbitration shall be conducted by one arbitrator who is
knowledgeable in the subject matter which is at issue in the dispute
and who is selected by mutual agreement of the parties or, failing
such agreement, shall be selected according to the AAA rules. In
conducting the arbitration, the arbitrator shall apply the New York
Evidence Code, and shall be able to decree any and all relief of an
equitable nature, including but not limited to such relief as a
temporary restraining order, a preliminary injunction, a permanent
injunction, or replevin of property. The arbitrator shall also be
able to award actual, general or consequential damages, but shall
not award any other form of damage (e.g., punitive or exemplary
damages). The parties shall share equally the arbitrator's fees and
expenses pending the resolution of the arbitration unless the
arbitrator, pursuant to its right but not its obligations, requires
the non-prevailing party to bear all or any portion of the costs of
the
<PAGE>
-50-
prevailing party. The decision of the arbitrator shall be final
and may be sued on or enforced by the party in whose favor it runs
in any court of competent jurisdiction at the option of such party.
The parties shall have such discovery rights as the arbitrator may
allow.
13.2.3 Notwithstanding anything to the contrary in this section 13, either
party may seek immediate injunctive or other interim relief from any
court of competent jurisdiction with respect to any breach of
articles 5, 9 or 10 hereof.
14.0 MISCELLANEOUS
14.1 Assignment. Notwithstanding any provision of this Agreement to the
----------
contrary, either party may assign any of its rights or obligations
under this Agreement in any country to any Affiliates; provided,
however, that such assignment shall not relieve the assigning party
of its responsibilities for performance of its obligations under
this Agreement.
Either party may also assign its rights or obligations under this
Agreement in connection with the sale of all or substantially all of
its assets subject to Section 12.4, or may otherwise assign its
rights or obligations under this Agreement with the prior written
consent of the other party. Subject to Section 12.4, this Agreement
shall survive any merger of either party with or into another party
and no consent for a merger or similar reorganization shall be
required hereunder; provided, that in the event of such merger or in
the event of a sale of all assets, no intellectual property rights
of the acquiring corporation shall be included in the technology
licensed hereunder.
14.2 Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of the successors and permitted assigns of the parties.
Any assignment not in accordance with this Agreement shall be void.
14.3 Force Majeure. Neither party shall lose any rights hereunder or be
-------------
liable to the other party for damages or losses on account of
failure of performance by the defaulting party if the failure is
occasioned by government action, war, fire, explosion, flood,
strike, lockout, embargo, act of God, or any other similar cause
beyond the control of the defaulting party, provided that the party
claiming force majeure has exerted all reasonable efforts to avoid
or remedy such force majeure.
<PAGE>
-51-
14.4 Notices. Any notices or communications provided for in this
-------
Agreement to be made by either of the parties to the other shall be
in writing, in English, and shall be made by prepaid air mail with
return receipt addressed to the other at its address set forth
below. Any such notice or communication may also be given by hand,
or facsimile to the appropriate designation. Notices shall be sent:
If to BMS, to: Bristol-Myers Squibb Company
P.O. Box 4000
Route 206 & Province Line Road
Princeton, NJ 08543-4000
Attention: Senior Vice President, Exploratory
Research & Drug Discovery
If to Cubist, to: Cubist Pharmaceuticals, Inc.
24 Emily Street
Boston, MA 02139
Attention: President
provided that if such notice or communication relates to an
amendment to this Agreement or to any notice pursuant to section 12
hereof, a copy shall also be sent to:
If to BMS, to: Attention: Vice President & Senior Counsel,
Pharmaceutical Research Institute and
Worldwide Strategic Business Planning.
If to Cubist, to: Justin Morreale, Esq.
Bingham, Dana & Gould
150 Federal Street
Boston, MA 02110-1726
Either party may by like notice specify or change an address to
which notices and communications shall thereafter be sent. Notices
sent by mail, facsimile or cable shall be effective upon receipt and
notices given by hand shall be effective when delivered.
14.5 Governing Law. This Agreement shall be governed by the laws of the
-------------
State of New York, as such laws are applied to contracts entered
into and to be performed within such state.
14.6 Waiver. Except as specifically provided for herein, the waiver from
------
time to time by either of the parties of any of their rights or
their failure to exercise any remedy shall not operate or be
construed as a
<PAGE>
-52-
continuing waiver of same or of any other of such party's rights or
remedies provided in this Agreement.
14.7 Severability. If any term, covenant or condition of this Agreement
------------
or the application thereof to any party or circumstance shall, to
any extent, be held to be invalid or unenforceable, then the
remainder of this Agreement, or the application of such term,
covenant or condition to parties or circumstances other than those
as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant or condition of this
Agreement shall be valid and be enforced to the fullest extent
permitted by law; and the parties hereto covenant and agree to
renegotiate any such term, covenant or application thereof in good
faith in order to provide a reasonably acceptable alternative to the
term, covenant or condition of this Agreement or the application
thereof that is invalid or unenforceable, it being the intent of the
parties that the basic purposes of this Agreement are to be
effectuated.
14.8 Independent Contractors. It is expressly agreed that Cubist and BMS
-----------------------
shall be independent contractors and that the relationship between
the two parties shall not constitute a partnership or agency of any
kind. Neither Cubist nor BMS shall have the authority to make any
statements, representations or commitments of any kind, or to take
any action, which shall be binding on the other, without the prior
written authorization of the party to do so.
14.9 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
14.10 Entire Agreement. This Agreement between the parties of even date
----------------
herewith set forth all of the covenants, promises, agreements,
warranties, representations, conditions and understandings between
the parties hereto, and supersede and terminate all prior agreements
and understanding between the parties, with respect to the subject
matter hereof. There are no covenants, promises, agreements,
warranties, representations conditions or understandings, either
oral or written, between the parties other than as set forth herein
and therein. No subsequent alteration, amendment, change or addition
to this Agreement shall be binding upon the parties hereto unless
reduced to writing and signed by the respective authorized officers
of the parties. This Agreement shall not be strictly construed
against either party hereto. Any conflict between the terms set
forth in the text of this Agreement and the
<PAGE>
-53-
terms of any Exhibit hereto shall be resolved in favor of the text
of this Agreement.
14.11 No Third Party Beneficiaries. No third party including any employee
----------------------------
of any party to this Agreement, shall have or acquire any rights by
reason of this Agreement. Nothing contained in this Agreement shall
be deemed to constitute the parties partners with each other or any
third party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives.
<TABLE>
<S> <C>
BRISTOL-MYERS SQUIBB CUBIST PHARMACEUTICALS,
COMPANY INC.
By: By:
--------------------- ---------------------
Title: Title:
------------------ ------------------
Date: Date:
------------------- -------------------
</TABLE>
<PAGE>
SUPPLY AND SERVICES AGREEMENT
This Supply and Services Agreement (the "Agreement") is made as of
November 1, 1995 (the "Effective Date"), by and between Terrapin Technologies,
- ----------
Inc., a Delaware corporation ("Terrapin") and Cubist Pharmaceuticals, Inc., a
Delaware corporation ("Cubist").
RECITALS
WHEREAS, Terrapin possesses a library of compounds and is able to determine
the affinity of each compound versus Terrapin's reference proteins employed in
Terrapin's proprietary TRAP(TM) technology (the "Terrapin Technology"); and
WHEREAS, Terrapin desires to apply the Terrapin Technology to Terrapin's
library of compounds (the "Terrapin Library") in order to identify and provide
Cubist with those compounds which are most likely to be active in Cubist's
proprietary aminoacyl tRNA synthetase ("Synthetase") assays (the "Synthetase
Assays," as more fully described below and in Exhibit A attached hereto); and
WHEREAS, Cubist desires to compensate Terrapin for any compounds and
chemical structures provided to Cubist by paying Terrapin a flat fee and to
compensate Terrapin for any compounds and chemical structures selected by Cubist
for derivatization, development or commercialization by paying Terrapin
additional amounts based on how active such compounds are in the Synthetase
Assays, on the achievement of certain milestones and on commercial sales;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants set forth below, the parties hereby agree as follows:
ARTICLE 1
SELECTION AND PROVISION OF SUPPLIED COMPOUNDS
1.1 INITIAL COMPOUNDS. Terrapin promptly shall select approximately 75
compounds (the "Initial Compounds") from the Terrapin Library. The Initial
Compounds will exhibit the maximum degree of chemical diversity from among the
Terrapin Library, based on the
<PAGE>
Terrapin Technology. Terrapin promptly shall ship the Initial Compounds to
Cubist in approximately 500 microgram lots.
1.2 SCREENING FOR AND REPORTING OF INITIAL COMPOUND PRIMARY SYNTHETASE
ASSAY ACTIVITY. Within 45 days of receipt of the Initial Compounds, Cubist
shall (i) screen each such compound in its bacterial aminoacyl tRNA synthetase
inhibition assays (collectively, the "Primary Bacterial Synthetase Assay"); (ii)
notify Terrapin of the IC50 in the Primary Bacterial Synthetase Assay (the
"Primary Bacterial Synthetase Assay Activity") for each Initial Compound; within
90 days of receipt of the Initial Compounds, Cubist shall (iii) screen each such
compound in its fungal aminoacyl tRNA synthetase inhibition assays
(collectively, the "Primary Fungal Synthetase Assay"); and (iv) notify Terrapin
of the IC50 in the Primary Fungal Synthetase Assay (the "Primary Fungal
Synthetase Assay Activity") for each Initial Compound.
1.3 FIRST ADDITIONAL COMPOUNDS. Upon receipt of the notification of the
Initial Compound Primary Bacterial and Fungal Synthetase Assays Activity,
Terrapin promptly shall select approximately 50 compounds (the "First Additional
Compounds") from the Terrapin Library. The First Additional Compounds shall be
those compounds which Terrapin believes, in its sole discretion, exhibit the
greatest likelihood of Primary Bacterial or Fungal Synthetase Assay Activity,
based upon the Terrapin Technology and the Initial Compound Primary Bacterial
and Fungal Synthetase Assays Activity. Terrapin promptly shall ship the First
Additional Compounds to Cubist in approximately 500 microgram lots.
1.4 SCREENING FOR AND REPORTING OF FIRST ADDITIONAL COMPOUND PRIMARY
SYNTHETASE ASSAY ACTIVITY. Within ******* of receipt of the First Additional
Compounds, Cubist shall (i) screen each such compound in the Primary Bacterial
and Fungal Synthetase Assays, and (ii) notify Terrapin of the Primary Bacterial
and Fungal Synthetase Assay Activity for each such compound.
1.5 SECOND ADDITIONAL COMPOUNDS. Upon receipt of the notification of the
First Additional Compound Primary Bacterial and Fungal Synthetase Assay
Activity, Terrapin promptly shall select approximately 50 compounds (the "Second
Additional Compounds") from the Terrapin Library. The Second Additional
Compounds shall be those compounds which Terrapin believes, in its sole
discretion, exhibit the greatest likelihood of Primary Bacterial or Fungal
Synthetase Assay Activity, based upon the Terrapin Technology and the Primary
Bacterial and Fungal Synthetase Assay Activity of the Initial Compounds and the
First
<PAGE>
Additional Compounds. Terrapin promptly shall ship the Second Additional
Compounds to Cubist in approximately 500 microgram lots.
1.6 SCREENING FOR AND REPORTING OF SECOND ADDITIONAL COMPOUND ACTIVITY IN
PRIMARY SYNTHETASE ASSAY. Within 45 days of receipt of the Second Additional
Compounds, Cubist shall (i) screen each such compound in the Primary Bacterial
and Fungal Synthetase Assays, and (ii) notify Terrapin of the Primary Bacterial
and Fungal Synthetase Assay Activity for each such compound.
1.7 SUBSEQUENT IDENTIFICATION OF COMPOUNDS. If, at any time after the
provision to Cubist of the Second Additional Compounds and prior to the
expiration or earlier termination of this Agreement pursuant to Article 7
hereunder, Terrapin acquires compounds (the "Subsequent Compounds") which it
believes, in its sole discretion, exhibit a significant likelihood of Primary
Bacterial and Fungal Synthetase Assay Activity, Terrapin may ship such compounds
to Cubist in approximately 500 microgram lots, subject to any contrary
obligations to third parties or to restrictions imposed by law. The Subsequent
Compounds, together with the Initial Compounds, the First Additional Compounds
and the Second Additional Compounds, collectively shall be known as the
"Supplied Compounds."
1.8 SCREENING FOR AND REPORTING OF COMPOUND ACTIVITY IN SECONDARY
BACTERIAL SYNTHETASE ASSAY. Within 30 days after Cubist provides the
notification to Terrapin required by Section 1.6 (ii) and within 30 days after
receipt of any Subsequent Compound, Cubist shall (i) screen in secondary
bacterial aminoacyl tRNA synthetase assays (the "Secondary Bacterial Synthetase
Assay") Initial Compounds, First Additional Compounds, and Second Additional
Compounds whose Primary Bacterial Synthetase Assay Activity was 10 micromolar or
lower, as well as any other Supplied Compounds, including but not limited to
Subsequent Compounds, which, in the sole judgment of Cubist, show promise as
anti-infective agents against the target pathogens specified in Exhibit A, and
(ii) notify Terrapin of the IC50 for each such compound screened in the
Secondary Bacterial Synthetase Assays (the "Secondary Bacterial Synthetase Assay
Activity").
1.9 SCREENING FOR AND REPORTING OF COMPOUND ACTIVITY IN TERTIARY
SYNTHETASE SELECTIVITY ASSAY. Within 30 days after Cubist provides the
notification to Terrapin required by Section 1.6(ii) and Section 1.8(ii) and
within 45 days after receipt of any Subsequent Compounds, Cubist shall (i)
screen in tertiary human aminoacyl tRNA synthetase assays
<PAGE>
(the "Tertiary Synthetase Selectivity Assay") Initial Compounds, First
Additional Compounds, and Second Additional Compounds whose Primary Bacterial
and Fungal Synthetase Assay Activity was 10 micromolar or lower, as well as any
other Supplied Compounds, including but not limited to Subsequent Compounds,
which in the sole discretion of Cubist, show promise as antiinfective agents
against the target pathogens specified in Exhibit A, and (ii) notify Terrapin of
the IC50 for each such compound screened in the Tertiary Synthetase Selectivity
Assay (the "Tertiary Synthetase Selectivity Assay Activity").
1.10 APPLICATION OF TERRAPIN TECHNOLOGY TO COMPOUNDS OWNED BY CUBIST. At
any time during the term of this Agreement, Cubist may send Terrapin up to 1,000
compounds owned by Cubist in approximately 2.5 mg lots, distinct from the
Terrapin Supplied Compounds. Terrapin may apply the Terrapin Technology to such
compounds to assist Terrapin in making its determinations pursuant to Sections
1.1, 1.3, 1.5, and 1.7 hereof. Within 90 days of receipt of compounds pursuant
to this Section 1.10, Terrapin shall return or destroy such compounds, as
directed in writing by Cubist. Terrapin shall not attempt to ascertain, by any
means, the chemical structure or any other information concerning any compound
supplied by Cubist under this Section 1.10, an undertaking that shall survive
for a period of 5 years following the expiration or earlier termination of this
Agreement.
1.11 INITIAL PAYMENT. Cubist shall pay Terrapin *************************
in partial consideration of Terrapin's entering into this Agreement. This amount
shall not be subject to withholding tax or any other setoffs. Such payment shall
be due within 30 days of the Effective Date.
ARTICLE 2
SHIPMENT OF COMPOUNDS
2.1 All deliveries pursuant to this Agreement shall be prepaid by the
shipper.
<PAGE>
ARTICLE 3
PROVISION OF CHEMICAL STRUCTURE OF ACTIVE COMPOUNDS;
PAYMENT FOR ACTIVE COMPOUNDS SELECTED BY CUBIST
3.1 CATEGORIZATION OF ACTIVE COMPOUNDS. Each Supplied Compound which is
screened by Cubist pursuant to subsections 1.2(i) and 1.2(iii) and exhibits
Primary Bacterial or Fungal Synthetase Activity of 10 micromolar or less shall
be known collectively as "Micromolar Compounds"; each Supplied Compound which is
screened by Cubist pursuant to subsection 1.8(i) and exhibits Secondary
Bacterial Synthetase Activity of 999 nanomolar or less for at least four (4)
bacterial pathogen synthetases shall be known as "Broad Spectrum Compounds", and
each Supplied Compound screened by Cubist pursuant to subsection 1.9(i) which
exhibits Primary Bacterial or Fungal Synthetase Activity of 999 nanomolar or
less and is at least 100-fold less potent in the Tertiary Synthetase Selectivity
Assay shall be known as "Selective Compounds". The Micromolar Compounds, the
Broad Spectrum Compounds, and the Selective Compounds shall be collectively
known as "Active Compounds".
3.2 LIST OF ACTIVE COMPOUNDS. Simultaneously with delivery of the
notification required by subsection 1.8 (ii), Cubist shall provide Terrapin with
a list (the "List of Active Compounds") of all Supplied Compounds received to
date and not set forth in any prior List of Active Compounds, which list shall
divide such compounds into four (4) categories: (i) Micromolar Compounds; (ii)
Broad Spectrum Compounds; (iii) Selective Compounds; and (iv) all other Supplied
Compounds.
3.3 STRUCTURE OF ACTIVE COMPOUNDS. Within 30 days of receipt of the List
Of Active Compounds, Terrapin shall provide Cubist with the chemical structure
of each Active Compound on such list.
3.4 COVENANT NOT TO REVERSE ENGINEER. Cubist will not attempt to
ascertain, by any means, the chemical structure or any other information
concerning any Supplied Compound unless and until Terrapin has provided the
chemical structure of such Supplied Compound to Cubist pursuant to Section 3.3.
Notwithstanding the foregoing, Cubist may run the Primary and Secondary
Synthetase Assays on the Supplied Compounds. The above covenant shall survive
for a period of 5 years following the expiration or earlier termination of this
Agreement.
<PAGE>
3.5 PAYMENT FOR ACTIVE COMPOUNDS SELECTED BY CUBIST. Within 30 days of
receipt of the chemical structures pursuant to Section 3.3 (the "Initial
Selection Period"), Cubist shall pay Terrapin in accordance with the following
schedule for Active Compounds which Cubist, at such time and in its sole
discretion, selects for Derivatization, as herinafter defined, for development
or for commercialization:
(a) Micromolar Compounds. Cubist shall pay Terrapin
******************** in respect of the first selected Micromolar Compound and
********************************* in respect of each additional selected
Micromolar Compound; and
(b) Broad Spectrum Compounds. Cubist shall pay Terrapin
******************** in respect of each selected Broad Spectrum Compound; and
(c) Selective Compounds. Cubist shall pay Terrapin
*********************** in respect of each selected Selective Compound.
Cubist shall pay Terrapin only one amount in respect of each Active Compound,
such amount being equal to the greatest amount payable pursuant to subsection
(a), (b), or (c) of this Section 3.5. No amounts payable pursuant to this
Section 3.5 shall be subject to withholding tax or any other setoffs. If, at any
time prior to expiration or termination of this Agreement and after the Initial
Selection Period, Cubist should, in its sole discretion, select for
Derivatization, development or commercialization any Active Compound, it shall,
within 30 days of such selection, pay Terrapin such amounts as would be due
Terrapin if such selection were made during the Initial Selection Period. It is
understood that Cubist shall not be required to select for Derivatization,
development or commercialization any of the Active Compounds, the decision as to
selection being committed to Cubist's sole discretion. Notwithstanding any other
provision of this Section 3.5, if Cubist does select at least one Active
Compound for Derivatization, development or commercialization, Cubist's total
payments to Terrapin under this Section shall not be less than
*********************. "Derivatization" shall mean the development or
commercialization of a Derivative, as such term is defined in Section 4.2 below.
<PAGE>
ARTICLE 4
OWNERSHIP OF PROPERTY; ROYALTIES AND MILESTONES
4.1 SYNTHETASE RIGHTS TO SELECTED COMPOUNDS. Subject to the limitation of
Section 6.1, upon selection by Cubist of any Active Compound for Derivatization,
development or commercialization (and payment to Terrapin of the appropriate
amount under Section 3.5), as between Cubist and Terrapin, Cubist shall be
deemed to have all right, title and interest to that compound and Derivatives
thereof (and related intellectual property), but solely for the purpose of
developing and commercializing the compound(s) and Derivatives as anti-infective
agents. (See Section 4.2 for definition of Derivative). Notwithstanding the
foregoing, Terrapin shall retain all rights to its intellectual property for
purposes other than the Derivatization, development or commercialization of
Active Compounds as anti-infective agents.
4.2 ROYALTIES AND OTHER CONSIDERATION TO TERRAPIN. In the event that
Cubist shall sell commercially as an anti-infective agent any Active Compound
(or Derivative of an Active Compound), Cubist shall pay Terrapin a ******** of
Cubist's worldwide Net Sales of such compound (gross sales, less discounts,
allowances, rebates, etc. actually granted). Cubist shall have the right to
license any such compound to one or more third parties, in which case Terrapin
shall receive a ****************** Such royalty payments to Terrapin will be
made within twenty-one days of the close of each quarter, or in the case of
Terrapin's share of royalties received by Cubist from Cubist's licensee(s),
within ten days after Cubist's receipt of such royalties, whichever is later.
Terrapin shall also receive ************ of any Performance Payment and Contract
Signature Payments that Cubist receives from its licensee(s), said payments by
Cubist to be made within ten days after Cubist receives such payment from its
licensee(s). As used herin, "Contract Signature Payment" means license fees and
similar up-front payments and Technology Premium Equity Payments, but does not
include reimbursement of research and development costs. Technology Premium
Equity Payments means *************************.
<PAGE>
***************************************** As used herein, "Performance Payments"
means a payment made by Cubist's licensee(s) to Cubist for fulfillment of a
designated developmental or regulatory milestone. As used herein, "Derivative"
means any compound which, but for an Active Compound or information contained in
an Active Compound, would not have been identified, discovered, synthetized or
developed by Cubist, sublicensees or agent, at the time such compound actually
was identified, synthesized or developed by Cubist, sublicensees or agent.
4.3 REPORTS TO TERRAPIN. If Cubist selects an Active Compound for further
Derivatization, development or commercialization, it shall provide Terrapin with
developmental progress reports on a semiannual basis in July and January of each
calendar year. In addition, any royalty or share of Performance Payments or
Contract Signature Payments that is made to Terrapin under Section 4.2 shall be
accompanied by a report in sufficient detail to permit Terrapin to ascertain the
basis for such payment. Cubist shall permit Terrapin or its authorized
accounting representative to audit Cubist's relevant records once annually to
permit Terrapin to verify that the required payments have been made to Terrapin
under this Agreement.
4.4 EXCLUSIVITY. Without limitation as to the provisions of Section 6.1,
below, during the term of this Agreement, Terrapin will not knowingly provide
any compounds from the Terrapin Library or any information derived from such
compounds, including, but not limited to, the chemical structure of such
compounds, to third parties for use in the discovery and development of products
for the treatment of infectious diseases based on the Synthetase Assays, except
insofar as such Synthetase Assays become generally available to the public. No
compound selected by Cubist for further Derivatization, development and
commercialization pursuant to Section 3.5 shall be knowlingly supplied by
Terrapin to a third party for use as an anti-infective agent at any time during
the term of this Agreement or for 5 years following its expiration or earlier
termination.
4.5 CUBIST TO HAVE EXCLUSIVE CONTROL OVER DEVELOPMENT AND
COMMERCIALIZATION. It is understood that Cubist shall have complete control over
the development and commercialization of any Active Compound that it selects
from the Supplied Compounds (and the Derivatives), including but not limited to
decisions concerning the allocation of resources to such project and whether or
not to continue with or cease the development or commercialization of any such
compound or Derivative; provided, however, if Cubist ceases the development or
commercialization of such compound or Derivative it shall promptly notify
<PAGE>
Terrapin of such cessation and the last sentence of Section 4.4 shall not be
applicable to such compound.
ARTICLE 5
CONFIDENTIAL INFORMATION
5.1 NONDISCLOSURE OBLIGATIONS. Anything in this Agreement to the contrary
notwithstanding but subject to the provisions of Section 4.1, for 5 years
following the expiration or termination of this Agreement any and all knowledge,
know-how, screening results, compound structures, practices, processes or other
information received by one party to this Agreement (the "Receiving Party") from
the other party to this Agreement (the "Disclosing Party") pursuant to Article 1
or Article 3 hereof (hereinafter referred to as "Confidential Information")
shall be received and maintained by the Receiving Party in strict confidence and
shall not be disclosed to any third party. For purposes of the preceding
sentence, information derived by Terrapin from the compounds sent to Terrapin
pursuant to Section 1.10 hereof shall be deemed to be Confidential Information
received by Terrapin. Furthermore, for 5 years following the expiration or
termination of this Agreement the Receiving Party shall not use said
Confidential Information for any purpose other than those purposes specified in
this Agreement. The Receiving Party may disclose Confidential Information to
employees requiring access thereto for the purposes of this Agreement; provided,
however, that prior to making any such disclosures, each such employee shall be
apprised of the duty and obligation to maintain Confidential Information in
confidence and not to use such information for any purpose other than in
accordance with the terms and conditions of this Agreement. The Receiving Party
agrees to take all steps necessary to ensure that the Confidential Information
received will be maintained in confidence including such steps as it takes to
prevent the disclosure of its own proprietary and confidential information of
like character. Each party agrees that this Agreement shall be binding upon its
affiliates, and upon the employees and associates of such party and its
affiliates. Each party will take all steps necessary to ensure that its
affiliates, employees and associates will comply with the terms and conditions
of this Agreement.
5.2 EXCEPTIONS. The nondisclosure and non-use obligations of Section 5.1
hereof shall not apply to Confidential Information which the Receiving Party can
establish by competent written proof:
<PAGE>
(a) at the time of disclosure is in the public domain;
(b) after disclosure, becomes part of the public domain by
publication or otherwise, except by (i) breach of this Agreement by the
Receiving Party or (ii) disclosure by any person or affiliate company to whom
Confidential Information was disclosed under Section 5.1 hereof;
(c) was in the Receiving Party's possession at the time of disclosure
by the Disclosing Party;
(d) is received by the Receiving Party from a third party who has the
lawful right to disclose the Confidential Information and who shall not have
obtained the Confidential Information either directly or indirectly from the
Disclosing Party; or
(e) is disclosed as required by law or regulation.
In the event that Confidential Information is required to be disclosed
pursuant to subsection (e), the Receiving Party shall notify the Disclosing
Party to allow the Disclosing Party to assert whatever exclusions or exemptions
may be available to it under such law or regulation.
ARTICLE 6
DISCLAIMER OF WARRANTIES
6.1 THE SUPPLIED COMPOUNDS AND THE CHEMICAL STRUCTURES OF ACTIVE COMPOUNDS
ARE BEING SUPPLIED TO CUBIST WITH NO WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING ANY WARRANTY OF MERCHANT ABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR THAT THEY ARE FREE FROM THE RIGHTFUL CLAIM OF ANY THIRD PARTY, BY WAY OF
INFRINGEMENT OR THE LIKE. TERRAPIN MAKES NO REPRESENTATIONS THAT THE USE OF THE
SUPPLIED COMPOUNDS OR THE CHEMICAL STRUCTURES OF ACTIVE COMPOUNDS AND
POTENTIALLY ACTIVE COMPOUNDS WILL NOT INFRINGE ANY PATENT OR PROPRIETARY RIGHTS
OF ANY THIRD PARTIES.
<PAGE>
ARTICLE 7
TERM; TERMINATION
7.1 TERM. This Agreement shall become effective as of the date first
herein above written and unless earlier terminated as hereinafter provided,
shall continue in force for a period of *************** after the same,
provided, however, that the provisions of Sections 1.10, 3.4, 4.2, 4.3 and 4.4
and Article 5 hereof shall remain in effect as provided for therin. This
Agreement may be extended from time to time by mutual agreement of the parties
hereto.
7.2 TERMINATION FOR DEFAULT. In the event that either party to this
Agreement shall be in default of any of its material obligation hereunder and
shall fail to remedy such default within thirty (30) days after receipt of
written notice thereof, the party not in default shall have the option of
terminating this Agreement by giving written notice thereof, notwithstanding
anything to the contrary contained in this Agreement.
7.3 EARLY TERMINATION. If Cubist makes no selection of Supplied Compounds
for Derivatization, development or commercialization following completion of the
program described in Article 1, either party may at any time thereafter
terminate this Agreement upon thirty (30) days written notice for any reason.
7.4 EFFECT OF TERMINATION. Termination of this Agreement shall not affect
the rights and obligations of the parties which accrued prior to the effective
date of termination, including, but not limited to, any amounts due and owing
under Sections 3.5 and 4.2 of this Agreement.
ARTICLE 8
MISCELLANEOUS
8.1 USE LIMITATION. The parties acknowledge and agree that the Supplied
Compounds may have biological and/or chemical properties that are unpredictable
and unknown at the time of transfer to Cubist, that they are to be used with
caution and prudence, and are not to be used for testing in or treatment of
humans.
8.2 INDEPENDENT CONTRACTORS. The parties shall perform their obligations
under this Agreement as independent contractors and nothing
<PAGE>
contained in this Agreement shall be construed to be inconsistent with such
relationship status. This Agreement shall not constitute, create or in any way
be interpreted as a joint venture or partnership of any kind.
8.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement sets forth all the
covenants, promises, agreements, warranties, representations, conditions and
understandings between the parties hereto and supersedes and terminates all
prior agreements and understanding between the parties hereto, and there are no
covenants, promises, agreements, warranties, representations, conditions or
understandings, either oral or written, between the parties hereto other than as
set forth herein. No subsequent alteration, amendment, change or addition to
this Agreement shall be binding upon the parties hereto unless reduced to
writing and signed by the respective authorized officers of the parties hereto.
8.4 HEADINGS. The headings used in this Agreement are for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
8.5 FORCE MAJEURE. Any delays in performance by any party under this
Agreement shall not be considered a breach of this Agreement if and to the
extent caused by occurrences beyond the reasonable control of the party
affected, including by not limited to, acts or God, embargoes, governmental
restrictions, strikes or other concerted acts of workers, fire, flood,
explosion, riots, wars, civil disorder, rebellion or sabotage. The party
suffering such occurrence shall immediately notify the other party and any time
for performance hereunder shall be extended by the actual time of delay caused
by the occurrence.
8.6 SEVERABILITY. If any term, condition or provision of this Agreement is
held to be unenforceable for any reason, it shall, if possible, be interpreted
rather than voided, in order to achieve the intent of the parties to this
Agreement to the extent possible. In any event, all other terms, conditions and
provisions of this agreement shall be deemed valid and enforceable to the full
extent.
8.7 WAIVER. None of the terms, covenants, and conditions of this Agreement
can be waived except by the written consent of the party waiving compliance.
<PAGE>
8.8 APPLICABLE LAW. This Agreement shall be governed by the laws of the
state of California without regard to choice of law provisions.
IN WITNESS WHEREOF, the parties have by duly authorized persons, executed
this Agreement, as of the date first above written.
Cubist Pharmaceuticals, Inc. Terrapin Technologies, Inc.
By: /s/ S.M. Rocklage By: /s/ Clifford Arent
-------------------------- ----------------------------
Title: PRESIDENT & CEO Title: PRESIDENT & CEO
---------------------- ------------------------
<PAGE>
[LETTERHEAD OF MONSANTO APPEARS HERE]
November 28, 1995
Cubist Pharmaceuticals, Inc.
24 Emily Street
Cambridge, Massachusetts 02139
Attention: Nancy M. Gray, Ph.D., Vice President
Corporate Development
Dear Dr. Gray:
Monsanto Company ("Monsanto") is interested in obtaining chemical compounds
from Cubist Pharmaceuticals, Inc., 24 Emily Street, Cambridge, Massachusetts
02139 ("Cubist") for agricultural screening. Monsanto proposes that Cubist offer
compounds developed/obtained by Cubist to Monsanto for primary screening and
evaluation by Monsanto as agricultural chemicals ("Program"). The compounds of
this Agreement have been synthesized by Cubist employees or acquired by Cubist.
The terms under which Monsanto would receive compounds for the Program as
follows:
1. At Cubist's option, Cubist will provide to Monsanto Cubist Compounds that
are available for the Program as mutually agreed and including, to the extent
known to Cubist and which Cubist is free to disclose on a non-confidential
basis, information on each Compound as to (i) whether it is considered to be
new; (ii) whether it has been screened for biological activity and, if so, a
summary of the screening results; (iii) whether it was synthesized/isolated
under Governmental sponsorship; (iv) whether or not any other party has any
rights to it; and (v) the extent of rights to make, use and sell available to
Monsanto. It is understood that the structures of the Compounds and any other
information thereon shall not be considered confidential under this Agreement.
2. For each Compound received by Monsanto for the Program, Monsanto shall
choose the appropriate biological screening, and Cubist should provide Monsanto
with all safety information including hazards such as toxic, lachrymator,
irritant, shock sensitive, stench-producing, carcinogen and the like known to
Cubist in order for Monsanto to take appropriate precautions in the agricultural
screening of the Compound sample.
3. If after the completion of its evaluation of a particular Compound,
Monsanto determines that it has no further interest in that Compound, Monsanto
will provide Cubist with a summary of the primary screening results for that
Compound. Normally, Monsanto will complete its evaluation within 12 months. The
summary of the screening results may be published by Cubist in any manner deemed
desirable. However, Monsanto would appreciate the opportunity to review, prior
to publication, any proposed publication containing such summary or any portion
thereof. Such review would be only for Monsanto's information; and in no way
connotes a restriction on Cubist's right to disseminate such publication.
<PAGE>
Cubist Pharmaceuticals, Inc. November 28, 1995
Page 2
- --------------------------------------------------------------------------------
4. If after completion of its evaluation of a particular Compound, Monsanto
determines that it has further interest in that Compound, Monsanto will discuss
with Cubist mutually suitable arrangements for further testing and possible
synthesis/isolation of the Compound, and analogs and homologs thereof. With
respect to each Compound in which Monsanto has further interest, Cubist will
provide Monsanto with the following information possessed by Cubist and which
can be disclosed to Monsanto pursuant to this Agreement: (i) if the Compound has
been previously screened for biological activity, all detailed information on
such screening and the results thereof, (ii) information on closely related
Compounds and (iii) any technical information related to the Compound and
analogs and homologs thereof.
5. Monsanto agrees that it will not attempt to ascertain, by any means, the
chemical structure or any other information concerning any Compound unless and
until Cubist has provided the structure and other information pursuant to
Paragraph 4. Notwithstanding the foregoing, Monsanto may evaluate the Compounds
in the Program.
6. Cubist and Monsanto agree that any Information disclosed by either party
in accordance with this Agreement shall be maintained in secrecy and each will
use all reasonable diligence to prevent disclosure except to necessary personnel
and to affiliates and consultants, who agree to be bound by this Disclosure
Agreement. Cubist's and Monsanto's obligations under this Agreement shall be
limited to a period of five (5) years from receipt of Information. Cubist and
Monsanto shall not have any obligation of confidentiality with respect to any
Information that:
1. is in the public domain by use and/or publication at the time of its
receipt from the disclosing party; or is developed independently and
without knowledge of Information received from the disclosing party;
or
2. was already known to be in its possession prior to receipt from the
disclosing party; or
3. is properly obtained by recipient from a third party with a valid
legal right to disclose such Information and such third party is not
under a confidentiality obligation to the disclosing party.
Any and all Information received by either a party from the other, upon request
shall be promptly returned, except Cubist and Monsanto may retain one copy of
such Information in its confidential files, solely for record purposes.
7. All patents arising out of the Program shall belong to Cubist or to
Monsanto, or to both, in accordance with the laws of the United States relating
to rights in inventions. Prior to Monsanto deciding to proceed to field test,
develop or to commercialize any Compound or composition containing such Compound
("Product") resulting from the Program, Cubist agrees to negotiate a mutually
satisfactory license agreement with Monsanto under any patent rights Cubist has
or may have in any country necessary for Monsanto to make, have made, use and
sell the Product including patent rights covering such Product, the use of such
Product or the processes for making/obtaining such Product and the Compounds
contained therein. The parties agree that any such license agreement would
include compensation to
<PAGE>
Cubist Pharmaceuticals, Inc. November 28, 1995
Page 3
- --------------------------------------------------------------------------------
Cubist, and would provide Monsanto with (i) an exclusive right to make, have
made, use and sell such Product under any such patent rights, unless Cubist
previously informed Monsanto pursuant to Paragraph 1, above, that only lesser
rights are available, (ii) a non-exclusive right under said patent rights to use
the processes for making/obtaining such Product and the Compounds contained
therein and (iii) the right to sublicense to affiliated companies of Monsanto
the rights obtained under (i) and (ii). In the event that Cubist cannot obtain
such patent protection and Monsanto decides to commercialize such Product,
Monsanto nevertheless will discuss appropriate compensation to Cubist taking
into account the respective contributions of the parties.
8. With regard to Compounds submitted and screened, Monsanto will undertake to
comply with applicable requirements of a sponsoring governmental or other
agency, if any, under which the Compounds were synthesized/isolated.
9. During the term of this Program, the parties agree not to disclose the
nature of this Agreement nor any activity hereunder nor use the name of the
other party in any publication or other disclosure unless otherwise provided
herein with the prior written permission of the other party.
10. This Agreement shall be construed and interpreted in accordance with the
laws of the State of Missouri.
11. This Agreement shall become effective when signed and dated by Cubist.
The term of the Program shall be for three (3) years from the effective date;
provided, however, that either party may terminate the Program at will upon
three (3) months prior written notice to the other party. Termination of the
Program shall not terminate the obligations imposed on the parties under
Paragraphs 3,4,5,6,7,8.
Very truly yours,
MONSANTO COMPANY
By: /s/ Harrison R. Hakes
---------------------
Harrison R. Hakes
Licensing and Technology Liaison Manager
Ceregen
ACCEPTED AND AGREED TO:
CUBIST PHARMACEUTICALS, INC.
By: /s/ Nancy M. Gray
-----------------------
Title: VICE PRESIDENT, CORPORATE DEVELOPMENT
-------------------------
Date: DECEMBER 11, 1995
-------------------------
Contact Person: Arthur Kluge, Ph.D.
-----------------------------
(Name)
<PAGE>
[LETTERHEAD OF CUBIST PHARMACEUTICALS, INC]
January 18, 1996
Pharm-Eco Laboratories, Inc.
128 Spring Street
Lexington, Massachusetts 02173
Attention: E. Lee Piver, Vice President
Sales
Dear Mr. Piver:
Cubist Pharmaceuticals, Inc. ("Cubist") is interested in obtaining chemical
compounds from Pharm-Eco for screening in antibacterial and antifungal assays.
Cubist proposes that Pharm-Eco provide Cubist samples of compounds derived from
Pharm-Eco's proprietary combinatorial technology ("Pharm-Eco Compounds") and
samples of compounds of interest which Pharm-Eco has acquired under license from
university researchers ("University Compounds") for a program of primary
screening and evaluation by Cubist to determine whether such compounds may be
effective as antimicrobial agents ("Program").
The Program will operate as follows:
1. Information to be Supplied. In addition to providing the samples Pharm-Eco
--------------------------
will also provide to Cubist any information which Pharm-Eco may have as to
whether the compounds:
a. are considered to be new;
b. have been previously screened for biological activity (if so, Pharm-
Eco will provide any summary it may have of the results of such
screening);
c. were synthesized or isolated under Government sponsorship;
d. are subject to the rights of any other party; and
e. may be made, used and sold under license (if so, Pharm-Eco will also
indicate the terms under which such any license rights may be
available to Cubist).
2. Screening Method. Cubist shall choose the appropriate biological screening
----------------
for each compound.
3. Safety. Pharm-Eco shall provide to Cubist any written safety information
------
or Material Safety Data Sheets which Pharm-Eco may have concerning the
compounds, in order to assist Cubist to take appropriate precautions in the
screening of the compounds. However, Cubist shall bear sole responsibility for
safety protection in performance of the Program.
<PAGE>
4. Payment. Within 30 days of receipt of the compounds, Cubist shall pay
-------
Pharm-Eco in accordance with the following schedule:
a. University Compounds: ******************************
b. Pharm-Eco Compounds: ************************
All deliveries pursuant to this Agreement shall be prepaid by the shipper.
5. Compounds of No Interest to Cubist. If, after completion of its evaluation
----------------------------------
of a particular compound, Cubist determines that it does not have further
interest in that compound, Cubist will immediately notify Pharm-Eco and provide
Pharm-Eco with a summary of the primary screening results for such compound.
Such summary may then be used by Pharm-Eco in any manner it deems desirable.
6. Compounds of Interest to Cubist. If, after completion of its evaluation of
-------------------------------
a particular compound, Cubist determines that it does have further interest in
that compound, Cubist will immediately notify Pharm-Eco and the parties will
thereupon enter into good faith efforts for at least ninety (90) days to
negotiate an agreement to conduct a joint drug discovery program related to that
compound and analogs and homologs thereof, after which time, if an agreement has
not been executed, either party may abandon the negotiations.
7. No Rights Transferred. Except as expressly provided herein, neither party
---------------------
shall be deemed to have transferred to the other any rights in either compounds
or screening results.
8. No Analysis. Except as expressly provided herein, Cubist agrees that it
-----------
will attempt to ascertain by any means the chemical structure or other
information concerning any compound received from Pharm-Eco hereunder, unless
and until the parties have executed a joint drug discovery agreement permitting
such analysis.
9. Confidentiality. Except as expressly provided herein, any information
---------------
disclosed by either party to the other in accordance with this Agreement, which
shall include, but is not limited to, samples of compounds and their chemical
nature ("Information"), shall be maintained in secrecy and each party will use
all reasonable diligence to prevent disclosure except to necessary personnel and
to affiliates and consultants, who agree to be bound by this Disclosure
Agreement. Pharm-Eco's and Cubist's obligations under this Agreement shall be
limited to a period of five (5) years from receipt of such Information. Neither
Pharm-Eco nor Cubist shall have any obligation of confidentiality with respect
to any Information that can be reasonably shown to be:
a. in the public domain by use and/or publication at the time of its
receipt from the disclosing party; or developed independently and
without knowledge of Information received from the disclosing party;
or
b. already known to be in its possession prior to receipt from the
disclosing party; or
c. properly obtained by recipient from a third party with a valid legal
right to disclose such Information and such third party is not under a
confidentiality obligation to the disclosing party.
<PAGE>
Any Information received by either party from the other shall be promptly
returned, upon request, except that each party may retain one copy of all
written Information in its confidential files, solely for record purposes.
10. Compliance with Government Requirements. With regard to compounds
---------------------------------------
submitted and screened pursuant to the Program, Cubist will comply with
applicable requirements of a sponsoring governmental or other agency, if any,
under which the compounds were synthesized or isolated.
11. No Publicity. Except as expressly provided herein, neither party may
------------
disclose the nature of this Agreement nor any activity hereunder nor use the
name of the other party in any publication or other disclosure without the prior
written permission of the other party.
12. Governing Law. This Agreement shall be construed and interpreted in
-------------
accordance with the laws of the Commonwealth of Massachusetts.
13. Term and Termination. This proposal shall become effective as an
--------------------
agreement (the "Agreement") when signed and dated by Pharm-Eco. The term of the
Program shall be for three (3) years from the effective date; provided,
however, that either party may terminate the Program at will upon three (3)
months prior written notice to the other party. Termination of the Program shall
not terminate the obligations imposed on the parties under Paragraphs 4, 8 and
9.
Sincerely Yours,
Cubist Pharmaceuticals, Inc.
By: /s/ Nancy M. Gray
------------------------------
Nancy M. Gray, Ph.D.
Vice President, Corporate Development
Accepted and Agreed to:
Pharm-Eco Laboratories, Inc.
By: /s/ David J. Wade
-------------------------
David J. Wade
Title: President
-------------------------
Date: January 18, 1996
-------------------------
<PAGE>
MATERIAL TRANSFER AND SCREENING AGREEMENT
This Agreement, effective as of the date last written below, is between
ArQule, Inc. ("ArQule") and Cubist Pharmaceuticals, Inc. ("Recipient").
1. Payment of Screening Fee: Recipient agrees to pay ArQule a screening
------------------------
fee in the amount of $0 plus any applicable sales tax. Please make check
payable to "ArQule, Inc."
2. Screening of Compound Array: Within N/A days after receiving payment
---------------------------
of the $0 screening fee and an executed original of this Agreement, ArQule will
send to Recipient one sample of ArQule Mapping Array (the "Compound Array"),
consisting of up to 100,000 small organic compounds ("Compounds") in the
following format: one Compound per well, 80 Compounds per plate, 10mm of each
Compound in 50ul of DMSO.
ArQule grants Recipient a nonexclusive, worldwide license (without the
right to sublicense or subcontract screening) to screen the Compound Array using
any proprietary assays selected by Recipient in the field of human therapeutics
(the "Field").
3. Available of License: If Recipient detects activity in one or more
--------------------
Compounds during the term of this Agreement, and ArQule agrees to enter into
license negotiations with the Recipient, the following procedures shall apply:
(a) Upon execution of a mutually acceptable confidential disclosure
agreement (the "CDA") between ArQule and Recipient. Recipient shall
disclose to ArQule the array plate number and well number of any
Compound(s) exhibiting confirmed significant activity (the "Active
Compound(s)") and the identity of the merger(s) (the "Target(s)").
(b) If any Active Compounds have previously been committed on a third
party or to an internal ArQule program, Recipient shall have no rights in
or to such Active Compound(s). In all other cases, ArQule shall disclose
to Recipient the chemical composition and theoretical structure of the
Active Compound(s), subject to the CDA, and Recipient shall have a right of
first negotiation to obtain a license in the Field (the "Negotiation
Right"), in accordance with the procedures set forth below.
<PAGE>
-2-
(c) If the parties are unable to negotiate and execute a mutually
acceptable research collaboration agreement within sixty (60) days after
the date upon which Recipient exercised the Negotiation Right, ArQule shall
have the right to license the Active Compound(s) to any third party for use
both within and outside the Field, subject to any non-disclosure and non-
use restrictions provided in the CDA.
4. Use and Transfer Restrictions: Recipient acknowledges and agrees that
-----------------------------
the Compounds (including without limitation all Active Compounds) and the
Compound Array are proprietary to and owned by ArQule and are or may be covered
by claims of U.S. and international patents or patent applications of ArQule.
Recipient agrees to use the Compounds only for the purposes set forth in this
Agreement. Recipient agrees (i) not to transfer such Compounds to any third
party without the prior written consent of ArQule, (ii) to permit access to the
Compounds only to its employees and consultants requiring such access, (iii) to
inform such employees and consultants of the proprietary nature of the
Compounds, and (iv) to take reasonable precautions, at least as stringent as
those observed by Recipient to protect its own proprietary materials, to ensure
that such employees and consultants observe the obligations of Recipient
pursuant to this Section. Upon the expiration or termination of this Agreement.
Recipient shall, at the instruction of ArQule, either destroy or return any
unused Compounds.
5. Compliance with Laws. Recipient agrees to comply with all federal
--------------------
and local laws and regulations applicable to the use, storage, disposal, and
transfer of the Compounds, including without limitation the Toxic Substances
Control Act (15 USC 2601 et seq.) and implementing regulations (in particular,
------
40 CPR 720.36 (Research and Development Exemption), the Food, Drug, and Cosmetic
Act (21 USC 301 et seq.) and implementing regulations, and all Export
------
Administration Regulations of the Department of Commerce. Recipient assumes
sole responsibility for any violation of such laws or regulations by Recipient
or any of tax affiliates or sublicensees.
6. Termination: This Agreement shall commence on the date last written
-----------
below and continue for a period of six (6) months. Sections 3 (paragraph (c)
only), 4, 5, 8 and 9, shall survive termination of this Agreement.
7. No Warranties: Any Compounds delivered pursuant to this Agreement are
-------------
understood to be experimental in nature and may have hazardous properties. The
Recipient should assume that the compounds
<PAGE>
-3-
are dangerous and should use appropriate precautions. ARQULE MAKES NO
REPRESENTATIONS, AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, WITH RESPECT TO THE COMPOUNDS. THERE ARE NO EXPRESS OR IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE
USE OF THE COMPOUNDS WILL NOT INFRINGE ANY PATENT OR OTHER INTELLECTUAL PROPERTY
RIGHTS OF A THIRD PARTY.
8. Indemnification: Recipient assumes all liability for, and agrees to
---------------
indemnify, defend, and hold harmless ArQule and its directors, officers,
representatives, employees, and agents against all losses, expenses (including
without limitation any legal expenses) claims, demands, damages, judgments,
suits, or other actions arising from the use, storage, or disposal of the
Compounds by Recipient and its affiliates and sublicensees, or from any breach
of its obligations under Section 5 of this Agreement, except due to negligence
on the part of ArQule.
9. Miscellaneous: This Agreement shall not be assigned or otherwise
-------------
transferred by Recipient without the prior written consent of ArQule. This
Agreement shall be governed by the laws of the Commonwealth of Massachusetts.
This Agreement constitutes the entire understanding of the parties and
supersedes all prior agreements, written or oral; with respect to the subject
matter hereof.
ACCEPTED AND AGREED:
ArQule, Inc.
Signature:
------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Date:
-----------------------------------
Address:
ArQule, Inc.
200 Boston Avenue, Suite 3600
Medford, MA 02155
Tel: (800) 644-5000
Fax: (617) 395-1225
<PAGE>
-4-
RECIPIENT:
Signature:
------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Date:
-----------------------------------
Shipping Address:
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
Tel:
Fax:
<PAGE>
149 SIDNEY STREET
CAMBRIDGE, MASSACHUSETTS
Lease to Cubist Pharmaceuticals, Inc.
-------------------------------------
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Recitals and Definitions.................................... 1
1.1 Recitals.............................................. 1
1.2 Definitions........................................... 1
2. Premises and Term........................................... 2
2.1 Premises.............................................. 2
2.2 Appurtenant Rights.................................... 3
2.3 Landlord's Reservations............................... 3
2.4 Parking............................................... 3
2.5 Tenant's Extension Option............................. 4
2.6 Annual Fixed Rent During Extension Term............... 4
3. Rent and Other Payments..................................... 5
3.1 Annual Fixed Rent..................................... 5
3.2 Real Estate Taxes..................................... 5
3.3 Operating Expenses.................................... 8
3.4 Other Utility Charges................................. 10
3.5 No Offsets............................................ 10
3.6 Net Lease............................................. 10
4. Alterations................................................. 11
4.1 Landlord's Base Building Work......................... 11
4.2 Tenant's Alterations.................................. 11
4.3 Ownership of Alterations.............................. 12
4.4 Construction Requirements for Alterations............. 12
4.5 Payment for Tenant Alterations........................ 13
4.6 Landlord's Improvement Loan........................... 14
5. Responsibility for Condition of Building and Premises....... 16
5.1 Maintenance of Building and Common Areas by Landlord.. 16
5.2 Maintenance of Premises by Tenant..................... 16
5.3 Delays in Landlord's Services......................... 17
6. Tenant Covenants............................................ 17
6.1 Permitted Uses........................................ 18
6.2 Environmental Compliance.............................. 18
6.3 Laws and Regulations.................................. 20
6.4 Rules and Regulations................................. 20
6.5 Safety Compliance..................................... 21
6.6 Landlord's Entry...................................... 21
6.7 Floor Load............................................ 21
6.8 Personal Property Tax................................. 22
6.9 Assignment and Subleases.............................. 22
</TABLE>
<PAGE>
<TABLE>
<S> <C>
7. Indemnity and Insurance...................................... 23
7.1. Tenant's Indemnity..................................... 23
7.1.1 Landlord's Indemnity................................... 23
7.2 Liability Insurance.................................... 24
7.3 Personal Property at Risk.............................. 24
7.4 Landlord's Insurance................................... 25
7.5 Waiver of Subrogation.................................. 25
8. Casualty and Eminent Domain.................................. 26
8.1 Restoration Following Casualties....................... 26
8.2 Termination Election................................... 26
8.3 Casualty at Expiration of Lease........................ 27
8.4 Eminent Domain......................................... 27
8.5 Rent After Casualty or Taking.......................... 27
8.6 Intentionally Omitted.................................. 28
8.7 Taking Award........................................... 28
9. Default...................................................... 28
9.1 Tenant's Default....................................... 28
9.2 Damages................................................ 29
9.3 Cumulative Rights...................................... 30
9.4 Self-help.............................................. 31
9.5 Enforcement Expenses................................... 31
9.6 Late Charges and Interest on Overdue Payments.......... 31
9.7 Landlord's Rights to Notice and Cure................... 31
10. Mortgagees' Rights........................................... 31
10.1 Subordination.......................................... 31
10.2 Tenant's Duty to Notify Mortgagee's Ability to Cure.... 32
10.3 Estoppel Certificates.................................. 32
11. Miscellaneous................................................ 33
11.1 Notice of Lease........................................ 33
11.2 Notices................................................ 34
11.3 Successors and Limitation of Liability
of the Landlord........................................ 34
11.4 Waivers by the Landlord................................ 34
11.5 Acceptance of Partial Payments of Rent................. 35
11.6 Interpretation and Partial Invalidity.................. 35
11.7 Quiet Enjoyment........................................ 35
11.8 Brokerage.............................................. 35
11.9 Surrender of Premises and Holding Over................. 36
11.10 Security Deposit....................................... 37
11.11 Financial Reporting.................................... 37
11.12 Landlord's Covenants................................... 37
11.13 Building Permits....................................... 37
</TABLE>
<PAGE>
Exhibit A - Basic Lease Terms
- ----------
Exhibit B - Legal Description of the Land
- ---------
Exhibit C - Legal Description of the Parking Lot
- ---------
Exhibit D - Landlord's Base Building Work
- ---------
Exhibit E - Tenant Improvement Work
- ---------
Exhibit E-1 - Tenant Property
- ---------
Exhibit F - Form of Promissory Note
- ---------
Exhibit G - Form of Security Agreement
- ---------
Exhibit H - Form of Subordination, Non-Disturbance and Attornment Agreement
- ---------
Exhibit I - Landlord's Services
- ---------
<PAGE>
LEASE
-----
1. Recitals and Definitions
------------------------
1.1 Recitals. This Lease (this "Lease") is entered into as of
--------
May 11, 1993, by and between Harry F. Stimpson, III, Trustee under the Will of
Harry F. Stimpson, Norfolk Probate No. 99898 (the "Landlord"), and Cubist
Pharmaceuticals, Inc. (the "Tenant"), a Delaware corporation.
In consideration of the mutual covenants herein set forth, the Landlord and
the Tenant do hereby agree to the terms and conditions set forth in this Lease.
1.2 Definitions. The following terms have the meanings indicated or
-----------
referred to below.
"Additional Rent" means all charges payable by the Tenant pursuant to this
Lease other than Annual Fixed Rent, including without implied limitation: the
Tenant's Tax Expenses Allocable to the Premises as provided in Section 3.2; the
Tenant's Operating Expenses Allocable to the Premises in accordance with Section
3.3; and the Landlord's share of any net sublease proceeds pursuant to Section
6.8. Unless otherwise indicated herein, Additional Rent shall be payable on the
first calendar day of each calendar month. Notwithstanding any contrary
provisions herein with respect to the payment of Annual Fixed Rent, Additional
Rent shall be payable for the entire Premises throughout the Term and the
Extension Term.
"Annual Fixed Rent" - See Exhibit A, and Section 3.1.
---------
"Building" means the building located at 149 Sidney Street, Cambridge,
Massachusetts in which the Premises are located.
"Common Building Areas" means those portions of the Building which are not
part of the Premises and to which the Tenant has appurtenant rights pursuant to
Section 2.2.
"External Causes" means (i) Acts of God, war, civil commotion, fire, flood
or other casualty, strikes or other extraordinary labor difficulties, shortages
of labor or materials or equipment in the ordinary course of trade, government
order or regulations or other cause not reasonably within the Landlord's control
and not due to the fault or neglect of the Landlord, and (ii) any act, failure
to act or neglect of the Tenant or the Tenant's servants, agents, employees,
licensees or any person claiming by, through or under the Tenant which delays
the Landlord in the performance of any act required to be performed by the
Landlord under this Lease.
<PAGE>
"Land" means the parcel of land on which the Building is located situated
in Cambridge, Massachusetts, described in Exhibit B.
---------
"Landlord's Address" - See Exhibit A.
---------
"Lease Commencement Date" - See Exhibit A.
---------
"Lease Year" means each one year period during the Term commencing on the
Rent Commencement Date or on any anniversary thereof.
"Parking Lot" - See Exhibit A.
----------
"Parking Spaces" - See Exhibit A.
---------
"Permitted Uses" - See Exhibit A.
---------
"Premises" - See Exhibit A.
---------
"Property" means the Land, the Building and the Parking Lot.
"Rent Commencement Date" - See Exhibit A.
---------
"Tenant's Address" - See Exhibit A.
---------
"Term" - See Exhibit A.
---------
"Termination Date" - See Exhibit A.
---------
"Rentable Floor Area of the Premises" - 14,000 square feet.
"Rentable Floor Area of the Building" - 39,000 square feet.
2. Premises and Term
-----------------
2.1 Premises. The Landlord hereby leases to the Tenant, and the Tenant
--------
hereby leases from the Landlord, for the Term, the Premises. Except as
expressly set forth in Section 4.1 herein, the Landlord has no obligation to
prepare and make ready for occupancy the Premises, and Tenant shall accept
possession of the Premises in "as is" condition at the time the Premises are
delivered to the Tenant.
The Premises shall exclude the common stairways and stairwells, elevators
and elevator wells, boiler room, sprinklers, sprinkler rooms, elevator rooms,
mechanical rooms, loading and receiving areas, electric and telephone closets,
janitor closets and pipes, ducts, conduits, wires and appurtenant fixtures and
equipment serving exclusively or in common other parts of the Building. If the
Premises at any time includes less than the entire rentable floor area of any
floor of the Building, the Premises shall also exclude the
<PAGE>
common corridors, vestibules, walkways and bridges and elevator lobby located
on such floor. The Tenant acknowledges that, except as expressly set forth in
the Lease, there have been no representations or warranties made by or on behalf
of the Landlord with respect to the Premises, the Building or the Property or
with respect to the suitability of any of them for the conduct of the Tenant's
business. The taking of possession of the premises by the Tenant shall
conclusively establish that the Premises was at such time in satisfactory
condition, order and repair and other than the repairs to be made in connection
with the Base Building Improvements, as hereinafter defined, that the Building
was at such time in satisfactory condition, order and repair.
2.2 Appurtenant Rights. The Tenant shall have, as appurtenant to the
------------------
Premises, the nonexclusive right to use in common with others, subject to rules
of general applicability to occupants of the Building from time to time made by
the Landlord: (i) the entry and vestibules of the Building, the common
stairways, boiler room, sprinkler rooms, mechanical rooms, electric and
telephone closets, janitor closets and the pipes, sprinklers, ducts, conduits,
wires and appurtenant fixtures and equipment serving the Premises in common with
others, (ii) common walkways and driveways necessary for access to the Building
and the Parking Lot, (iii) access to the loading area subject to rules set by
the Landlord and then in effect, and (iv) if the Premises at any time include
less than the entire rentable floor area of any floor of the Building, the
corridors and vestibules of such floor. The Landlord reserves the right from
time to time to make or amend such rules of general applicability.
2.3 Landlord's Reservations. The Landlord reserves the right from time to
-----------------------
time: (i) to install, use, maintain, repair, replace and relocate for service
to the Premises and other parts of the Building, or either, pipes, ducts,
conduits, wires and appurtenant fixtures and equipment, wherever located in the
Premises or the Building, and (ii) to alter or relocate any other common
facility provided, however, that Landlord shall use reasonable efforts not to
interfere with Tenant's business activity.
2.4 Parking. The Landlord shall provide the Parking Spaces for use by the
-------
Tenant's employees and business invitees and visitors throughout the Term. The
Landlord shall, with Tenant's prior written consent, which consent shall not be
unreasonably withheld or delayed, have the right to designate from time to time,
and to change from time to time, the location of the Parking Spaces. The
Tenant's parking privileges in the Parking Lot may be on a nonexclusive basis.
<PAGE>
The Tenant agrees that it and all persons claiming by, through and under it,
shall at all times abide by the rules of the Landlord with respect to the use of
the parking facilities.
Landlord agrees to use its reasonable efforts to cooperate with Tenant in
Tenant's attempt to create additional parking spaces on the Land, directly
behind the Premises, in the area shown on Exhibit E attached hereto, which
additional spaces may be used by Tenant throughout the Term on an exclusive
basis; provided however, that said additional spaces shall not interfere with
the use of the loading dock. Tenant shall prepare any and all plans required to
create such additional parking spaces and shall also be responsible for
obtaining, at its sole cost and expense, any and all necessary permits,
approvals, parking freeze relief or zoning relief to create such spaces.
2.5 Tenant's Extension Option. Provided no Event of Default has occurred
-------------------------
and is continuing, and no condition exists which with the passage of time and/or
notice would constitute an Event of Default under this Lease, Tenant shall have
the option to extend the Term of this Lease for one period of five (5) years
(the "Extension Term"). Tenant may exercise this extension option by written
notice to Landlord given not later than nine (9) months prior to the Termination
Date. Upon the giving of such notice, this Lease and the Term hereof shall be
extended for an additional term of five (5) years, without the necessity for the
execution of additional documents. The extension shall be upon all the same
terms and conditions specified in this Lease, except that the Annual Fixed Rent
during the Extension Term shall be equal to the average of (i) the fair market
rent for the Premises during the Extension Term in shell research and
development condition, and (ii) the fair market rent for the Premises during the
Extension Term in "as is" condition, such figures to be calculated pursuant to
Section 2.6 below (the "Extension Term Rent").
2.6 Annual Fixed Rent During Extension Term. If the Tenant has exercised
---------------------------------------
its option to extend the Term, then not later than one hundred and eighty (180)
days prior to the expiration of the initial Term, Landlord shall deliver a
notice to the Tenant proposing the Annual Fixed Rent to be in effect during the
Extension Term. The Tenant shall be entitled to disagree with Landlord's
proposal by giving written notice to such effect to Landlord within thirty (30)
days after receipt of Landlord's notice. If the Tenant fails timely to deliver
to the Landlord a notice disagreeing with Landlord's proposal, Landlord's
proposal shall be binding on the Tenant.
If the Tenant timely gives the Landlord notice of its disagreement with the
Landlord's proposal, the Landlord and the Tenant will each in good faith
attempt to reach agreement on the Extension Term Rent. If the parties have
failed to reach
<PAGE>
agreement within ten (10) days after either has given written notice to the
other requesting such agreement, either party may, by giving written notice to
the other, designate a real estate appraiser to act on its behalf and require
the other party within ten (10) days to designate a real estate appraiser to act
on its behalf in the determination of Extension Term Rent. Each such real estate
appraiser, as well as any other real estate appraisers selected pursuant to this
Section 2.6, shall have at least five (5) years experience in appraising
commercial office and research space in the Cambridge, Massachusetts area. The
two appraisers shall be instructed to attempt to agree upon the Extension Term
Rent for the Premises. If the two appraisers fail to agree upon the Extension
Term Rent within ten (10) days after the selection of the second appraiser, then
they shall attempt to agree upon the selection of a third appraiser to
participate in the determination of the Extension Term Rent. If the two
appraisers fail to agree upon a third appraiser within ten (10) days of a
request by either the Landlord or the Tenant they do so, then either the
Landlord or the Tenant may request that a third appraiser be selected by the
presiding officer of the Greater Boston Real Estate Board. The three appraisers
shall meet promptly after the selection of the third appraiser and shall
exercise all reasonable efforts to determine the Extension Term Rent within ten
(10) days of the selection of the third appraiser. The decision of a majority of
the appraisers will determine the Extension Term Rent. Each party shall be
responsible for the costs of the appraiser which they appoint and the costs of
the third shall be shared equally.
3. Rent and Other Payments
-----------------------
3.1 Annual Fixed Rent. From and after the Rent Commencement Date, the
-----------------
Tenant shall pay, without notice or demand, monthly installments of one-twelfth
(1/12th) of the Annual Fixed Rent in effect and applicable to the Premises in
advance for each full calendar month of the Term or for the corresponding
fraction of said one-twelfth (1/12th) for any fraction of a calendar month at
the beginning or end of the Term. The Annual Fixed Rent applicable to the
Premises shall be as set forth in Exhibit A. On the Rent Commencement Date,
---------
Tenant shall pay the amount of Annual Fixed Rent applicable for the fraction of
the calendar month in which the Rent Commencement Date occurs. Thereafter,
during the Term, Tenant shall pay Annual Fixed Rent on the first calendar day of
each calendar month.
3.2 Real Estate Taxes. From and after the Rent Commencement Date, the
-----------------
Tenant shall pay to the Landlord, as Additional Rent, the Tenant's Tax Expenses
Allocable to the
<PAGE>
Premises and the Parking Lot (as such term is hereinafter defined), in
accordance with this Section 3.2. The terms used in this Section 3.2 are defined
as follows:
(a) "Tax Year" means the 12-month period beginning July 1 each year or if
the appropriate governmental tax fiscal period shall begin on any date
other than July 1, such other date.
(b) "The Tenant's Tax Expenses Allocable to the Premises and the Parking
Lot" means the sum of (i) thirty five and nine tenths percent (35.9%)
of Landlord's Tax Expenses allocable to the Land and the Building for
a tax year, subject to adjustment to account for any increase in
Landlord's Tax Expenses attributable solely to Tenant's improvements
to the Premises, for which Tenant shall be solely responsible, and
(ii) sixty percent (60%) of Landlord's Tax Expenses allocable to the
Parking Lot for a tax year.
(c) "The Landlord's Tax Expenses" with respect to any Tax Year means the
aggregate Real Estate Taxes on the Property with respect to that Tax
Year, reduced by any abatement receipts with respect to that Tax Year.
(d) "Real Estate Taxes" means all taxes and special assessments of every
kind and nature assessed by any governmental authority on all or any
portion of the Property, including existing and future assessments for
road, sewer, utility and other local improvements and other
governmental charges which may be lawfully charged, assessed, or
imposed on both land and any or all improvements upon the Property.
The amount of special taxes or special assessments to be included
shall be limited to the amount of the installment (plus any interest
thereon) of such special tax or special assessment required to be paid
during the Tax Year in respect of which such taxes are being
determined. There shall be excluded from such taxes all income,
estate, succession, inheritance, excess profit, franchise and transfer
taxes; provided, however, that if at any time during the Term the
present system of ad valorem taxation of real property shall
----------
be changed so that in lieu of the whole or any part of the ad valorem
----------
tax on real property there shall be assessed on the Landlord
a capital levy or other tax on the gross rents received with respect
to the Property, or a Federal, State, County, Municipal, or other
local income, franchise, excise or similar tax, assessment, levy or
charge (distinct from any now in effect) based, in whole or in part,
upon any such
<PAGE>
gross rents, then any and all of such taxes, assessments, levies or
charges, to the extent so based, shall be deemed to be included within
the term "Real Estate Taxes."
Payments by the Tenant on account of the Tenant's Tax Expenses Allocable to
the Premises and the Parking Lot shall be made monthly at the time and in the
fashion herein provided for the payment of Annual Fixed Rent and shall be in an
amount of the greater of (i) one-twelfth (1/12) of the Tenant's Tax Expenses
Allocable to the Premises and the Parking Lot for the current Tax Year as
estimated by the Landlord and based on the most recent tax bills, or (ii)
Tenant's pro rata share of an amount estimated by any holder of a mortgage on
the Property to be sufficient, if paid monthly, to pay the Landlord's Tax
Expenses on the dates due to the taxing authority.
Not later than one ninety (90) days after the Landlord's Tax Expenses are
determinable for the first Tax Year of the Term or fraction thereof and for each
succeeding Tax Year or fraction thereof during the Term, the Landlord shall
render to the Tenant a statement in reasonable detail with the applicable
receipted tax bills attached showing for the preceding year or fraction thereof,
as the case may be, real estate taxes on the Property, and any abatements or
refunds of such taxes. Reasonable and customary costs and expenses incurred by
Landlord in obtaining any tax abatement or refund may be charged against such
tax abatement or refund before the adjustments are made for the Tax Year. If at
the time such statement is rendered it is determined with respect to any Tax
Year that the Tenant has paid (i) less than the Tenant's Tax Expenses Allocable
to the Premises and the Parking Lot or (ii) more than the Tenant's Tax Expenses
Allocable to the Premises and the Parking Lot, then, in the case of (i) the
Tenant shall pay to the Landlord, as Additional Rent, with the next payment of
Annual Fixed Rent coming due (or within thirty (30) days of such statement if
the Term has expired) the amount of such underpayment and, in the case of
(ii) the Landlord shall credit the amount of such overpayment against the
monthly installments of the Tenant's Tax Expenses Allocable to the Premises and
the Parking Lot next thereafter coming due (or refund such overpayment within
thirty (30) days if the Term has expired and the Tenant has no further
obligation to the Landlord).
The Tenant shall pay all taxes which may be lawfully charged, assessed,
or imposed upon all fixtures and equipment of every type and also upon all
personal property in the Premises, and the Tenant shall pay all license fees and
other charges which may be lawfully imposed upon the business of the Tenant
conducted upon the Premises.
<PAGE>
3.3 Operating Expenses. From and after the Rent Commencement Date the
Tenant shall pay to the Landlord as Additional Rent the Tenant's Operating
Expenses Allocable to the Premises and the Parking Lot, as hereinafter defined,
in accordance with this Section 3.3. The terms used in this Section 3.3 are
defined as follows:
(a) "The Tenant's Operating Expenses Allocable to the Premises and the
Parking Lot" means the sum of (i) thirty five and nine tenths percent
(35.9%) of Operating Expenses attributable to the Land and the
Building, and (ii) sixty percent (60%) of Operating Expenses
attributable to the Parking Lot.
(b) "Operating Expenses for the Property" means Landlord's (i) cost of
operating, managing, cleaning, maintaining, insuring, and repairing
the Property, the parking lots for tenants in the Building and the
roads, driveways and walkways for providing access to the Building and
such parking facilities, including the Parking Lot; (ii) cost for
provision of electricity, water and sewer and other utilities to
common areas of the Building to which Tenant has access;
(iii) premiums for insurance carried by Landlord pursuant to
Section 7.4 and any other insurance which Landlord deems necessary
or desirable to carry or is required by its Mortgage to carry;
(iv) cost of compensation and all fringe benefits, worker's
compensation insurance premiums and payroll taxes paid to, for or
with respect to all persons engaged in the operating, maintaining or
cleaning of the Property and parking facilities; (v) cost of interior
plant supply and maintenance; (vi) cost of steam, water, sewer, gas,
oil, electricity, telephone and other utility charges not billed
directly to other tenants by Landlord or the applicable utility and
excluding utility charges separately chargeable to other tenants of
the Building; (vii) cost of providing conditioned water for HVAC
services; (viii) cost of building and cleaning supplies; (ix)rental
costs for equipment used in the operation, cleaning, maintaining or
repairing of the Property ; (x) cost of snow removal and cost of
landscape maintenance; (xi) cost of security services;
(xii) reasonable payments under management agreements for the
Property or any other service contracts with independent contractors;
and (xiii) all other expenses incurred in connection with the
operation, management, cleaning, maintenance and repair of the
Property, the parking lots and the roadways.
<PAGE>
Notwithstanding anything in this Lease to the contrary, the following items
shall be excluded from Operating Expenses for the Property:
(a) The cost of repairs incurred by Landlord in the event of a fire or
other casualty or in the event of the exercise of eminent domain.
(b) Mortgage charges and/or debt service.
(c) Arbitration and legal fees with respect to a dispute arising between
Landlord and a tenant in the Building (including Tenant).
(d) Advertising and promotional expenditures.
(e) Accounting and legal fees, except such as are reasonably incurred in
connection with the normal operation of the Building, but excluding
such fees incurred in connection with the leasing of the Building.
(f) Renovating space for Tenant's or other occupants of the Building.
(g) Additional or special services supplied to any other tenant or other
occupant of the Building.
(h) Depreciation.
(i) Damages, penalties or fines which Landlord is obligated to pay by
reason of Landlord's failure to comply with the Lease or any other
leases of space in the Building or applicable law.
(j) Landlord's Tax Expenses.
Payments by the Tenant on account of the Tenant's Operating Expenses
Allocable to the Premises and the Parking Lot shall be made monthly, in arrears,
at the time and in the fashion herein provided for the payment of Annual Fixed
Rent, with an annual accounting and payment or rebate for the then preceding
calendar year to be made within thirty (30) days after written notice from
Landlord in the form of a statement in substantial detail showing the Operating
Expenses for the Property for such calendar year and of the exact amount of
Tenant's Operating Expenses Allocable to the Premises and the Parking Lot. The
amount to be paid to the Landlord shall be an amount from time to time estimated
by the Landlord, in its sole discretion, to be sufficient to aggregate a sum
equal to the Tenant's Operating Expenses Allocable to the Premises and the
Parking Lot for each calendar year.
<PAGE>
Not later than ninety (90) days after the end of each calendar year or
fraction thereof during the Term or fraction thereof at the end of the Term, the
Landlord shall render to the Tenant a statement in reasonable detail showing for
the preceding calendar year or fraction thereof, as the case may be, the
Operating Expenses for the Property and the Tenant's Operating Expenses
Allocable to the Premises and the Parking Lot. Said statement to be rendered to
the Tenant also shall show for the preceding calendar year or fraction
thereof, as the case may be, the amounts of Operating Expenses for the Property
already paid by the Tenant. If at the time such statement is rendered it is
determined with respect to any calendar year, that the Tenant has paid (i) less
than the Tenant's Operating Expenses Allocable to the Premises and the Parking
Lot or (ii) more than the Tenant's Operating Expenses Allocable to the Premises
and the Parking Lot, then, in the case of (i) the Tenant shall pay to the
Landlord, as Additional Rent, with the next payment of Annual Fixed Rent coming
due (or within thirty (30) days of such statement if the Term has expired) the
amounts of such underpayment and, in the case of (ii) the Landlord shall credit
the amount of such overpayment against the monthly installments of the Tenant's
Operating Expenses Allocable to the Premises and the Parking Lot next thereafter
coming due (or refund such overpayment within thirty (30) days if the Term has
expired and the Tenant has no further obligation to the Landlord).
3.4 Other Utility Charges. From and after the Rent Commencement Date and
---------------------
throughout the Term the Tenant shall pay directly to the provider of the
service, all separately metered charges for steam, heat, gas, fuel and other
services and utilities furnished to the Premises. In addition, beginning on the
Lease Commencement Date and until the Rent Commencement Date, the Tenant agrees
to reimburse the Landlord as Additional Rent for all nonseparately metered
utilities consumed on the Premises during such period.
3.5 No Offsets. All payments to be made by Tenant to Landlord in
----------
accordance with the terms of this Lease, including but not limited to, Annual
Fixed Rent and Additional Rent, shall be paid by the Tenant without offset,
abatement or deduction (except as otherwise specifically provided herein).
3.6 Net Lease. It is understood and agreed that this Lease is a net lease
---------
and that the Annual Fixed Rent is absolutely net to the Landlord excepting only
the Landlord's obligations to pay any debt service or ground rent on the
Property and to pay the real estate taxes and operating expenses and capital
improvement costs which the Tenant is not required to pay under this Lease.
<PAGE>
4. Alterations.
-----------
4.1 Landlord's Base Building Work. The Landlord agrees to construct, at
-----------------------------
the Landlord's sole cost and expense, the improvements to the Property set forth
on Exhibit D attached hereto ("Landlord's Base Building Work"). Subject to
---------
delays caused by External Causes, Landlord shall use its reasonable efforts to
substantially complete Landlord's Base Building Work on or before September 15,
1993 in coordination with the Tenant Improvement Work. Landlord's Base Building
Work shall be deemed substantially complete upon issuance by Landlord's
architect of a certificate stating that the Landlord's Base Building Work has
been substantially completed in accordance with the plans and specifications
therefor. Landlord covenants that Landlord's Base Building Work shall be
completed in a good and workmanlike manner employing only first-class materials
and in compliance with applicable laws, rules, ordinances and regulations. The
Tenant or Tenant's authorized agent may inspect the Landlord's Base Building
Work at reasonable times and give notice of observed defects to Landlord, which
defects shall be promptly corrected by Landlord at its sole cost and expense.
Except for any delay caused by External Causes or by delays in Tenant
Improvement Work, in the event that Landlord fails to substantially complete the
Landlord's Base Building Work on or before September 15, 1993 the Tenant may on
or after September 15, 1993 notify Landlord of its intention to complete
Landlord's Base Building Work unless completed by Landlord within thirty (30)
days of said notice. Except for any delay caused by External Causes or by delays
in Tenant Improvement Work, if Landlord has not substantially completed
Landlord's Base Building Work within such thirty (30) days, Tenant shall have
the right, but not the obligation to complete Landlord's Base Building Work,
provided, however, if Landlord is in the process of completing Landlord's Base
Building Work and diligently pursuing the same said thirty (30) days shall be
extended for an additional reasonable period of time to allow Landlord to
complete Landlord's Base Building Work. Landlord shall reimburse Tenant for all
costs and expenses incurred by Tenant in exercising its right to complete
Landlord's Base Building Work within ten (10) days following Tenant's written
demand therefor, failing which Tenant shall have the right to off-set such costs
and expenses against the next due payments of Annual Fixed Rent.
4.2 Tenant's Alterations. Subject to Landlord's obligation to complete
--------------------
Landlord's Base Building Work, the Tenant acknowledges that the Premises have
been delivered to it on an, "as is" basis, and promptly following the execution
of this Lease the Tenant shall perform, at its sole cost and expense, all of the
improvements set forth in the plans and specifications attached hereto as
Exhibit E (the "Tenant Improvement Work"), and shall equip the Premises with
- ---------
such trade fixtures and personal property as Tenant deems necessary or proper
for the operation of the Tenant's business.
<PAGE>
Following completion of the Tenant Improvement Work, the Tenant shall not make
further alterations or additions to the Premises except in accordance with the
building standards from time to time in effect, with construction rules and
regulations from time to time promulgated by Landlord and applicable to tenants
in the Building, and with plans and specifications therefor first approved by
the Landlord, such approval not to be unreasonably withheld. Tenant's request
for approval of plans and specifications shall state whether it is Tenant's
intention to remove such alterations at the expiration of the Term. If Tenant
removes said alterations, it shall be required to restore the Premises. In
addition to the provisions of Section 4.4 below, Tenant shall be solely
responsible to obtain, at its sole cost and expense, any and all permits or
approvals required to complete the Tenant Improvement Work.
4.3 Ownership of Alterations. Except as otherwise provided in this
------------------------
Section 4.3, any and all alterations, additions, improvements, and fixtures
which may be made or installed by either the Landlord or the Tenant upon the
Premises and (i) which in any manner are attached to the floors, walls or
ceilings shall remain upon the Premises, and/or (ii) are part of the Tenant
Improvement Work, shall, at the termination of this Lease, be surrendered with
the Premises as a part thereof without disturbance, molestation or injury (the
"Permanent Improvements"). However, the usual trade fixtures, equipment and
furnishings which may be placed in the Premises prior to or during the Term
hereof at the sole cost of Tenant and which are not part of the Tenant
Improvement Work (the "Non-Permanent Improvements") may be removed by Tenant
from the Premises upon the termination of this Lease if, but only if, (i) no
Event of Default has occurred and is continuing and no condition exists which
with the passage of time and/or notice would constitute an Event of Default and
(ii) the cost of such improvements were not included in the amount used to
calculate to the Landlord's Improvement Loan to Tenant made under Section 4.6
below. In the event Landlord does not make Landlord's Improvement Loan to
Tenant, Tenant shall be entitled to remove the items listed on Exhibit E-1
attached hereto at the expiration of the Term and shall be required to restore
the Premises if such items are removed.
4.4 Construction Requirements for Alterations. All construction work by
-----------------------------------------
the Landlord and the Tenant shall be done in a good and workmanlike manner
employing only first-class materials and in compliance with all applicable laws
and all lawful ordinances, regulations and orders of governmental authority and
insurers of the Building. The Landlord or Landlord's authorized agent may (but
without any implied obligation to do so) inspect the work of the Tenant at
reasonable times and shall give notice of observed defects. All of the Tenant's
alterations and additions and installation of furnishings including, but not
limited to the Tenant
<PAGE>
Improvement Work shall be coordinated with any work being performed by the
Landlord including, but not limited to, Landlord's Base Building Work, and in
such manner as to maintain harmonious labor relations and not to damage the
Building or interfere with Building construction or operation and the Tenant
Improvement Work shall be performed by Kaplan Construction. All future
alterations shall be performed by contractors or workmen first approved by the
Landlord, which approval the Landlord agrees not to unreasonably withhold or
delay. The Tenant, before starting any work, shall receive and comply with
Landlord's construction rules and regulations and shall cause Tenant's
contractors to comply therewith, shall secure all licenses and permits necessary
therefor and shall deliver to the Landlord a statement of the names of all of
its contractors and subcontractors and the estimated cost of all labor and
material to be furnished by them and security satisfactory to the Landlord
protecting the Landlord against liens arising out of the furnishing of such
labor and material; and cause each contractor to carry worker's compensation
insurance in statutory amounts covering all the contractors' and subcontractors'
employees and commercial general public liability insurance with such limits as
the Landlord may, in its sole discretion, require, but in no event less than
general aggregate limit of $2,000,000; products completed operations aggregate
limit of $2,000,000; each occurrence limit of $1,000,000; or in such other
amounts as Landlord may in its sole discretion require, covering personal injury
and death and property damage (all such insurance to be written in companies
approved by the Landlord and insuring the Landlord, such individuals and
entities affiliated with the Landlord as the Landlord may designate,and the
Tenant as well as the contractors, and to contain a requirement for at least
thirty (30) days' notice to the Landlord prior to cancellation, nonrenewal or
material change), and to deliver to the Landlord certificates of all such
insurance.
4.5 Payment for Tenant Alterations. The Tenant agrees to pay promptly
------------------------------
when due the entire cost of any work done on the Premises by the Tenant, its
agents, employees or independent contractors, and not to cause or permit any
liens for labor or materials performed or furnished in connection therewith to
attach to the Premises or the Property and promptly to discharge any such liens
which may so attach. If any such lien shall be filed against the Premises or
the Property and the Tenant shall fail to cause such lien to be discharged
within thirty (30) days after the filing thereof, the Landlord may cause such
lien to be discharged by payment, bond or otherwise, without investigation as to
the validity thereof or as to any offsets or defenses which the Tenant may have
with respect to the amount claimed. The Tenant shall reimburse the Landlord, as
Additional Rent, for any cost so incurred and shall
<PAGE>
indemnify and hold harmless the Landlord from and against any and all claims,
costs, damages, liabilities and expenses (including attorneys' fees) which may
be incurred or suffered by the Landlord by reason of any such lien or its
discharge.
4.6 Landlord's Improvement Loan. Subject to the conditions set forth below,
---------------------------
to help finance the cost of the Tenant Improvement Work, Landlord agrees to loan
to Tenant, dollar for dollar, fifty percent (50%) of the cost of the Tenant
Improvement Work up to a maximum of the lesser of (i) fifty dollars ($50.00) per
square foot of the Premises so improved or (ii) $700,000 (the "Improvement
Loan"), which loan shall be on the terms and conditions contained in the form of
promissory note (the "Note") attached hereto as Exhibit F and by this
---------
reference incorporated herein. The Improvement Loan shall be made by Landlord to
Tenant upon receipt by Landlord of a certification by Tenant that Tenant has
incurred Direct Costs (as defined below) in the amount of the installment
requested, which certification shall include a reasonable breakdown of such
Direct Costs. For purposes of this Lease, Direct Costs shall be defined as
follows: (i) all costs and expenses incurred by Tenant for the purchase and
installation of Permanent Improvements to the Premises; and (ii) all expenses,
if any, incurred by Tenant for permits or licenses relating to the installation
of the Permanent Improvements. Tenant shall grant Landlord a security interest
in (i) all Permanent Improvements and (ii) other personal property and equipment
owned by Tenant, located on the Premises and included as Tenant Improvement Work
as partial security for the Improvement Loan, on the terms and conditions
contained in the form of security agreement (the "Security Agreement") attached
hereto as Exhibit G and by this reference incorporated herein. Tenant
acknowledges that the Note and the Security Agreement delivered by Tenant to
Landlord may be assigned to Landlord's mortgagee as security for a loan which
Landlord is in the process of obtaining to fund the Improvement Loan.
Notwithstanding the foregoing, Landlord shall be obligated to make the
Improvement Loan to Tenant if and only if: (a) Landlord actually receives the
funding for the Improvement Loan from BayBank Boston, N.A. ("BayBank") as
anticipated in that certain Summary of Terms dated March 8, 1993 from Baybank to
Landlord (the "Summary of Terms"); (b) Tenant increases the security deposit
hereunder to $100,000 pursuant to Section 11.10; (c) Tenant has submitted the
certification of Direct Costs to Landlord as described above; (d) Landlord
receives any financial statements of the Tenant which it reasonably requests,
and the financial condition of Tenant is satisfactory to BayBank; (e) no Event
of Default has occurred and is continuing and no condition exists which with the
passage of time and/or notice would constitute an Event of
<PAGE>
Default; and (f) the Tenant improvements have been constructed in accordance
with the Plans and Specifications for the Tenant Improvement Work as certified
to Landlord and BayBank by Tenant's architect, and a Certificate of Occupancy
has been issued for the improved Premises.
Notwithstanding the foregoing provisions of this Section 4.6, the parties
acknowledge that the Landlord has submitted an application to BayBank to borrow
monies to fund both the Landlord's Base Building Work and the Improvement Loan.
Landlord shall use its good faith, diligent efforts to do all that is reasonably
required to effect the successful closing of the BayBank loan. Tenant agrees to
cooperate with Landlord in this regard including commiting to capitalize the
corporation in an amount equal to at least $2,000,000 and to use its good faith,
diligent efforts to take the actions reasonably required of Tenant by BayBank
under the Summary of Terms (including raising the capitalization to at least
$4,000,000) and supply all information as is reasonably required by Landlord in
connection with such financing. In the event that the Landlord is unable to
make the Improvement Loan, because BayBank refuses to fund said loan for any
reason despite such efforts:
a. Landlord shall remain responsible to pay for and fund the Landlord's
Base Building Work.
b. The Annual Fixed Rent set forth at Exhibit A shall be revised as
follows:
Lease Years 1 - 5: $6.50 per rentable square foot per year.
Lease Years 6 - 10: $8.50 per rentable square foot per year.
c. Landlord shall have no obligation to provide the Improvement Loan
referenced in this Section 4.6.
d. The allocation of sublease profits referenced in Section 6.8 shall be
revised as follows: seventy-five percent (75%) to Tenant, twenty-five
percent (25%) to Landlord.
e. The inability to obtain such financing shall not be deemed to be a
default by Landlord of its obligations hereunder and this Lease shall
remain in full force and effect.
<PAGE>
5. Responsibility for Condition of Building and Premises
-----------------------------------------------------
5.1 Maintenance of Building and Common Areas by Landlord.
----------------------------------------------------
Except as otherwise provided in Article 8, the Landlord shall make such repairs
to the structural elements of the Building, including the roof, exterior walls,
structural columns, mechanical systems serving the Building and not exclusively
serving the Premises and floor slabs as may be necessary to keep and maintain
the same in the condition which said structural elements are in after the
completion of the Landlord's Base Building Work and maintain and make such
repairs to the Common Building Areas and all mechanical systems and equipment
serving the Building and not exclusively serving the Premises as may be
necessary to keep them in good order, condition and repair. The Landlord shall
in no event be responsible to the Tenant for any condition in the Premises or
the Building caused by an act or neglect of the Tenant, or any invitee or
contractor of the Tenant. Landlord's costs in performing such services shall be
reimbursed by the Tenant to the extent provided in Section 3.3 provided,
however, that nothing contained in this Section 5.1 shall entitle Landlord to
include the costs of Landlord's Base Building Work or the cost of correcting any
defects in Landlord's Base Building Work in the reimbursements provided for in
Section 3.3.
5.2 Maintenance of Premises by Tenant. From and after the date that
---------------------------------
possession of the Premises (or any portion thereof) is delivered to the Tenant,
the Tenant shall keep neat and clean and maintain the Premises and every part
thereof and all Building and mechanical equipment exclusively serving the
Premises in the same condition as the same were in upon delivery of possession
of the Premises or may be put following the completion of the Tenant Improvement
Work and as the same may be further improved throughout the Term, reasonable
wear and tear excepted, and shall surrender the Premises and all alterations and
additions thereto at the end of the Term in such condition, first removing all
goods and effects of the Tenant (with the exception of Permanent Improvements or
other items which are not to be removed pursuant to Section 4.3 above) and, to
the extent specified by the Landlord by notice to the Tenant, all alterations
and additions made by the Tenant, and repairing any damage caused by such
removal and restoring the Premises and leaving them in broom clean condition.
The Tenant shall not permit or commit any waste, and the Tenant shall be
responsible for the cost of repairs which may be made necessary by reason of
damages to Common Building Areas or the parking areas by the Tenant, or any of
the contractors or invitees of the Tenant.
<PAGE>
If the Tenant does not timely or properly perform repairs as above provided
or commence such repairs within ten (10) days after receipt of notice from
Landlord requesting Tenant to perform such repairs, Landlord may, but is not
required to perform such repairs, replacements or maintenance in a reasonably
diligent fashion, and Tenant shall pay Landlord forthwith upon being billed for
same by Landlord the cost thereof plus all overhead, general conditions, fees
and other costs or expenses arising from Landlord's involvement with such
repairs, replacements and maintenance.
5.3 Delays in Landlord's Services. The Landlord shall not be liable to
-----------------------------
the Tenant for any compensation or reduction of rent by reason of inconvenience
or annoyance or for loss of business arising from the Landlord or its agents
entering the Premises for any purpose or purposes authorized in this Lease, or
for repairing the Premises or any portion of the Building. Landlord shall make
a reasonable effort to provide reasonable advance notice to the Tenant of
Landlord's intention to repair the Premises or any portion of the Building, but
in no event shall Landlord be liable to Tenant for failure to provide such
notice. In case the Landlord is prevented or delayed from making any repairs,
alterations or improvements, or furnishing any services or performing any other
covenant or duty to be performed on the Landlord's part by reason of any
External Cause, the Landlord shall not be liable to the Tenant therefor, nor
shall the Tenant be entitled to any abatement or reduction of rent by reason
thereof, nor shall the same give rise to a claim in the Tenant's favor that such
failure constitutes actual or constructive, total or partial, eviction from the
Premises. The Landlord hereby covenants and agrees to use reasonable efforts to
make such repairs, alterations or improvements or furnish services or perform
any other covenant or duty to be performed on the Landlord's part.
The Landlord reserves the right to stop any service or utility system when
necessary by reason of accident or emergency, until necessary repairs have been
completed. Except in case of emergency repairs, the Landlord will give the
Tenant reasonable advance notice of any contemplated stoppage but Landlord shall
not be liable to Tenant for failure to give such notice. In no event shall the
Landlord have any liability to the Tenant for the unavailability of heat, light
or any utility or service to be provided by the Landlord except to the extent
such unavailability of utility service is due to Landlord's gross negligence.
6. Tenant Covenants
----------------
The Tenant covenants to the Landlord:
<PAGE>
6.1 Permitted Uses. The Tenant shall occupy the Premises only for the
--------------
Permitted Uses, and shall not injure or deface the Premises or the Property.
6.2 Environmental Compliance. Tenant (i) shall comply with all
------------------------
Environmental Laws (as hereinafter defined) applicable to its use of the
Premises (including the making of all submissions to governmental authorities
required by Environmental Laws) (ii) shall not use the Premises for the
generation, manufacture, refinement, production, or processing of any Hazardous
Material (as hereinafter defined) or for the storage, handling, transfer or
transportation of any Hazardous Material, except in strict compliance with all
applicable Environmental Laws, (iii) shall not permit to remain, install or
permit the installation on the Premises or the Property of any surface
impoundments, underground storage tanks, or asbestos-containing materials and
(iv) shall cause any alterations of the Premises to be done in a way so as to
not expose in an unsafe manner the persons working on or visiting the Premises
to Hazardous Materials.
"Environmental Laws" means the Resource Conservation and Recovery Act of
1976, as amended, 42 (S)6901, et seq. (RCRA), the Comprehensive Environmental
------
Response Compensation and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, 42 USC (S)9601 et seq. (CERCLA),
------
the Toxic Substance Control Act, as amended, IS USA (S)26012 et seq., the
------
Federal Insecticide, Fungicide, Rodenticide Act, as amended, 7 USC (S)136
et seq., and all applicable federal, state and local environmental laws,
- ------
ordinances, rules and regulations, as any of the foregoing may have been or may
be from time to time amended, supplemented or supplanted, and any other federal,
state or local laws, ordinances, rules and regulations, now or hereafter
existing relating to regulations or controls of Hazardous Material or materials.
The term "Hazardous Materials" as used in this Lease shall mean substances
defined as "hazardous substances", "hazardous materials", "hazardous wastes" or
"toxic substances" in any applicable federal, state or local statute, rule,
regulation or determination, including but not limited to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
USC, (S)9601, et seq.; the Hazardous Materials Transportation Act, 49 USC,
------
(S)1801, et seq.; and, asbestos, pcb's, radioactive substances, methane,
------
volatile hydrocarbons, petroleum or petroleum-derived substances or
wastes, radon, industrial solvents or any other material as may be specified in
applicable law or regulations.
Tenant agrees to protect, defend, indemnify and hold harmless Landlord, its
directors, officers, employees, beneficiaries, successor trustees and agents,
and any successors to Landlord's interest in the chain of title to the
<PAGE>
Property, their partners, directors, officers, employees, beneficiaries,
successor trustees, and agents, from and against any and all liability,
including all foreseeable and all unforseeable damages including but not limited
to attorney's and consultant's fees, fines, penalties and civil or criminal
damages, directly or indirectly arising out of Tenant's (or Tenant's
contractors', licensees', invitees', agents' or employees') use, generation,
storage, treatment, release, threatened release, presence or disposal of
Hazardous Materials from, on, at, under or to the Property during the Term of
this Lease (as the same may be extended), and including, without limitation, the
cost of any required or necessary repair, response action, remediation,
investigation, cleanup or detoxification and the preparation of any closure or
other required plans, whether such action is required or necessary prior to or
following transfer of title to the Property. This agreement to indemnify and
hold harmless shall be in addition to any other obligations or liabilities
Tenant may have to Landlord at common law under all statutes and ordinances or
otherwise, and shall survive following the date of expiration or earlier
termination of this Lease. Tenant expressly agrees that the representations,
warranties and covenants made and the indemnities stated in this Lease may be
assigned to subsequent parties in interest to the chain of title to the
Property, which subsequent parties in interest may proceed directly against
Tenant to recover pursuant to this Lease.
Tenant shall notify Landlord in writing, promptly upon Tenant's learning
thereof, of any:
(a) notice or claim to the effect that Tenant is or may be liable to any
person as a result of the release of threatened release of any Hazardous
Material into the environment at, on or about the Property;
(b) notice that Tenant is subject to investigation by any governmental
authority evaluating whether any remedial action is needed to respond to the
release or threatened release of any Hazardous Material into the environment at,
on or about the Property;
(c) notice that the Premises or the Property is subject to an
environmental lien; and
(d) notice of violation to Tenant or awareness by Tenant of a condition
which might reasonably result in a notice of violation of any applicable
Environmental Law that could have a material adverse effect upon the Property.
<PAGE>
The Tenant shall give written notice to the Landlord of any materials on
OSHA's right to know list or which are subject to regulation by any other
federal, state, municipal or other governmental authority and which the Tenant
intends to have present at the Premises. The Tenant shall comply with all
requirements of public authorities and of the Board of Fire Underwriters in
connection with methods of storage, use and disposal thereof. The Tenant shall
not permit in the Premises any nuisance, or the emission from the Premises of
any objectionable noise, odor or vibration, nor use or devote the Premises or
any part thereof for any purpose which is contrary to law or ordinance or liable
to invalidate or increase premiums for any insurance on the Building or its
contents or liable to render necessary any alteration or addition to the
Building, nor commit or permit any waste in or with respect to the Premises.
Landlord agrees to protect, defend, indemnify and hold harmless Tenant, its
directors, officers, employees and agents and any successors to Tenant from and
against any liability incurred by Tenant as a result of the enforcement of any
Environmental Law against Tenant for any condition which (i) exists on the
Property on the lease Commencement Date or (ii) is caused by Landlord or
Landlord's contractor's, licenses, invitees, agents, employees after the lease
Commencement Date.
6.3 Laws and Regulations. The Tenant shall comply with and shall keep the
--------------------
Premises in compliance with all federal, state and local laws, regulations,
ordinances, executive orders and similar requirements in effect from time to
time, applicable to its use of the Premises and the Parking Spaces including,
without limitation, Environmental Laws, applicable to the use, handling, storage
and disposal of Hazardous Materials, the Americans with Disabilities Act, City
of Cambridge ordinances with respect to smoking, animal experiments and
hazardous waste and any such requirements pertaining to employment opportunity,
anti-discrimination and affirmative action. Notwithstanding the foregoing, if
an order, subpoena, judgment or the like has been issued by a governmental
authority including, but not limited to, a court, administrative agency,
commission, grand jury, or similar body, Tenant shall permit access to Tenant's
books, records and accounts by Landlord or Landlord's agents.
6.4 Rules and Regulations. The Tenant shall not obstruct in any manner
---------------------
any portion of the Property not hereby leased; shall not permit the placing of
any signs, curtains, blinds, shades, awnings, aerials or flagpoles, or the like,
visible from outside the Premises; and shall comply with all rules of uniform
application now or hereafter made by the Landlord for the care and use of the
Property, including the parking
<PAGE>
facilities relating thereto and the Parking Lot. The Landlord shall not be
liable to the Tenant for the failure of other occupants of the Building to
conform to any such rules.
Tenant shall, at its sole cost and expense and with Landlord's prior
written approval, which approval shall not be unreasonably withheld, be entitled
to place one sign on the Building in accordance with all applicable laws, rules,
ordinances and regulations. Other tenants shall also be entitled to place signs
on the Building in accordance with all applicable laws, rules, ordinances and
regulations and in the event only one such sign is permitted by such laws,rules,
ordinances and regulations, Landlord may, at its option, remove any sign placed
by Tenant and, at Landlord's sole cost and expense, replace the same with a sign
listing the Tenant and other tenants in the Building.
6.5 Safety Compliance. The Tenant shall keep the Premises equipped with
-----------------
all safety appliances required by law or ordinance or any other regulations of
any public authority because of any non-office use made by the Tenant and to
procure all licenses and permits so required because of such use and, if
requested by the Landlord, do any work so required because of such use, it being
understood that the foregoing provisions shall not be construed to broaden in
any way the Tenant's Permitted Uses.
6.6 Landlord's Entry. The Tenant shall permit the Landlord and its agents
----------------
to enter the Premises at any time for the purpose of inspecting or of making
repairs to the same, monitoring Tenant's compliance with the requirements and
restrictions set forth in this Lease, and for the purpose of showing the
Premises to prospective mortgagees and within six (6) months prior to the
expiration of the Term or the Extended Term, as the case may be, to prospective
purchasers or to prospective tenants. Except in the event of an emergency,
Landlord shall make a reasonable effort to give advance notice to Tenant of
Landlord's entry on the Premises and shall make a reasonable effort not to
interfere with Tenant's business; provided, however, Landlord shall in no way
whatsoever be liable to Tenant for failure to give such notice or for
interference with Tenant's business.
6.7 Floor Load. The Tenant shall not place a load upon any floor in the
----------
Premises exceeding the floor load per square foot of area which such floor was
designed to carry and which is allowed by law; and not move any safe, vault or
other heavy equipment in, about or out of the Premises except in such manner and
at such time as the Landlord shall in each instance authorize. The Tenant's
machines and mechanical equipment shall be placed and maintained by the Tenant
at the Tenant's
<PAGE>
expense in settings sufficient to absorb or prevent vibration or noise that may
be transmitted to the Building structure or to any other space in the Building.
6.8 Personal Property Tax. The Tenant shall pay promptly when due all
---------------------
taxes which maybe imposed upon its personal property (including, without
limitation, fixtures and equipment) in the Premises to whomever assessed.
6.9 Assignment and Subleases. The Tenant shall not assign, mortgage,
------------------------
pledge, hypothecate or otherwise transfer this Lease without, in each instance,
having first received the consent of the Landlord, which consent may, in the
Landlord's sole discretion, be withhold or conditioned upon the payment of such
consideration as the Landlord may deem appropriate. Any assignment made without
such consent shall be void.
Notwithstanding the foregoing, Tenant shall have the right to sublease all
or any portion of the Premises subject to Landlord's prior consent, which
consent shall not be unreasonably withheld or delayed. Tenant and Landlord
shall equally share any sublet profit, which shall be defined as the rent
received by Tenant from the sublessee in excess of Tenant's obligations to
Landlord under the Lease including all Additional Rent less all reasonable costs
associated with the sublease. In the event that the Landlord approves an
assignment or subletting by the Tenant, the Tenant named herein shall remain
fully and primarily liable for the obligations of the tenant hereunder,
including, without limitation, the obligation to pay Annual Fixed Rent and
Additional Rent provided under this Lease provided, however,that Tenant may
request Landlord and Sublessee to enter into a direct lease and if Landlord is
willing, in its sole and absolute discretion, to enter into the direct lease
with said sublessee, Tenant shall be relieved of all obligations hereunder with
respect to the portion of the Premises sublet (except for obligations which are
specifically stated to survive the expiration or earlier termination of the
Lease), but shall not be entitled to share in any sublease profit, from and
after the date of such direct lease.
The Tenant shall give the Landlord notice of any proposed sublease or
assignment, specifying the terms of the proposed subletting or assignment,
including (i) the name and address of the proposed subtenant or assignee, (ii) a
copy of the proposed subtenant's or assignee's most recent annual financial
statement, (iii) all of the terms and provisions upon which the proposed
subletting or assignment is to be made and (iv) such other information
concerning the proposed subtenant or assignee as the Tenant has obtained the
proposed subtenant or assignee as the Tenant has obtained in connection with the
proposed subletting or assignment.
<PAGE>
The Tenant shall reimburse the Landlord promptly for reasonable legal and
other expenses incurred by the Landlord in connection with any request by the
Tenant for consent to any assignment or subletting. If this Lease is assigned
or sublet without the Landlord's prior approval, the Landlord may, at any time
and from time to time, collect rent and other charges from the assignee or
sublessee and apply the net amount collected to the rent and other charges
herein reserved, but no such assignment, subletting or collection shall be
deemed a waiver of the prohibitions contained in this Section 6.9 or the
acceptance of the assignee or sublessee as a tenant, or a release of the Tenant
from the further performance by the Tenant of covenants on the part of the
Tenant herein contained. The consent by the Landlord to an assignment or
subletting shall not be construed to relieve the Tenant from obtaining the
express consent in writing of the Landlord to any further assignment or
subletting.
7. Indemnity and Insurance
-----------------------
7.1 Tenant's Indemnity. To the maximum extent this agreement may be made
------------------
effective according to law, the Tenant agrees to indemnify and save harmless the
Landlord from and against all claims, loss, or damage of whatever nature arising
from any breach by Tenant of any obligation Tenant under this Lease or from any
act, omission or negligence of the Tenant, or the Tenant's contractors,
licensees, invitees, agents, servants or employees, or arising from any
accident, injury or damage whatsoever caused to any person or property,
occurring after the date that Tenant first enters any portion of the Premises
for any reason and until the end of the Term, and thereafter, so long as the
Tenant is in occupancy of any part of the Premises, in or about the Premises or
arising from any accident, injury or damage occurring outside the Premises but
within the Building, on the Land, on the access roads and ways, in the parking
facilities, the Parking Lot or within any adjacent area maintained by Landlord
or any individual or entity affiliated with Landlord, in each case where such
accident, injury or damage results, or is claimed to have resulted, from an act
or omission on the part of the Tenant or the Tenant's agents or employees,
licensees, invitees, servants or contractors. This indemnity and hold harmless
agreement shall include indemnity against attorneys' fees and all other costs,
expenses and liabilities incurred in connection with any such claim or
proceeding brought thereon, and the defense thereof.
7.1.1 Landlord's Indemnity. To the maximum extent this Agreement may be
--------------------
made effective according to law, the Landlord agrees to indemnity and save
harmless the Tenant from
<PAGE>
and against all claims, loss or damage of whatever nature arising from any
breach by Landlord of any obligation of Landlord under this Lease or from any
act, omission or negligence of the Landlord or the Landlord's contractors,
licensees, invitees, agents, servants or employees, or arising from any
accident, injury or damage whatsoever caused by any person or property,
occurring after the Lease Commencement Date and until the end of the Term, in or
about the Premises, or arising from any accident, injury or damage occurring
outside the Premises but within the Building, on the Land, on the access roads
and ways in the parking facilities, the Parking Lot or within any adjacent area
maintained by Landlord or any individual or entity affiliated with Landlord, in
each case where such accident, injury or damage results, or is claimed to have
resulted, from an act or omission on the part of Landlord or Landlord's agents
or employees, licensee invitees, servants or contractors. This indemnity and
hold harmless agreement shall include indemnity against attorneys' fees and
other costs, expenses and liabilities incurred in connection with any such claim
or proceeding brought thereon, and the defense thereof.
7.2 Liability Insurance. The Tenant agrees to maintain in full force from
-------------------
the date upon which the Tenant first enters the Premises for any reason,
throughout the Term, and thereafter, so long as the Tenant is in occupancy of
any part of the Premises, a policy of commercial general liability insurance
under which the Landlord (and Landlord's management company, and any holder of a
mortgage on the Property of which Landlord notifies Tenant) and the Tenant are
named as insureds, and under which the insurer provides a contractual liability
endorsement insuring against all cost, expense and liability arising out of or
based upon any and all claims, accidents, injuries and damages described in
Section 7.1, in the broadest form of such coverage from time to time available.
Each such policy shall be noncancellable and nonamendable (to the extent that
any proposed amendment reduces the limits or the scope of the insurance required
in this Lease) with respect to the Landlord and mortgagees without thirty (30)
days' prior notice to the Landlord and mortgagees and at the election of the
Landlord, either a certificate or insurance or a duplicate original policy shall
be delivered to the Landlord. The minimum limits of liability of such insurance
as of the Lease Commencement Date shall be One Million Dollars ($1,000,000.00)
for combined bodily injury (or death) and damage to property (per occurrence).
7.3 Personal Property at Risk. The Tenant agrees that all of the
-------------------------
furnishings, fixtures, equipment, effects and property of every kind, nature and
description of the Tenant and of all persons claiming by, through or under the
Tenant which, during
<PAGE>
the continuance of this Lease or any occupancy of the Premises by the Tenant or
anyone claiming under the Tenant, may be on the Premises or elsewhere in the
Building or on the Property, shall be at the sole risk and hazard of the Tenant,
and if the whole or any part thereof shall be destroyed or damaged by fire,
water or otherwise, or by the leakage or bursting of water pipes, steam pipes,
or other pipes, by theft or from any other cause other than the gross negligence
or willful misconduct of Landlord or its agents, employees or invitees, no part
of said loss or damage is to be charged to or be borne by the Landlord.
7.4 Landlord's Insurance. Landlord agrees to carry and maintain the
--------------------
following insurance during the Term of this Lease; commercial general liability
insurance against claims for personal injury, including death and property
damages in or about the Premises and the Property with a general aggregate limit
of $2,000,000, a products-completed operations limit of $2,000,000, and a each
occurence limit of $1,000,000. Landlord shall also carry and maintain during
the Term hereof, so-called comprehensive property insurance on the Premises,
Building and Property in an amount equal to not less than the replacement cost
thereof, which insurance shall include a replacement cost endorsement. Such
personal property insurance to be in amounts sufficient to provide reasonable
protection for the Premises, and the Building but may exclude Tenant's personal
property and Non-Permanent Improvements. Such insurance shall expressly exclude
property paid for by tenants or paid for by Landlord for which tenants have
reimbursed Landlord located in, or constituting a part of the Building. Such
insurance shall afford coverage for damages resulting from (a) fire, (b) perils
covered by "all risk" property insurance, and (c) explosion of steam and
pressure boilers and similar apparatus located in the Building or on the
Property. All such insurance shall be procured from a responsible insurance
company or companies authorized to do business in Massachusetts and in good
standing therein and may be obtained by Landlord by endorsement on its blanket
insurance policies. Evidence of such insurance required hereunder shall be
provided by certificates of insurance delivered to Tenant at least annually and,
if requested by Tenant, on a quarterly basis.
7.5 Waiver of Subrogation. Any insurance carried by either party with
---------------------
respect to the Building, Land, Premises or any property therein or occurrences
thereon shall, without further request by either party, if it can be so written
without additional premium, or with an additional premium which the other party
elects to pay, include a clause or endorsement denying to the insurer rights of
subrogation against the other party to the extent rights have been waived by the
insured
<PAGE>
prior to occurrence of injury or loss. Each party, notwithstanding any
provisions of this Lease to the contrary, hereby waives any rights of recovery
against the other for injury or loss, including, without limitation, injury or
loss caused by negligence of such other party, due to hazards covered by
insurance containing such clause or endorsement to the extent of the
indemnification actually received thereunder.
8. Casualty and Eminent Domain
---------------------------
8.1 Restoration Following Casualties. If, during the Term, the Building
--------------------------------
or Premises shall be damaged by fire or casualty, subject to the exceptions and
limitations provided below, the Landlord shall proceed promptly to exercise
reasonable efforts to restore the Building or Premises to substantially the
condition thereof at the time of such damage, but the Landlord shall not be
responsible for delay in such restoration which may result from any External
Cause. The Landlord shall have no obligation to expend in the reconstruction of
the Building or the Premises more than the actual amount of the insurance
proceeds made available to the Landlord by its insurer and not retained by the
Landlord's mortgagee. Any restoration of the Building or the Premises shall be
altered to the extent necessary to comply with then current laws and applicable
codes.
8.2 Termination Election. If the Landlord reasonably determines that the
--------------------
amount of insurance proceeds available to the Landlord is insufficient to cover
the cost of restoring the Building or if in the reasonable opinion of the
Landlord the Building has been so damaged that it is appropriate for the
Landlord to raze or substantially alter the Building or applicable laws, rules,
ordinances and regulations do not permit restoration or reconstruction of the
Building, then either the Landlord or Tenant may terminate this Lease by giving
the other party notice within sixty (60) days after the date of the casualty.
Any such termination shall be effective on the date designated in such notice
but in any event, not later than sixty (60) days after such notice, and if no
date is specified, effective upon the delivery of such notice.
Tenant shall have the right to terminate this Lease by written notice to
Landlord if: (i) the amount of insurance proceeds is insufficient to cover the
cost of fully restoring the Premises for any reason (including any mortgagee's
retention of insurance proceeds) and Landlord has notified Tenant that it is
unwilling to fund the restoration or any part thereof; or (ii) subject to delays
due to External Causes, the Premises are not in fact fully restored within two
hundred forty (240) days following the occurrence of the damage, provided,
however that in the event Landlord has commenced restoration and is
<PAGE>
diligently pursuing such restoration, Landlord shall be entitled to an
additional reasonable period of time to complete such restoration so long as
Landlord continues diligently pursuing such restoration.
8.3 Casualty at Expiration of Lease. If the Premises shall be damaged by
-------------------------------
fire or casualty in such a manner that the Premises cannot, in the ordinary
course, reasonably be expected to be repaired within one hundred and twenty
(120) days from the commencement of repair work and such damage occurs within
the last two (2) years of the Term, either Landlord or Tenant shall have the
right, by giving notice to the other party not later than sixty (60) days after
such damage, to terminate this Lease, whereupon this Lease shall terminate as of
the date of such notice.
8.4 Eminent Domain. Except as hereinafter provided, if the Premises, or
--------------
such portion thereof as to render the balance (if reconstructed to the maximum
extent practicable under the circumstances) unsuitable for the Tenant's
purposes, shall be taken by condemnation or right of eminent domain, the
Landlord or the Tenant shall have the right to terminate this Lease by notice to
the other of its desire to do so, provided that such notice is given not later
than thirty (30) days after the effective date of such taking. If so much of the
Building shall be so taken that the Landlord determines that it would be
appropriate to raze or substantially alter the Building, the Landlord or Tenant
shall have the right to terminate this Lease by giving notice to the other party
not later than thirty (30) days after the effective date of such taking.
Should any part of the Premises be so taken or condemned during the Term,
and should this Lease be not terminated in accordance with the foregoing
provisions, the Landlord agrees to use reasonable efforts to put what may remain
of the Premises into proper condition for use and occupation as nearly like the
condition of the Premises prior to such taking as shall be practicable, subject,
however, to applicable laws and codes then in existence and to the availability
of sufficient proceeds from the eminent domain taking not retained by any
mortgagee.
8.5 Rent After Casualty or Taking. If the Premises shall be damaged by
-----------------------------
fire or other casualty, except as provided below, the Annual Fixed Rent and all
Additional Rent shall be justly and equitably abated and reduced according to
the nature and extent of the loss of use thereof suffered by the Tenant. If the
fire or other casualty was willfully caused by the Tenant, such abatement shall
be made only to the extent that the Landlord is fully compensated therefor by
any lost rent insurance. In the event of a taking which permanently reduces
<PAGE>
the area of the Premises, a just proportion of the Annual Fixed Rent and all
Additional Rent shall be abated for the remainder of the Term.
8.6 Intentionally omitted.
---------------------
8.7 Taking Award. The Landlord shall have and hereby reserves and
------------
excepts, and the Tenant hereby grants and assigns to the Landlord, all rights to
recover for damages to the Property, the Building and the Land, and the
leasehold interest hereby created, and to compensation accrued or hereafter to
accrue by reason of such taking, damage or destruction, as aforesaid, and by way
of confirming the foregoing, the Tenant hereby grants and assigns to the
Landlord, all rights to such damages or compensation. Nothing contained herein
shall be construed to prevent the Tenant from prosecuting in any condemnation
proceedings a claim for loss of business, damage to Tenant's personal property
and relocation expenses, provided that such action shall not affect the amount
of compensation otherwise recoverable by the Landlord from the taking authority
pursuant to the preceding sentence.
9. Default
-------
9.1 Tenant's Default. Each of the following shall constitute an Event of
----------------
Default:
(a) Failure on the part of the Tenant to pay the Annual Fixed Rent,
Additional Rent or other charges for which provision is made herein on
or before the date on which the same become due and payable, if such
condition continues for five (5) days after written notice from
Landlord that the same are due; provided, however, any failure to pay
the foregoing items when due following Landlord's delivery to Tenant
of notice of default twice in any calendar year shall, if occurring
during said calendar year, constitute an Event of Default without
notice.
(b) Failure to pay interest or principal within the applicable grace
period, if any, under the promissory note executed by Tenant payable
to the order of Landlord, including, but not limited to, the Note.
(c) Failure on the part of the Tenant to perform or observe any other term
or condition contained in this Lease if the Tenant shall not cure such
failure within thirty (30) days after notice from the Landlord to the
Tenant thereof, provided that in the case of breaches of obligations
under this Lease which are susceptible to cure but cannot be cured
within thirty (30) days
<PAGE>
through the exercise of due diligence, so long as the Tenant commences
such cure within thirty (30) days, such breach remains susceptible to
cure, and the Tenant diligently pursues such cure, such breach shall
not be deemed to create an Event of Default.
(d) The taking of the estate hereby created on execution or by other
process of law; or a judicial declaration that the Tenant is bankrupt
or insolvent according to law; or any assignment of the property of
the Tenant for the benefit of creditors; or the appointment of a
receiver, guardian, conservator, trustee in bankruptcy or other
similar officer to take charge of all or any substantial part of the
Tenant's property by a court of competent jurisdiction; or the filing
of an involuntary petition against the Tenant under any provisions of
the bankruptcy act now or hereafter enacted if the same is not
dismissed within ninety (90) days; or the filing by the Tenant of any
voluntary petition for relief under provisions of any bankruptcy law
now or hereafter enacted.
(e) Failure on the part of the Tenant to perform or observe any term or
condition contained in the Security Agreement, if the Tenant shall not
cure such failure within thirty (30) days after notice from Landlord
to Tenant thereof, provided that in the case of breaches of
obligations under the Security Agreement which are susceptible to
cure, but cannot be cured within thirty (30) days with the exercise of
due diligence, so long as Tenant commences such cure within thirty
(30) days, such breach remains susceptible to cure and the Tenant
diligently pursues such cure, such breach shall not be deemed to
create an Event of Default.
If an Event of Default shall occur, then, in any such case, whether or not
the Term shall have begun, the Landlord lawfully may, immediately or at any time
thereafter, give written notice to the Tenant specifying the Event of Default
and this Lease shall come to an end on the date specified therein as fully and
completely as if such date were the date herein originally fixed for the
expiration of the Lease Term, and the Tenant will then quit and surrender the
Premises to the Landlord, but the Tenant shall remain liable as hereinafter
provided.
9.2 Damages. In the event that this Lease is terminated, the Tenant
-------
covenants to pay to the Landlord forthwith on the Landlord's demand, as
compensation, an amount (the Lump Sum Payment) equal to the excess, if any, of
the discounted present
<PAGE>
value of the total rent reserved for the remainder of the Term over the then
discounted present fair rental value of the Premises for the remainder of the
Term. In calculating the rent reserved, there shall be included, in addition to
the Annual Fixed Rent and all Additional Rent, the value of all other
considerations agreed to be paid or performed by the Tenant over the remainder
of the Term. In addition, the Tenant shall pay punctually to the Landlord all
the sums (Periodic Payments) and perform all the obligations which the Tenant
covenants in this Lease to pay and to perform in the same manner and to the same
extent and at the same time as if this Lease had not been terminated. In
calculating the amounts to be paid by the Tenant under the foregoing covenant,
the Tenant shall be credited with the net proceeds of any rent obtained by the
Landlord in reletting the Premises, after deducting all the Landlord's expenses
reasonably incurred in connection with such reletting, including, without
limitation, all repossession costs, brokerage commissions, fees for legal
services and expenses of preparing the Premises for such reletting. The expenses
of preparing the Premises for such reletting. The Tenant shall also be entitled
to credit against the last periodic payments which would otherwise become due
the amount, if any, paid to the Landlord as a Lump Sum Payment. The Landlord may
(i) relet the Premises, or any part or parts thereof, for a term or terms which
may, at the Landlord's option, exceed or be equal to or less than the period
which would otherwise have constituted the balance of the Term, and may grant
such concessions and free rent as the Landlord in its reasonable commercial
judgment considers advisable or necessary to relet the same and (ii) make such
alterations, repairs and improvements in the Premises as the Landlord in its
commercial judgment considers advisable or necessary to relet the same. No
action of the Landlord in accordance with the foregoing or failure to relet or
to collect rent under reletting shall operate to release or reduce the Tenant's
liability. The Landlord shall be entitled to seek to rent other properties of
the Landlord prior to reletting the Premises.
9.3 Cumulative Rights. The specific remedies to which the Landlord may
-----------------
resort under the terms of this Lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which it may be lawfully
entitled in case of any breach or threatened breach by the Tenant of any
provisions of this Lease. In addition to the other remedies provided in this
Lease, the Landlord shall be entitled to the restraint by injunction of the
violation or attempted or threatened violation of any of the covenants,
conditions, or provisions of this Lease or to a decree compelling specific
performance of any such covenants, conditions or provisions. Nothing contained
in this Lease shall limit or prejudice the right of the Landlord to prove for
and obtain in proceedings for bankruptcy, insolvency or like
<PAGE>
proceedings by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater, equal to, or less than the amount of the loss or
damages, referred to above.
9.4 Self-help. If an Event of Default shall have occurred and is
---------
continuing or conditions exist which with the passage of time and/or notice
would constitute an Event of Default, the Landlord shall have the right, but not
the obligation, upon reasonable, but in no event more than ten (10) days' notice
to the Tenant (except in case of emergency in which case no notice need be
given), to remedy any such Event of Default or condition which with the passage
of time and/or notice would constitute an Event of Default. The Landlord may
exercise its rights under this Section without waiving any other of its rights
or releasing the Tenant from any of its obligations under this Lease.
9.5 Enforcement Expenses. The Tenant shall promptly reimburse the Landlord
--------------------
for all costs and expenses, including without limitation reasonable legal fees,
incurred by the Landlord in exercising and enforcing its rights under this Lease
following the Tenant's failure to comply with its obligations hereunder, but
only if such failure constitutes an Event of Default on the part of the Tenant,
together with interest at the applicable rate specified in Section 9.6 from the
date paid by the Landlord.
9.6 Late Charges and Interest on Overdue Payments. Any Annual Fixed Rent
---------------------------------------------
and Additional Rent which remains unpaid for a period of five (5) business days
following the date when such payments are due shall bear interest to the
Landlord from the expiration of said five day grace period until paid at the
rate (the "Default Interest Rate") equal to the eighteen percent (18%) per
annum.
9.7 Landlord's Right to Notice and Cure. The Landlord shall in no event be
-----------------------------------
in default in the performance of any of the Landlord's obligations hereunder
unless and until the Landlord shall have failed to perform such obligations
within thirty (30) days, or such additional time as is reasonably required to
correct any such default, after notice by the Tenant to the Landlord expressly
specifying wherein the Landlord has failed to perform any such obligation.
10. Mortgagees' Rights
------------------
10.1 Subordination. This Lease shall, at the election of the holder of any
-------------
mortgage on the Property, be subject and
<PAGE>
subordinate to any and all mortgages on the Property, so that the lien of any
such mortgage shall be superior to all rights hereby or hereafter vested in the
Tenant. Tenant agrees to execute, acknowledge and deliver, within fifteen (15)
days after demand, such further instruments evidencing such subordination of
this Lease to the lien of all such mortgages as may reasonably be required by
Landlord provided that the form of such subordination complies with the terms
and conditions contained in this Lease. Notwithstanding the foregoing, Tenant's
covenant to subordinate this Lease to mortgages hereafter executed is
conditioned upon Landlord obtaining for Tenant from any such mortgagee a
non-disturbance agreement whereby the mortgagee agrees to recognize the rights
of Tenant under this Lease in the event of foreclosure of the mortgage held by
it, so long as Tenant is not in default hereunder, which such agreement shall be
substantially in the form attached hereto as Exhibit H.
---------
10.2 Tenant's Duty to Notify Mortgagee; Mortgagee's Ability to Cure.
--------------------------------------------------------------
No act or failure to act on the part of the Landlord which would entitle the
Tenant under the terms of this Lease, or by law, to be relieved of the Tenant's
obligations to pay Annual Fixed Rent or Additional Rent hereunder or to
terminate this Lease, shall result in a release or termination of such
obligations of the Tenant or a termination of this Lease unless (i) the Tenant
shall have first given written notice of the Landlord's act or failure to act to
the Landlord's mortgagees of record, if any, of whose identity and address the
Tenant shall have been given notice, specifying the act or failure to act on the
part of the Landlord which would give basis to the Tenant's rights; and (ii)
such mortgagees, after receipt of such notice, have failed or refused to correct
or cure the condition complained of within a reasonable time thereafter, which
shall include a reasonable time for such mortgagee to obtain possession of the
Property if possession is necessary for the mortgagee to correct or cure the
condition and if the mortgagee notifies the Tenant of its intention to take
possession of the Property and correct or cure such condition.
10.3 Estoppel Certificates. The Tenant shall from time to time, upon not
----------------------
less than fifteen (15) days prior written request by the Landlord, execute,
acknowledge and deliver to the Landlord a statement in writing certifying to the
Landlord or an independent third party, with a true and correct copy of this
Lease attached thereto, (i) that this Lease is unmodified and in full force and
effect (or, if there have been any modifications, that the same is in full force
and effect as modified and stating the modifications); (ii) that the Tenant has
no knowledge of any defenses, offsets or counterclaims against its obligations
to pay the Annual Fixed Rent and Additional Rent and to perform its other
covenants under this.
<PAGE>
Lease (or if there are any defenses, offsets, or counterclaims, setting them
forth in reasonable detail); (iii) that there are no known uncured defaults of
the Landlord or the Tenant under this Lease (or if there are known defaults,
setting them forth in reasonable detail); (iv) the dates to which the Annual
Fixed Rent, Additional Rent and other charges have been paid; (v) that the
Tenant has accepted, is satisfied with, and is in full possession of the
Premises, including all improvements, additions, and alterations thereto
required to be made by Landlord under the Lease; (vi) except as specified, that
the Landlord has satisfactorily complied with all of the requirements and
conditions precedent to the commencement of the Term of the Lease as specified
in the Lease; (vii) except as specified, the Term, the Lease Commencement Date,
the Rent Commencement Date, and any other relevant dates, and that the Tenant
has been in occupancy since the Lease Commencement Date and paying rent since
the Rent Commencement Date; (viii) except as specified, that no monetary or
other considerations, including, but not limited to, rental concessions from
Landlord, special tenant improvements or Landlord's assumption of prior lease
obligations of Tenant have been granted to Tenant by Landlord for entering into
Lease, except as specified; (ix) except as specified, that Tenant has no notice
of a prior assignment, hypothecation, or pledge of rents or of the Lease by
Landlord; (x) that the Lease represents the entire agreement between Landlord
and Tenant; (xi) that no prepayment or reduction of rent and no modification or
termination of the Lease will be valid as to any mortgagee who enters into a
subordination, non-disturbance and attornment agreement in the form attached
hereto as Exhibit H without the written consent of such party; (xii) that may
---------
notice to Tenant may be given it by certified or registered mail, return receipt
requested, or delivered at the Premises, or at another address specified; and
(xiii) such other matters with respect to the Tenant and this Lease as the
Landlord or the third party may reasonably request. On the Rent Commence Date,
the Tenant shall, at the request of the Landlord or the third party may
reasonably request. On the Rent Commencement Date, the Tenant shall, at the
request of the Landlord, promptly execute, acknowledge and deliver to the
Landlord a statement in writing that the Rent Commencement Date has occurred,
that the Annual Fixed Rent and the Additional Rent has occurred, that the Annual
Fixed Rent and the Additional Rent have begun to accrue and that the Tenant has
taken occupancy of the Premises. Any statement delivered pursuant to this
Section may be relied upon by any prospective purchaser or mortgagee of the
Premises and shall be binding on the Tenant.
11. Miscellaneous
-------------
11.1 Notice of Lease. The Tenant agrees not to record this Lease, but upon
---------------
request of either party, both parties shall execute and deliver a memorandum of
this Lease in form appropriate for recording or registration, an instrument
<PAGE>
acknowledging the Lease Commencement Date, the Rent Commencement Date, and the
Term, and if this Lease is terminated before the Term expires, an instrument in
such form acknowledging the date of termination.
11.2 Notices. Whenever any notice, approval, consent, request, election,
-------
offer or acceptance is given or made pursuant to this Lease, it shall be in
writing. Communications and payments shall be addressed, if to the Landlord,
at the Landlord's Address as set forth in Exhibit A or at such other address
---------
as may have been specified by prior notice to the Tenant; and if to the Tenant,
at the Tenant's Address as set forth in Exhibit A or at such other place as may
---------
have been specified by prior notice to the Landlord. Any communication so
addressed shall be deemed duly given on the earlier of (i) the date received or
(ii) on the third business day following the day of mailing if mailed by
registered or certified mail, return receipt requested. If the Landlord by
notice to the Tenant at any time designates some other person to receive
payments or notices, all payments or notices thereafter by the Tenant shall be
paid or given to the agent designated until notice to the contrary is received
by the Tenant from the Landlord.
11.3 Successors and Limitation on Liability of the Landlord. The
------------------------------------------------------
obligations of this Lease shall run with the land, and this Lease shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the original Landlord named herein and each
successor Landlord shall be liable only for obligations accruing during the
period of its ownership. The obligations of the Landlord shall be binding upon
the assets of the Landlord consisting of an equity ownership of the Property but
not upon any other assets of the Landlord and neither the Tenant, nor anyone
claiming by, under or through the Tenant, shall be entitled to obtain any
judgment creating personal liability on the part of the Landlord or enforcing
any obligations on the Landlord against any assets of the Landlord other than an
equity ownership of the Property.
11.4 Waivers by the Landlord. The failure of the Landlord to seek redress
-----------------------
for violation of, or to insist upon strict performance of, any covenant or
condition of this Lease, shall not be deemed a waiver of such violation nor
prevent a subsequent act which would have originally constituted a violation
from having all the force and effect of an original violation. The receipt by
the Landlord of Annual Fixed Rent or Additional Rent with knowledge of the
breach of any covenant of this Lease shall not be deemed a waiver of such
breach. No provision of this Lease shall be deemed to have been waived by
<PAGE>
the Landlord, unless such waiver be in writing signed by the Landlord. No
consent or waiver, express or implied, by the Landlord to or of any breach of
any agreement or duty shall be construed as a waiver or consent to or of any
other breach of the same or any other agreement or duty.
11.5 Acceptance of Partial Payments of Rent. No acceptance by the
--------------------------------------
Landlord of a lesser sum than the Annual Fixed Rent and Additional Rent then due
shall be deemed to be other than a partial installment of such rent due, nor
shall any endorsement or statement on any check or any letter accompanying any
check or payment as rent be deemed an accord and satisfaction, and the Landlord
may accept such check or payment without prejudice to the Landlord's right to
recover the balance of such installment or pursue any other remedy in this lease
provided. The delivery of keys to any employee of the Landlord or to the
Landlord's agent or any employee thereof shall not operate as a termination of
this Lease or a surrender of the Premises.
11.6 Interpretation and Partial Invalidity. If any term of this Lease,
-------------------------------------
or the application thereof to any person or circumstances, shall to any extent
be invalid or unenforceable, the remainder of this Lease, or the application of
such term to persons or circumstances other than those as to which it is invalid
or unenforceable, shall not be affected thereby, and each term of this Lease
shall be valid and enforceable to the fullest extent permitted by law. The
titles of the Articles are for convenience only and not to be considered in
construing this Lease. This Lease contains all of the agreements of the parties
with respect to the subject matter thereof and supersedes all prior dealings
between them with respect to such subject matter.
11.7 Quiet Enjoyment. So long as the Tenant pays Annual Fixed Rent and
---------------
Additional Rent, performs all of the other Tenant covenants of this Lease and
observes all conditions hereof, the Tenant shall peaceably and quietly have,
hold and enjoy the Premises free of any claim by, through or under the Landlord.
11.8 Brokerage. The Tenant represents and warrants that it has had no
----------
dealing with any broker or agent other than Meredith & Grew, Incorporated in
connection with this Lease and shall indemnify and hold harmless the Landlord
from claims for any brokerage commission other than by Meredith & Grew,
Incorporated, arising out of the Tenant's actions. Landlord represents and
warrants that it has dealt with no broker or agent other than Meredith & Grew,
Incorporated in connection with this Lease and shall indemnify and hold harmless
the Tenant from claims for any brokerage commission, including any
38
<PAGE>
claim by Meredith & grew, Incorporated, arising out of Landlord's actions.
Landlord further covenants and agrees to pay the brokerage commission of
Meredith & Grew, Incorporated.
11.9 Surrender of Premises and Holding Over. The Tenant shall surrender
--------------------------------------
possession of the Premises on the last day of the Term or the extended term, as
the case may be, and the Tenant waives the right to any notice of termination or
notice to quit. The Tenant covenants that upon the expiration or sooner
termination of this Lease, it shall, without notice, deliver up and surrender
possession of the Premises in the same condition in which the Tenant has agreed
to keep the same during the continuance of this Lease and in accordance with the
terms hereof, normal wear and tear excepted, first removing therefrom all goods
and effects of the Tenant and any leasehold improvements which constitute
Non-Permanent Improvements or which Landlord specified for removal at the time
Landlord consented to their installation, and repairing all damage caused by
such removal. Upon the expiration of this Lease or if the Premises should be
abandoned by the Tenant, or this Lease should terminate for any cause, and at
the time of such expiration, vacation, abandonment or termination, the Tenant or
Tenant's agents, subtenants or any other person should leave any property of any
kind or character on or in the Premises, the fact of such leaving of property on
or in the Premises shall be conclusive evidence of intent by the Tenant, and
individuals and entities deriving their rights through the Tenant, to abandon
such property so left in or upon the Premises, and such leaving shall constitute
abandonment of the property. Landlord shall have the right and authority
without notice to the Tenant or anyone else, to remove and destroy, or to sell
or authorize disposal of such property, or any part thereof, without being in
any way liable to the Tenant therefor and the proceeds thereof shall belong to
the Landlord as compensation for the removal and disposition of such property.
If the Tenant fails to surrender possession of the Premises upon the
expiration or sooner termination of this Lease, the Tenant shall pay to
Landlord, as rent for any period after the expiration or sooner termination of
this Lease an amount equal to twice the fair market rental value of the Premises
as reasonably determined by Landlord. Acceptance by the Landlord of such
payments shall not constitute a consent to a holdover hereunder or result in a
renewal or extension of the Tenant's rights of occupancy. Such payments shall
be in addition to and shall not affect or limit the Landlord's right of
re-entry, Landlord's right to collect such damages as may be available at law,
or any other rights of the landlord under this Lease or as provided by law.
<PAGE>
11.10 Security Deposit. Tenant has paid to Landlord herewith a security
----------------
deposit of $17,500.00. Upon payment by Landlord of the first installment of the
Improvement Loan pursuant to Section 4.6, Tenant shall increase the security
deposit to $100,000.00. Upon the fifth anniversary of the Rent Commencement
Date, and provided no Event of Default has occurred hereunder and no condition
exists which with the passage of time and/or notice would constitute an Event of
Default hereunder, Landlord shall return so much of the security deposit and
interest if any, earned thereon, so that the principal balance remaining for the
duration of the Term is $21,000.00. Landlord shall hold such deposit in a
segregated, interest bearing account, and may apply such deposit to any
outstanding obligation or to remedy any such condition upon an Event of Default
of Tenant hereunder. Provided Tenant is not then in default hereunder, Landlord
shall return the then remaining portion of the security deposit with all
interest earned thereon to Tenant within thirty (30) days after the expiration
of this Lease. In the event Landlord applies any such funds, Tenant shall pay to
Landlord as Additional Rent within ten (10) days after invoice therefor, the
amount of the security deposit applied by Landlord, such that the balance of the
security deposit shall be restored to its original amount.
11.11 Financial Reporting. Tenant shall from time to time, but at least
-------------------
annually within ninety (90) days of the end of Tenant's fiscal year, provide
Landlord with financial statements of Tenant, together with related statements
of Tenant's operations for the fiscal year then ended, certified by Tenant's
certified public accountants.
11.12 Landlord's Covenants. Subject to the terms and conditions of this
--------------------
Lease, Landlord hereby covenants and agrees to perform the services listed on
Exhibit I attached hereto and by this reference incorporated herein so long as
Tenant (i) pays Annual Fixed Rent and Additional Rent, (ii) performs all of the
other Tenant covenants of this Lease, and (iii) observes all conditions hereof.
11.13 Building Permits. In the event either Landlord's application for a
----------------
building permit for the Landlord's Base Building Work or Tenant's application
for a building permit for the Tenant Improvement Work is denied by the City of
Cambridge, Landlord and Tenant shall each be entitled to terminate this Lease
upon thirty (30) days prior written notice to the other party; provided,
however, that each party agrees to use its good faith commercially reasonable
efforts to obtain the building permit which it has applied for.
Executed as an instrument under seal as of the date set forth above.
<PAGE>
LANDLORD:
By: /S/ Harry F. Stimpson, III, Trustee
-----------------------------------------
Harry F. Stimpson, III, trustee
under the will of Harry F. Stimpson
and not individually
TENANT:
CUBIST PHARMACEUTICALS, INC., A
Delaware Corporation
By: /S/ John K. Clarke
----------------------------------------
Name: John K. Clarke
Title: (Vice) President
By: /S/ Signature
----------------------------------------
Name:
Title: (Assistant) Treasurer
<PAGE>
EXHIBIT A
- ---------
Basic Lease Terms
-----------------
Annual Fixed Rent:
Lease Years 1-5: $7.50 per rentable square foot per year.
Lease Year 6-10: $9.00 per rentable square foot per year.
Upon the Rent Commencement Date, Annual Fixed Rent shall be based upon
9,000 rentable square feet. The rentable square feet included in the
calculation of Annual Fixed Rent shall be increased to become 14,000
rentable square feet on the first anniversary of the Rent Commencement
Date.
Security Deposit: $17,500 (as the same may be increased pursuant to Section
11.10)
Term: Ten years from the Rent Commencement Date (subject to the
extension option contained in Section 2.5)
Termination Date: Ten years from Rent Commencement Date
Extension Term: One (1) five-year extension option (on the terms and
conditions contained in Section 2.5)
Premises: 14,000 rentable square feet located on the first floor of
the Building located at 149 Sidney Street, Cambridge, MA.
Permitted Uses: General business and administrative offices, pharmaceutical
research and laboratory uses, light assembly and accessory
uses supporting the foregoing.
Lease
Commencement
Date: The date of execution hereof.
Parking Lot: The 30 car parking lot located on the corner of Sidney and
Emily street as more particularly described on Exhibit C
---------
attached hereto.
Parking Spaces: Eighteen (18) parking spaces locating in the Parking Lot.
<PAGE>
Rent
Commencement
Date: The earlier to occur of (i) Tenant's actual occupancy of
any portion of the Premises in the conduct of its
business, or (ii) September 15, 1993, so long as the
Landlord's Base Building Work has been completed in
accordance with and subject to Section 4.1.
Tenant's
Address: Prior to the Rent Commencement Date:
c/o DSV Partners
221 Nassau Street
Princeton, NJ 08542
Attn: John Clarke
On and after the Rent Commencement Date:
Cubist Pharmaceuticals, Inc.
149 Sidney Street
Cambridge, MA 02139
Landlord's
Address: Trust under the Will of Harry F. Stimpson
c/o Meredith & Grew
160 Federal Street
Boston, MA 02110
Attention: Robert M. Brierley
<PAGE>
EXHIBIT B
---------
Legal Description
Land and buildings thereon located in Cambridge, Middlesex County,
Commonwealth of Massachusetts bounded and described as follows:
Known and numbered 137-149 Sydney Street and bounded:
SOUTHEASTERLY by Sidney Street, 225.78 feet;
-------------
SOUTHWESTERLY by the parcel marked "8521 sq. ft." on the plan hereinafter
-------------
referred to, 162.45 feet;
NORTHWESTERLY by land conveyed to Mabel S. Wilson, 223.76 feet;
-------------
NORTHEASTERLY by Emily Street, 176.83 feet.
-------------
Containing 38,085 square feet and being shown as Lot B2 on a plan entitled
"Plan of Land in Cambridge, Surveyed for Harry F. Stimpson," dated Nov. 15,
1926, subdivision of Lot B, May 12, 1927, by W.A. Mason & Son Co., duly
recorded, and being the southeasterly portion of the Third Parcel in a Deed from
Harry F. Stimpson to Stimpson Investment Corporation dated December 21, 1931 and
recorded with said Deeds at Book 5621, Page 234.
Together with the right to use, in common with others, a driveway on the
northwesterly side of Sidney Street and bounded:
SOUTHEASTERLY by Sidney Street, 27.24 feet;
-------------
SOUTHWESTERLY by Lot A on said plan by W.A. Mason & Son Co. dated November
-------------
15, 1926, being in part Parcel One in a deed dated November 1, 1951 from
Stimpson Investment Corporation to Harry F. Stimpson, Jr., and in parcel
Parcel One in a deed dated November 1, 1951 and recorded with the Middlesex
South District Registry of Deeds from Stimpson Investment Corporation to
Edward S. Stimpson, by two lines measuring respectively 84 feet and 248.15
feet;
NORTHWESTERLY by land of owners unknown, 26.30 feet; and
-------------
NORTHEASTERLY by Lots B1 and B2 on said plan, being in part the land
-------------
conveyed by Stimpson Investment Corporation to Mabel S. Wilson by deed
dated November 1, 1951 and recorded with said Deeds at Book 7825, Page 531,
342.01 feet.
<PAGE>
Being shown on said plan as containing 8521 square feet, and being the
Sixty Parcel in said Deed from Harry F. Stimpson to Stimpson Investment
Corporation dated December 21, 1931 and recorded with said Deeds at
Book 5621, Page 234.
For title, see Deed of Stimpson Investment Corporation dated November 1,
1951 and recorded with the Middlesex South District Registry of Deeds at Book
7825, Page 517.
<PAGE>
EXHIBIT C
Land with the buildings thereon located in Cambridge, Middlesex County,
Commonwealth of Massachusetts bounded and described as follows:
PARKING LOT: Known as and numbered 135 Sidney Street, situated on the
northerly corner of Sidney and Emily Streets, shown as Lot A on a plan recorded
with said Deeds at end of Book 4320 and bounded:
SOUTHEASTERLY by Sidney Street, 91.35 feet;
_____________
SOUTHWESTERLY by Emily Street, 91.23 feet;
_____________
NORTHWESTERLY by land now or formerly of Thairwall, 91.25 feet; and
_____________
NORTHEASTERLY by Lot B on said plan, 96.50 feet.
_____________
Containing according to said plan 8566 square feet of land.
For title, see Deed of Stimpson Investment Corporation dated November 1,
1951 and recorded with the Middlesex South District Registry of Deeds at Book
7825, Page 517.
<PAGE>
EXHIBIT D
Landlord's Base Building Work
- New roof
- New windows
- Paint Building exterior
- Separate electrical service (see below)
- Repair/restore loading dock
- Provide handicap accessibility to Building subject to further definition by
Tenant of plans for Building entry
- Repave and reline the Parking Lot and loading area
- Provide new fencing and landscaping of the Parking Lot as mutually agreed
upon
- Remove asbestos pipe fitting from within Building
- Provide 1800 amp electrical service; provided however, if the cost to
provide separate electric service to 148 Sidney is required to be paid for
by Landlord, Tenant hereby agreed to pay one half of said cost up to a
maximum of $15,000 upon ten day's prior written notice from Landlord.
All in accordance with the specifications attached hereto as Schedule 1.
<PAGE>
SCHEDULE 1 TO EXHIBIT D
-----------------------
Landlord Base Building Improvements
-----------------------------------
New Roof
- --------
Remove existing roofing, roof debris; HVAC equipment and steel support to
remain. Install a fully adhered roof system complete with wood nailers, R-20
insulation, flashings and metal trim. System to be installed per manufacturers
specifications and shall have a ten year warranty.
New Windows
- -----------
Remove all existing windows and replace with new bronze aluminum framed fixed
windows with 1" clear insulated glass. Provide a new sill cover flashing and
perimeter exterior caulking.
Paint Building Exterior
- -----------------------
Paint the entire exterior of the building with two colors, two coats.
Segregate Electrical Service
- ----------------------------
The existing electrical service consists of a 3000 amp 120/208 volt system, with
a 2500 amp circuit breaker feeding the 149 Sidney Street building and an 800 amp
breaker feeding the 148 Sidney Street building. Modify the existing swithgear as
required to provide feeds to tenant spaces with checkmeters as follows:
- 1,800 amp to Cubist
- 1,200 amp to remaining portion of the building and house service
Repair/Restore Loading Dock
- ---------------------------
Install plywood facing to lower portion of loading dock to improve appearance.
Paint to match building.
<PAGE>
Provide handicap accessibility based on Tenant Plan
- ---------------------------------------------------
Remove existing concrete slab at entrance and create a new handicap ramp.
Repave and reline the Parking Lot and Loading Area
- --------------------------------------------------
Repave the entire loading dock area in the rear of the building with a 2"
overlay.
Pave and restripe the parking lot on the corner of Emily Street and Sydney
Street. Remove large bumps and loose asphalt, patch with leveling course and
install 2" top coat.
Provide new fencing for the parking lot
- ---------------------------------------
Remove existing fencing and install a new 5' chain link fence.
Asbestos abatement
- ------------------
Remove asbestos pipe fittings from premises.
<PAGE>
EXHIBIT E
---------
Tenant Improvement Work
Plans and specifications prepared by Olson Lewis Architects & Planners, Inc., 17
Elm Street, Manchester-by-the-Sea, Massachusetts 01944, the specifications for
which are dated April 6, 1993 and the plans for which are dated April 5, 1993
captioned "New Offices and Laboratories for Cubist, Incorporated".
<PAGE>
EXHIBIT E-1
-----------
The following equipment may be removed and the Premises restored if, but
only if, the Tenant Improvement Loan is not made:
Glasswash Facility
Autoclave
Glass Washer
Steam Generator
Hot water booster
Glassware Dryer
Darkroom Equipment
Film Processor
X-O-Mat
Manifold System
Telephone System
Access Control System
Uninterupted Power Supply
Standby Generator
Pure Water System
Laboratory benches and tables and shelves
Laboratory Fume Hoods
Environmental Rooms
Vacuum System
Air Compressor System
Laboratory pH Adjustment System
Fume Hood Alarm System
<PAGE>
EXHIBIT F
---------
Form of
Promissory Note
---------------
$700,000.00 , 19
--------------------- --
FOR VALUE RECEIVED, Cubist Pharmaceuticals, Inc. a Delaware corporation
with an address of 149 Sidney Street, Cambridge, Massachusetts (the "Borrower"),
promise(s) to pay to the order of Harry F. Stimpson, III, Trustee under the
will of Harry F. Stimpson, or order (together with any successor holder or
holders of this Note, the "Lender") at its office c/o Meredith & Grew,
160 Federal Street, Boston, Massachusetts 02110, or such other place as Lender
may designate, the principal sum of Seven Hundred Thousand Dollars
($700,000.00), or so much thereof as shall be advanced hereunder, together
with interest thereon, as hereinafter set forth.
Interest on the principal balance of this Note from time to time
outstanding shall accrue at the rate of twelve percent (12%) per year. Principal
and interest shall be payable in equal monthly installments in an amount
necessary to fully amortize the outstanding balance by the fifth anniversary of
the date hereof, regardless of when the principal is advanced, beginning with
the _____ day of ________________, 19__, and continuing on the _____ day of each
month until the fifth anniversary of the date hereof. Interest shall be computed
on the basis of a three hundred and sixty (360)-day year and shall be paid for
the actual number of days on which principal is outstanding. All payments shall
be applied first to interest and the balance to principal, except that in the
event of a default hereunder which is not cured within the applicable grace
period, any payment may be applied first to principal, at the option of Lender.
In any event, the entire outstanding principal balance of this Note,
together with any accrued interest and other charges as may be due hereunder,
shall be paid on the fifth anniversary of the date hereof (the "Maturity Date").
In the event that any regularly scheduled payment due hereunder is not paid
when due, Lender shall have the right, in addition to any other rights
hereunder, to collect a late charge as compensation for increased costs of
administering such late payment. Such late charge shall be in an amount equal
to three percent (3%) of the amount of such late payment, and shall be due and
payable upon demand.
<PAGE>
In the event that any payment due hereunder is not paid when due or upon a
default under the Security Agreement securing this Note (the "Security
Agreement") or under the Lease dated _______________________ (the "Lease") by
and between Lender as landlord and Borrower as tenant (together with this Note,
the Lease and the Security Agreement, the "Loan Documents") which default is not
cured within the applicable grace period, if any, Lender, at its option, may
declare immediately due and payable the entire outstanding balance of principal
and interest, together with all other charges which Lender may be entitled. If
this Note is so accelerated or any amounts due hereunder are not paid on the
Maturity Date, all amounts due hereunder shall, after such acceleration or such
Maturity Date, as the case may be, bear interest at the rate of sixteen percent
(16%) per year, until paid.
On any payment date, the outstanding balance of principal due hereunder may
be prepaid in whole, or in part in multiples of One Thousand Dollars ($1,000.00)
provided that at least five (5) days, prior written notice of such prepayment
shall have been given to Lender.
Any notice required or permitted to be delivered hereunder shall be in
writing and shall be deemed to be delivered on the earlier of (i) the date
received, or (ii) the date of delivery, refusal, or non-delivery indicated on
the return receipt, if deposited in a United States Postal Service depository,
postage prepaid, sent registered or certified mail, return receipt requested,
addressed to the party to receive the same at the address of such party set
forth at the beginning of this Note, or at such other address as may be
designated in a notice delivered or mailed as herein provided.
The obligations of Borrower hereunder, if more than one, shall be joint and
several.
Borrower agrees to pay all charges (including reasonable attorney's fees)
of Lender in connection with the collection and/or enforcement of this Note or
any other Loan Document or in protecting or preserving the security for this
Note, whether or not suit is brought against Borrower.
The failure of Lender at any time to exercise any option or right hereunder
shall not constitute a waiver of Lender's right to exercise such option or right
at any other time.
Borrower and all endorsers and guarantors of this Note hereby jointly and
severally waive presentment, demand, notice, protest and all other suretyship
defenses generally and agree that (i) any renewal, extension or postponement of
the time of payment or any other indulgence, (ii) any modification,
53
<PAGE>
supplement or alteration of any of the Borrower's obligations undertaken in
connection with this Note or any of the other Loan Documents, or (iii) any
substitution, exchange or release of collateral or the addition or release of
any person or entity primariy or secondarily liable, may be effected without
notice to Borrower or any endorser or guarantor of Borrower's obligations, and
without releasing Borrower or such endorser or guarantor from any liability
hereunder. Nothing contained herein shall be construed to permit Lender to
unilaterally alter the terms of this Note without agreement of the Borrower.
This Note shall be governed by, construed, and enforced in accordance with
the laws of The Comonwealth of Massachusetts. If any provision of this Note is
held to be invalid or unenforceable by a court of competent jurisdiction, the
other provisions of this Note shall remain in full force and effect. If the
payment of any interest due hereunder would subject Lender to any penalty under
applicable law, then the payments due hereunder shall be automatically reduced
to what the would be at the highest rate authorized under applicable law.
This Note shall have the effect of an instrument under seal.
WITNESS: BORROWER:
Cubist Pharmaceuticals, Inc., a Delaware
corporation
- --------------------------------- By: -------------------------------------
Name:
Title:
- --------------------------------- By: ------------------------------------
Name:
Title:
<PAGE>
EXHIBIT G
---------
Form of
General Security Agreement
--------------------------
AGREEMENT made this _____ day of ____________________, 19__ between Cubist
Pharmaceuticals, a Delaware corporation with a principal place of business at
149 Sidney Street, Cambridge, MA ("Debtor") and Harry F. Stimpson, III, Trustee
under the will of Harry F. Stimpson with a principal place of business at c/o
Meredith & Grew, 160 Federal Street, Boston, MA 02110 ("Secured Party").
1. Security Interest. Debtor grants to Secured Party a security interest
-----------------
("Security Interest") in all personal property, fixtures and equipment which
constitute either Tenant Improvement Work or Permanent Improvements, as those
terms are defined in that certain Lease (the "Lease") dated April ___, 1993 by
and between Debtor as Tenant and Secured Party as Landlord (as such terms are
defined by the Uniform Commercial Code as in effect in Massachusetts from time
to time [the "Uniform Commercial Code"]) in which Debtor now has or hereafter
acquires any right and the proceeds therefrom ("Collateral") presently
including, but not limited to, the personal property and fixtures listed on
Exhibit A hereto. The Security Interest shall secure the payment and performance
of Debtor's promissory note of even date in the principal amount of Seven
Hundred Thousand Dollars ($700,000.00) ("Note") the payment and performance of
all other liabilities and obligations of Debtor to Secured Party of every kind
and description, direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising under the Agreement (collectively with
the Note called the "Obligations").
2. Financing Statements and Other Action. Debtor agrees to do all acts
-------------------------------------
which Secured Party deems necessary or desirable to protect the Security
Interest or to otherwise carry out the provisions of this Agreement, including,
but not limited to, the execution of financing, continuation, amendment and
termination statements and similar instruments and the procurement of waivers
and disclaimers of interest in the Collateral by the owners of any real estate
on which the Collateral is located. Debtor appoints Secured Party as Debtor's
attorney irrevocable to do all acts which Debtor may be required to do under
this Agreement.
3. Debtor's Place of Business. Debtor warrants that:
--------------------------
(a) Debtor's principal place of business is located at 149 Sidney
Street, Cambridge, Massachusetts.
<PAGE>
(b) Debtor has no other place of business within the Commonwealth of
Massachusetts.
(c) the records concerning Debtor's accounts and contract rights are
located at Debtor's principal place of business.
Debtor covenants to notify Secured Party of the addition or discontinuance
of any place of business or any change in the information contained in this
paragraph 3.
4. Location of Collateral. Debtor warrants and covenants that all of the
----------------------
Collateral shall be located at Debtor's principal place of business specified in
paragraph 3(a) of this Agreement.
None of the Collateral shall be removed from this location specified in
this paragraph other than in the ordinary course or business.
5. Encumbrances and Equipment Leasing. Debtor warrants that Debtor has
----------------------------------
title to the Collateral and that there are no sums owed or claims, liens
security interests or other encumbrances against the Collateral. The Debtor
shall not permit, without the prior written consent of the Secured Party the
creation or continued existence, whether by voluntary action or operation of
law, of any security interest in or other encumbrance on the Collateral.
If, at any time, the Collateral or any portion thereof is subject to a
security interest other than this Security Agreement, the Debtor shall not
modify, amend, or fail to comply with any term or condition of such security
interest or the obligation secured thereby or any lease of such equipment
without the prior written consent of the Security Party. Notice is hereby given
to any holder of a junior security interest in or other encumbrance on the
Collateral that the Note and Obligation may be amended. The holder of any such
security interest or encumbrance subject to this Security Agreement shall be
deemed to have agreed to any amendment to the Note and Obligations including,
without limitation, any change in interest rate.
6. Disposition of Collateral.
-------------------------
Debtor shall not sell, lease or otherwise dispose of any item of the
Collateral and shall not use Collateral in violation of any law.
<PAGE>
7. Fixtures. It is the intention of the Debtor and the Secured Party that
--------
all of the Collateral shall become fixtures and shall be deemed property of the
Secured Party as Landlord under the lease upon expiration or earlier termination
thereof without any further act and to the extent necessary to accomplish the
foregoing, this instrument shall be construed as a bill of sale and Debtor
hereby grants, transfers, conveys, assigns and bargains the Collateral to the
Secured Party upon the expiration or earlier termination of the Term of the
Lease, as defined therein.
8. Default. If, while any Obligations are outstanding, any one or more of
-------
the following events of default shall occur:
(a) any representation made by Debtor is untrue or any warranty is not
fulfilled;
(b) Debtor fails to pay any amounts due under any of the Obligations
when due and such failure continues for a period of fifteen (15) days;
(c) Debtor fails to observe or perform any covenant, warranty or
agreement to be performed by Debtor under (i) this Agreement and such
failure continues for a period of thirty (30) days after Secured Party
gives written notice of such failure to Debtor or (ii) under any other
document executed by Debtor in connection with the Obligations and such
failure shall not be remedied within the time permitted under such
document;
(d) Debtor or any guarantor of any of the Obligations is involved in
any financial difficulty as evidenced by
(i) an assignment, composition or similar device for the benefit
of creditors, or
(ii) inability to pay debts when due, or
(iii) an attachment or receivership of assets not dissolved within
thirty (30) days, or
(iv) the filing by Debtor or any guarantor of a petition under any
chapter of the Federal Bankruptcy Code or the institution of any other
proceeding under any law relating to bankruptcy, bankruptcy
reorganization, insolvency or relief of debtors, or
(v) the filing against Debtor or any guarantor of an involuntary
petition under any chapter of the Federal Bankruptcy Code or the
institution of any other proceeding under any law relating to
bankruptcy,
<PAGE>
bankruptcy reorganization, insolvency or relief of debtors where such
petition or proceeding is not dismissed within thirty (30) days from
the date on which it is filed or instituted;
then in each such event Secured Party may declare Debtor in default and exercise
the Rights on Default as hereinafter defined.
9. Rights on Default. In the event of a default under this Agreement,
-----------------
Secured Party may:
(a) by written notice to Debtor declare the Obligations, or any of
them, to be immediately due and payable without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived;
(b) exercise the rights and remedies accorded a secured party by the
Uniform Commercial Code or by any document securing the Obligations;
(c) perform any warranty, covenant or agreement which Debtor has
failed to perform under this Agreement;
(d) take any other action which Secured Party deems necessary or
desirable to protect the Collateral or the Security Interest.
No course of dealing or delay in accelerating the Obligations or in taking
or failing to take any other action with respect to any event or default shall
affect Secured Party's right to take such action at a later time. No waiver as
to any one default shall affect Secured Party's rights upon any other default.
Secured Party may exercise any or all of its Rights on Default concurrently
with or independently of and without regard to the provisions of any other
document which secures an Obligation.
After default, Debtor, upon demand by Secured Party, shall assemble the
Collateral at Debtor's cost and make it available to Secured Party at a place to
be designated by Secured Party.
The requirement of the Uniform Commerical Code that Secured Party give
Debtor reasonable notice of any proposed sale of disposition of the Collateral
shall be met if such notice is given to Debtor at least five (5) days before the
time of such sale of disposition.
<PAGE>
10. Expenses. Any payment made or expense incurred by Secured Party
--------
(including, without limitation, reasonable attorneys' fees and disbursements) in
connection with the preparation of this Agreement, any other document executed
by Debtor in connection with the Obligations and any amendment thereto, or in
connection with the exercise of any Right on Default shall be added to the
indebtedness of Debtor to Secured Party, shall earn interest at the rate set
forth in the Note, shall be payable upon demand and shall be secured by the
Security Interest.
11. Notices. Any notice under this Agreement shall be in writing and
-------
shall be deemed delivered if mailed, postage prepaid, to a party at the
principal place of business specified in this Agreement or such other address as
may be specified by notice given after the date hereof.
12. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and shall bind the heirs, executors, administrators, legal representatives,
successors and assigns of the parties. The obligations of Debtor, if more than
one, shall be joint and several.
13. Interpretation. Reference to the singular or the plural shall be
--------------
deemed to include the other where the context requires. In particular, the use
of the term "Debtor" in the singular shall include all debtors and the default
of any debtor shall be deemed to be a default of all debtors.
14. Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the Commonwealth of Massachusetts.
This Agreement shall have the effect of an instrument under seal.
DEBTOR:
Cubist Pharmaceuticals, a
Delaware corporation
By: ____________________________
Name:
Title:
SECURED PARTY:
________________________________
Harry F. Stimpson, III,
Trustee under the will of
Harry F. Stimpson, and not
individually
<PAGE>
EXHIBIT A
---------
List of Collateral and
Encumbrances Against the Collateral
-----------------------------------
All Tenant Improvement Work and Permanent Improvements as defined in the
Lease.
<PAGE>
EXHIBIT H
---------
Subordination, Non-Disturbance and Attornment Agreement
-------------------------------------------------------
THIS AGREEMENT is made and entered into as of this ____ day of ___________,
by and among __________________, a national banking association (the "Lender"),
Harry F, Stimpson, III, as Trustee under the Will of Harry F. Stimpson, late of
Brookline, Massachusetts, Norfolk Probate No. 99898, (the "Landlord") and Cubist
Pharmaceuticals, Inc. (the "Tenant").
Reference is made to the following facts:
A. Landlord and Tenant have entered into a lease, dated _________________,
(the "Lease") with respect to a portion of the property owned by the Landlord
located at 149 Sidney Street, Cambridge, Massachusetts (hereinafter referred to
as the "Property" or the "Leased Premises").
B. On or about the date hereof, Landlord entered into and delivered to
Lender a Mortgage and Security Agreement (the "Mortgage"), relating to the
Property to secure the payment of the indebtedness described in the Mortgage
which Mortgage is recorded herewith.
C. On or about the date hereof, Landlord entered into and delivered to
Lender that certain Assignment of Leases and Rents (the "Assignment of Leases"),
assigning all of Landlord's right, title and interest as lessor under the Lease
to further secure the indebtedness described in the Mortgage which Assignment
and Lease is recorded herewith.
D. Lender has requested that Tenant subordinate its leasehold interest in
the Property to the Mortgage and to take certain other actions with respect to
the Lease. The Tenant has requested that Lender provide Tenant with certain
non-disturbance protections on the terms set forth below, and Tenant has agreed
to attorn to Lender in the event that Lender obtains possession of the Property.
NOW, THEREFORE, for and in consideration of the mutual covenants herinafter
set forth and other good and valuable consideration, the receipt and sufficiency
of which are herby acknowledge, Lender, Landlord and Tenant hereby covenant and
agree as follows:
1. Estoppel: Tenant hereby certifies to Lender that (i) the Lease, as
--------
described above, is the true, correct and complete Lease, and has not been
modified or amended and
61
<PAGE>
constitutes the entire agreement between Landlord and Tenant, and (ii) as far as
is known to Tenant, there are no defaults of Landlord or Tenant under the Lease
and there are no existing circumstances which with the passage of time, or
giving of notice, or both, would give rise to a default under the Lease and/or
allow Tenant to terminate the Lease.
2. Non-Disturbance. So long as no default exists, nor any event has
---------------
occurred which has continued to exist for such period of time (after notice, if
any, required by the Lease) as would entitle the Landlord to terminate the Lease
or would cause, without any further action on the part of Landlord, the
termination of the Lease or would entitle Landlord to dispossess the Tenant, the
Lease shall not be terminated, nor shall Tenant's use, possession or enjoyment
of the Leased Premises or rights under the Lease be interfered with in any
foreclosure or other action or proceeding in the nature of foreclosure
instituted under or in connection with the Mortgage or in case of Lender takes
possession of the Property pursuant to any provisions of the Mortgage or the
Assignment of Leases, unless the Landlord would have had such right if the
Mortgage or the Assignment of Leases had not been made, except that neither the
person or entity acquiring the interest of the Landlord as a result of any such
action or proceeding or deed in lieu of any such action or proceeding (the
"Purchaser") nor Lender if Lender takes possession of the Property shall be (a)
liable for any act or omission of any prior lessor under the Lease; or (b)
liable for the return of any security deposit which Tenant has paid to any prior
lessor under the Lease, unless actually paid to Purchaser or Lender; or (c)
subject to any offsets or defenses which the Tenant might have against any prior
lessor under the Lease; or (d) bound by any consent by any base rent, percentage
rent or any other payments which Tenant might have paid for more than the
current month to any prior lessor under the Lease; or (e) bound by any amendment
or modification of the Lease made without Lender's prior written consent; or (f)
bound by any consent by any lessor under the Lease to any assignment or sublease
of the Tenant's interest in the Lease made without also obtaining Lender's prior
written consent; or (g) personally liable for any default under the Lease or any
covenant or obligation on its part to be performed thereunder as lessor, it
being acknowledge that Tenant's sole remedy in the event of such default shall
be to proceed against Purchaser's or Lender's interest in the Property.
3. Attornment. Unless the Lease is terminated in accordance with
Paragraph 2 hereof, if the interests of the Landlord shall be transferred by
reason of the exercise of the power of sale contained in the Mortgage (if
applicable), or by any foreclosure or other proceeding for enforcement of the
Mortgage, or by deed in lieu of foreclosure or such other
<PAGE>
proceeding, or if Lender takes possession of the Property pursuant to any
provisions of the Mortgage or the Assignment of Leases, the Tenant thereunder
shall be bound to the Purchaser or Lender, as the case may be, under all of the
terms, covenants and conditions of the Lease for the balance of the term thereof
and any extensions or renewals thereof in the Lease, with the same force and
effect as if the Purchaser or Lender were the lessor under the Lease, and
Tenant, as lessee under the Lease, does hereby attorn to the Purchaser and
Lender if it takes possession of the Property, as its lessor under the Lease.
Such attornment shall be effective and self-operative without the execution of
any further instruments upon the succession by Purchaser to the interest of the
Landlord or the taking of possession of the Property by Lender. Nevertheless,
Tenant shall, from time to time, execute and deliver such instruments evidencing
such attornment as Purchaser or Lender may require. The respective rights and
obligations of Purchaser, Lender and of the Tenant upon such attornment, to the
extent of the then remaining balance of the term of the Lease and any such
extensions and renewals, shall be and are the same as now set forth in the Lease
except as otherwise expressly provided in Paragraph 2 hereof.
4. Subordination. Tenant hereby subordinates all of its right, title and
--------------
interest as lessee under the Lease to the right, title and interest of Lender
under the Mortgage, and Tenant further agrees that the Lease now is and shall at
all times continue to be subject and subordinate in each and every respect to
the Mortgage (including, without limitation, the casualty and condemnation
provisions of the Lease, which are hereby specifically subordinated to the
Mortgage) and to any and all increases, renewals, modifications, extensions,
substitutions, replacements and/or consolidations of the Mortgage.
5. Assignment of Leases. Tenant hereby acknowledges that all of
--------------------
Landlord's right, title and interest as lessor under the Lease is being duly
assigned to Lender pursuant to the terms of the Assignment of Leases, and that
pursuant to the terms thereof all rental payments under the Lease shall continue
to be paid to Landlord in accordance with the terms of the Lease unless and
until Tenant is otherwise notified in writing by Lender. Upon receipt of any
such written notice from Lender, Tenant covenants and agrees to make payment of
all rental payments then due or to become due under the Lease directly to Lender
or to Lender's agent designated in such notice and to continue to do so until
otherwise notified in writing by Lender. Landlord hereby irrevocably directs
and authorizes Tenant to make rental payments directly to Lender following
receipt of such notice, and covenants and agrees that Tenant
<PAGE>
shall have the right to rely on such notice without any obligation to inquire as
to whether any default exists under the Mortgage or the Assignment of Leases or
the indebtedness secured thereby, and notwithstanding any notice or claim of
Landlord to the contrary, and that Landlord shall have no right or claim against
Tenant for or by reason of any rental payments made by Tenant to Lender
following receipt of such notice. Tenant further acknowledges and agrees:
(a) that under the provisions of the Assignment of Leases, the Lease cannot be
terminated by Landlord (nor can Landlord accept any surrender of the Lease) or
modified in any of its terms, or consent be given to the waiver or release of
tenant from the performance or observance of any obligation under the Lease,
without the prior written consent of Lender, and without such consent no rent
may be collected or accepted by Landlord more than one month in advance; and
(b) that the interest of Landlord as lessor under the Lease has been assigned to
Lender for purposes specified in the Mortgage or the Assignment of Leases, and
lender assumes no duty, liability or obligation under the Lease, except only
under the circumstances, terms and conditions specifically set forth in the
Mortgage and the Assignment of Leases.
6. Notice of Default by Landlord. Tenant, as lessee under the Lease,
------------------------------
hereby covenants and agrees to give Lender written notice properly specifying
when the Landlord has failed to perform any of the covenants or obligations of
Landlord, simultaneously with the giving of any notice of such default to the
lessor under the provisions of the Lease. Tenant agrees that Lender shall have
the right, but not the obligation, within thirty (30) days after receipt by
Lender of such notice to correct or remedy, or cause to be corrected or
remedied, each such default before the lessee under the Lease may take any
action under the Lease by reason of such default. Such notices to Lender shall
be delivered to:
Lender
---------------------------
---------------------------
---------------------------
or to such other address as the Lender shall have designated to Tenant by giving
written notice to Tenant at:
Tenant
149 Sidney Street
Cambridge, MA 02142
Attention:
-----------------
or to such other address as may be designated by written notice from Tenant to
Lender.
<PAGE>
7. No Further Subordination. Except as expressly provided to the contrary
------------------------
in Paragraph 4 hereof, Landlord and Tenant covenant and agree with Lender that
there shall be no further subordination of the interest of Tenant under the
Lease to any lender or to any other party without first obtaining the prior
written consent of Lender. Any attempt to effect a further subordination of
Tenant's interest under the Lease without first obtaining the prior written
consent of Lender shall be null and void.
8. As to Landlord and Tenant. As between Landlord and Tenant, Landlord
-------------------------
and Tenant covenant and agree that nothing herein contained nor anything done
pursuant to the provisions hereof shall be deemed or construed to modify the
Lease.
9. As to Landlord and Lender. As between Landlord and Lender, Landlord
-------------------------
and Lender covenant and agree that nothing herein contained nor anything done
pursuant to the provisions thereof shall be deemed or construed to modify the
Mortgage or the Assignment of Leases.
10. Title of Paragraphs. The titles of the paragraphs of this agreement
-------------------
are for convenience and reference only, and the words contained therein shall in
no way be held to explain, modify, amplify or aid in the interpretation,
construction or meaning of the provisions of this agreement.
11. Governing Law. This agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Massachusetts.
12. Provisions Binding. The terms and provisions hereof shall be binding
------------------
upon and shall inure to the benefit of the heirs, executors, administrators,
successors and permitted assigns, respectively, of Lender, Tenant and Landlord.
The reference contained to successors and assigns of Tenant is not intended to
constitute and does not constitute a consent by Landlord or Lender to an
assignment by Tenant, but has reference only to those instances in which the
Landlord and Lender shall have given written consent to a particular assignment
by Tenant thereunder.
IN WITNESS WHEREOF, the parties have hereunto set their respective hands and
seals as of the day, month and year first above written.
LENDER:
<PAGE>
LANDLORD:
----------------------------------
Harry F. Stimpson, III, as Trustee
under the Will of Harry F.
Stimpson and not individually
TENANT:
By:
-----------------------------
Its:
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. , 1993
---------
Then personally appeared the above-named ,
-------------------------
of [Lender] and acknowledged the foregoing
- --------------------------
instrument to be his free act and deed as
-----------------------------
of said [Lender], before me,
-----------------------------
Notary Public
My commission expires:
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. , 1993
---------
Then personally appeared the above-named Harry F. Stimpson, III as Trustee
under the Will of Harry F. Stimpson, and acknowledged the foregoing instrument
to be his free act and deed as trustee of said will, before me,
-----------------------------
Notary Public
My commission expires:
<PAGE>
STATE OF NEW JERSEY
COUNTY OF MERCER May 3 , 1993
Then personally appeared the above-named John K. Clarke, and John P. Park
of the [Tenant], and acknowledged the foregoing instrument to be his free act
and deed as ____________________ of said [Tenant], before me,
_____________________________
Notary Public
My commission expires:
<PAGE>
EXHIBIT I
---------
Landlord Services
1. Snow removal from the Parking Lot and sidewalks on the Land.
<PAGE>
FIRST AMENDMENT TO LEASE
------------------------
This first Amendment to Lease (this "First Amendment") is dated as of
September 19, 1994 by and between Harry F. Stimpson, III, Trustee under the Will
- ------------
of Harry F. Stimpson, Norfolk Probate No. 99898 ("Landlord"), and Cubist
Pharmaceutical, Inc., a Delaware corporation, ("Tenant").
RECITALS
--------
A. Reference is made to that certain lease (the "Lease") entered into
as of May 11, 1993 by and between Landlord and Tenant pursuant to which Tenant
has leased 14,000 square feet of the building located at 149 Sidney Street,
Cambridge, Massachusetts.
B. Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Lease.
C. Landlord and Tenant have agreed to expand Tenant's Premises on the
terms and conditions herein contained.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree
as follows:
1. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, subject to and with the benefit of the terms, covenants,
conditions and provisions of the Lease, as amended hereby, approximately
6,510 square feet of additional space on the first floor of the Building
and the 400 square foot storage shed located adjacent to the loading dock
(the "Expansion Premises") as shown in Exhibit 1 of this First Amendment,
---------
to have and to hold, for a term beginning on the Expansion Commencement
Date (as hereinafter defined) and continuing for the Term, unless sooner
terminated as provided in the Lease. Except as expressly set forth in
Section 7 of this First Amendment herein, the Landlord has no obligation
to prepare and make ready for occupancy the Expansion Premises, and
Tenant shall accept possession of the Expansion Premises in their "as is"
condition at the time the Expansion Premises are delivered to the Tenant.
2. Effective on the Expansion Commencement Date, the Expansion
Premises shall be considered a part of the Premises for purposes of all
Sections of the Lease, except as specifically provided herein.
<PAGE>
3. Effective on the Expansion Commencement Date, the following shall be
added to the end of Section 3.1 of the Lease:
From and after the Expansion Rent Commencement Date, rent
for the Expansion Premises shall be and become included in
Annual Fixed Rent as provided in Exhibit A attached hereto.
---------
4. Effective on the Expansion Commencement Date, the introductory paragraph,
subparagraph (b) and subparagraph (c) of Section 3.2 of the Lease shall be and
are hereby deleted and the following replaced therefor:
"3.2 Real Estate Taxes. From and after the Expansion Rent Commencement
-----------------
Date, the Tenant shall pay to the Landlord, as Additional Rent the
Tenant's Tax Expenses Allocable to the Premises, the Parking Lot
and the Additional Parking Lot (as hereinafter defined) in
accordance with this Section 3.2. The terms used in this
Section 3.2 are defined as follows:"
"(b) Tenant's Tax Expenses Allocable to the Premises, the Parking
Lot and the Additional Parking Lot means the sum of
(i) fifty-four percentage (54%) of Landlord's Tax Expenses
Allocable to the Land and Building for a Tax Year subject to
adjustment to account for any increase in Landlord's Tax
Expenses attributable solely to the Tenant's improvements
made to the Premises, for which Tenant shall be solely
responsible, (ii) eighty percentage (80%) of Landlord's Tax
Expenses Allocable to the Parking Lot for a Tax Year;
provided; however, that so long as Tenant is entitled to the
license to use additional spaces in the Parking Lot one
hundred percentage (100%) of Landlord's Tax Expenses
Allocable to the Parking Lot for a Tax Year and (iii) so long
as Tenant is entitled to the license to use ten (10) parking
spaces in the Additional Parking Lot, fifty percentage (50%)
of Tax Expenses Allocable to the Additional Parking Lot for a
Tax Year and so long as Tenant is entitled to the license to
use twenty (20) parking spaces in the Additional Parking Lot,
one hundred percentage (100%) of Tax Expenses Allocable to
the Additional Parking Lot for a Tax Year. "
"(c) The Landlord's Tax Expenses with respect to any Tax Year
means the aggregate Real Estate Taxes on the Property with
respect to that Tax Year, reduced by any abatement receipts
<PAGE>
with respect to that Tax Year together with the aggregate Real
Estate Taxes on the Additional Parking Lot with respect to that
Tax Year, reduced by any abatement receipts with respect to that
Tax Year."
5. Effective on the Expansion Commencement Date the introductory paragraph and
subparagraph (a) of Section 3.3 of the Lease shall be and are hereby deleted,
and the following replaced therefor:
"3.3 Operating Expenses. From and after the Expansion Rent Commencement
------------------
Date, the Tenant shall pay to Landlord, as Additional Rent, the
Tenant's Operating Expenses Allocable to the Premises, the Parking
Lot and the Additional Parking Lot as hereinafter defined, in
accordance with this Section 3.3. The terms used in this Section 3.3
are defined as follows:"
"(a) The Tenant's Operating Expenses Allocable to the Premises, the
Parking Lot and the Additional Parking Lot means the sum of (i)
fifty-four percentage (54%) of Operating Expenses attributable
to the Land and the Building, (ii) eighty percentage (80%) of
Operating Expenses attributable to the Parking Lot; provided,
however, that so long as Tenant is entitled to the license to
use additional spaces in the Parking Lot One Hundred percentage
(100%) of Operating Expenses attributable to the Parking Lot and
(iii) so long as Tenant is entitled to the license to use ten
(10) parking spaces in the Additional Parking Lot fifty
percentage (50%) of Operating Expenses attributable to the
Additional Parking Lot and so long as Tenant is entitled to the
license to use twenty (20) parking spaces in the Additional
Parking Lot, one hundred percentage (100%) of Tax Expenses
Allocable to the Additional Parking Lot for a Tax Year."
6. Tenant hereby acknowledges and agrees that Landlord's Base Building Work
required to be completed pursuant to Section 4.1 of the Lease was completed
according to its terms, the Tenant Improvement Loan was made, Landlord is under
no obligation to make further Loans to Tenant and Tenant is not entitled to any
reduction in Annual Fixed Rent.
<PAGE>
7. Effective on the Expansion Commencement Date, a new Section 4.1.1 and a new
Exhibit 2 shall be and are hereby added to the Lease as follows and as attached
hereto as Exhibit 2, respectively:
"4.1.1 Landlord's Expansion Premises Work. The Landlord agrees to
----------------------------------
construct, at the Landlord's sole cost and expense, the improvements
to the Property set forth on Exhibit 2 attached hereto ("Landlord's
---------
Expansion Premises Work"). Subject to delays caused by External Causes
or by Tenant or its agents, contractors or employees, Landlord shall
use its reasonable efforts to substantially complete Landlord's
Expansion Premises Work on or before January 1, 1995, in coordination
with the Tenant Expansion Premises Improvement Work. In the event
Landlord fails to substantially complete Landlord's Expansion Premises
Work on or before January 1, 1995, the Tenant may, on or after January
1, 1995 notify Landlord of its intention to complete Landlord's
Expansion Premises Work unless completed by Landlord within 30 days of
said notice. Except for any delay caused by External Causes or by
delays in Tenant Expansion Premises Improvement Work, if by delays in
Tenant Expansion Premises Improvement Work, if Landlord has not
substantially completed Landlord's Expansion Premises work within said
30 days, Tenant shall have the right, but not the obligation, to
complete Landlord's Expansion Premises Work; provided, however, if
Landlord is in the process of completing Landlord's Expansion Premises
Work and diligently pursuing the same said 30 days shall be extended
for an additional reasonable period of time to allow Landlord to
complete Landlord's Expansion Premises Work. Landlord shall reimburse
Tenant for all costs and expenses incurred by Tenant in the event
Tenant completes Landlord's Expansion Premises Work, within 10 days
following Tenant's written demand therefore, failing which Tenant
shall have the right to offset such costs and expenses against the
next due payments of Annual Fixed Rent for the Expansion Premises."
8. Effective on the Expansion Commencement Date, a new Section 4.2.1 and a new
Exhibit 3 shall be and are hereby added to the Lease as follows and as attached
hereto as Exhibit 3, respectively,
"Section 4.2.1. Tenant's Expansion Premises Alterations. Subject to
---------------------------------------
Landlord's obligation to complete Landlord's Expansion Premises Work,
the Tenant acknowledges that the Expansion Premises have been
delivered to it on an "as is" basis, and promptly following the
Expansion Commencement Date the Tenant shall perform, at its sole
<PAGE>
cost and expense, all of the improvements set forth in the plans
and specifications attached hereto as Exhibit 3 (the "Tenant
---------
Expansion Premises Improvement Work"), and shall equip the
Expansion Premises with such trade fixtures and personal property
as Tenant deems necessary or proper for the operation of the
Tenant's business. Following completion of the Tenant Expansion
Premises Improvement Work, the Tenant shall not make further
alterations or additions to the Expansion Premises except in
accordance with the building standards from time to time in
effect, with construction rules and regulations from time to
time promulgated by Landlord and applicable to tenants in the
Building, and with plans and specifications therefor first
approved by the Landlord, such approval not to be unreasonably
withheld. Tenant's request for approval of plans and
specifications shall state whether it is Tenant's intention to
remove such alterations at the expiration of the Term. If Tenant
removes said alterations, it shall be required to restore the
Premises. In addition to the provisions of Section 4.4 of the
Lease, Tenant shall be solely responsible to obtain, at its sole
cost and expense, any and all permits or approvals required to
complete the Tenant Expansion Premises Improvement Work."
9. Effective on the Expansion Commencement Date, Section 4.4 of the Lease
shall be and is hereby deleted and the following replaced therefor:
"4.4 Construction Requirements for Alterations. All construction
-----------------------------------------
work by the Landlord and the Tenant shall be done in a good and
workmanlike manner employing only first-class materials and in
compliance with all applicable laws and all lawful ordinances,
regulations and orders of governmental authority and insurers of
the Building. The Landlord or Landlord's authorized agent may
(but without any implied obligation to do so) inspect the work of
the Tenant at reasonable times and shall give notice of observed
defects. All of the Tenant's alterations and additions and
installation of furnishings including, but not limited to the
Tenant Expansion Improvement Work shall be coordinated with
any work being performed by the Landlord including, but not
limited to, Landlord's Expansion Premises Work, and in such
manner as to maintain harmonious labor relations and not to
damage the Building or interfere with Building construction or
operation and the Tenant Expansion Improvement Work shall be
performed by contractors, architects and engineers approved in
writing by Landlord, and Tenant shall be responsible for all
architectural and engineering plans and specifications which will
be subject to Landlord's
<PAGE>
reasonable approval which will not be unreasonably withheld or delayed.
Kaplan Construction has been approved as the contractor for the Tenant
Expansion Improvement Work and the plans and specifications attached hereto
as Exhibit 3 have been approved. All future alterations shall be performed
---------
by contractors or workmen first approved by the Landlord, which approval
the Landlord agrees not to unreasonably withhold or delay. The Tenant,
before starting any work, shall receive and comply with Landlord's
construction rules and regulations and shall cause Tenant's contractors to
comply therewith, shall secure all licenses and permits necessary therefor
and shall deliver to the Landlord a statement of the names of all of its
contractors and subcontractors and the estimated cost of all labor and
material to be furnished by them and security satisfactory to the Landlord
protecting the Landlord against liens arising out of the furnishing of such
labor and material; and cause each contractor to carry worker's
compensation insurance in statutory amounts covering all the contractors'
and subcontractors' employees and commercial general public liability
insurance with such limits as the Landlord may, in its sole discretion,
require, but in no event less than general aggregate limit of $2,000,000;
products completed operations aggregate limit of $2,000,000; each
occurrence limit of $1,000,000; or in such other amounts as Landlord may in
its sole discretion require, covering personal injury and death and
property damage (all such insurance to be written in companies approved by
the Landlord and insuring the Landlord, such individuals and entities
affiliated with the Landlord as the Landlord my designate, and the Tenant
as well as the contractors, and to contain a requirement for at least
thirty (30) days' notice to the Landlord prior to cancellation, nonrenewal
or material change), and to deliver to the Landlord certificates of all
such insurance."
10. Effective on the Expansion Commencement Date, a new Section 4.6.1 and new
Exhibits 4 and 5 shall be and are hereby added to the Lease as follows and as
attached as Exhibits 4 and 5, respectively:
"4.6.1 Landlord's Expansion Premises Improvement Loan. Subject to the
----------------------------------------------
conditions set forth below, Landlord agrees to loan to Tenant, dollar for
dollar, fifty percent (50%) of the cost of the Tenant Expansion Premises
Improvement Work up to a maximum of fifty dollars ($50.00) per square foot
of the Expansion Premises (the "Expansion Premises Improvement Loan"),
which loan shall be on the terms and conditions contained in the form of
promissory note (the
<PAGE>
"Expansion Note") attached hereto as Exhibit 4 and by this reference
---------
incorporated herein. The Expansion Premises Improvement Loan shall be made
by Landlord to Tenant only after receipt by Landlord of certification by
Tenant that Tenant has incurred Direct Costs in the amount of the
installment requested, which certification shall include a reasonable
breakdown of such Direct Costs. Tenant shall grant Landlord a security
interest in (i) all Tenant Expansion Premises Improvement Work and (ii)
other personal property and equipment owned by Tenant, located on the
Expansion Premises and included as Tenant Expansion Premises Improvement
Work, as partial security for the Expansion Premises Improvement Loan, by
amending the terms and conditions contained in the Security Agreement
attached to the Lease as Exhibit G in the form of Exhibit 5 attached
---------
hereto. Tenant acknowledges that the Expansion Note and the amendment to
the Security Agreement delivered by Tenant to Landlord may be assigned to
Landlord's mortgagee as security for a loan which Landlord is in the
process of obtaining to fund the Expansion Premises Improvement Loan.
Notwithstanding the foregoing, Landlord shall be obligated to make the
Expansion Premises Improvement Loan to Tenant if and only if: (a) Landlord
actually receives the funding for the Expansion Premises Improvement Loan
from BayBank; (b) Tenant has submitted the certification of Direct Costs to
Landlord as described above; (c) Landlord receives any financial
statements, estoppel certificates and subordination, nondisturbance and
attornments which BayBank requests, and the financial condition of Tenant
and such other certificates are satisfactory to BayBank; (d) no Event of
Default has occurred and is continuing and no condition exists which with
the passage of time and/or notice would constitute an Event of Default; and
(e) the Tenant Expansion Premises Improvements have been constructed in
accordance with the Plans and Specifications for the Tenant Expansion
Premises Improvement Work as certified to Landlord and BayBank by Tenant's
architect, and a permanent Certificate of Occupancy has been issued for the
improved Expansion Premises."
11. Except as otherwise provided in this First Amendment, (a) the Tenant's
Improvements shall include the Tenant Expansion Premises Improvements; (b) the
Tenant Improvement Work shall include the Tenant Expansion Premises Improvement
Work; and (c) Permanent Improvements shall include Tenant Expansion Premises
Improvements.
<PAGE>
12. Effective on the Expansion Commencement Date, Exhibit A to the Lease
shall be and is hereby deleted and Exhibit A attached hereto shall be and
is hereby replaced therefor.
13. Except as expressly amended by this Amendment, the terms and
conditions of the Lease are hereby expressly ratified and confirmed and
remain in full force and effect.
EXECUTED as a Massachusetts instrument under seal, in two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one in the same instrument as of the date first above written.
LANDLORD:
By: /s/ Harry F. Stimpson, III, Trustee
-------------------------------------
Harry F. Stimpson, III, Trustee
under the will of Harry F.
Stimpson and not individually
TENANT:
CUBIST PHARMACEUTICAL, INC., a
Delaware Corporation
By: /s/ Scott M. Rocklage
-------------------------------------
Name: Scott M. Rocklage
Title: President
By: /s/ John J. Parx
-------------------------------------
Name: John J. Parx
Title: (Assistant) Treasurer
<PAGE>
EXHIBIT A
---------
BASIC LEASE TERMS
-----------------
Annual Fixed Rent:
a) For Original Premises:
Lease Years 1-5: $7.50 per rentable square foot per year.
Lease Years 6-10: $9.00 per rentable square foot per year.
Upon the Rent Commencement Date, Annual Fixed Rent shall be based upon
9,000 rentable square feet. The rentable square feet included in the
calculation of Annual Fixed Rent shall be increased to become 14,000
rentable square feet on the first anniversary of the Rent Commencement
Date.
b) For Expansion Premises other than the Storage Shed:
Expansion Rent Commencement Date - Lease Year 5
$6.50 per rentable square foot per year
Lease Years 6-10
$8.00 per rentable square foot per year
c) For Storage Shed:
Expansion Rent Commencement Date - Lease Year 5
$3.25 per rentable square foot per year
Lease Years 6-10
$4.00 per rentable square foot per year
Security Deposit: $100,000
Term: Ten years from the Rent Commencement Date (subject to the
extension option contained in Section 2.5)
Termination Date: Ten years from Rent Commencement Date
<PAGE>
Extension Term: One (1) five-year extension option (on the terms and
conditions contained in Section 2.5)
Premises: 14,000 rentable square feet located on the first floor of
the Building located at 149 Sidney Street, Cambridge, MA
(the "Original Premises") and 6,510 rentable square feet
located on the first floor of the Building and the 400
square foot storage shed located at 149 Sidney Street,
Cambridge, MA (the "Expansion Premises").
Permitted Uses: General business and adminitrative offices, pharmaceutical
research and laboratory uses, light assembly and accessory
uses supporting the foregoing.
Lease
Commencement
Date: May 11, 1993
Expansion
Commencement
Date: The date of execution of the First Amendment to Lease
Parking Lot: The 30 car parking lot located on the corner of Sidney and
Emily Street as more particularly described on Exhibit C
---------
attached to the Lease.
Additional
Parking Lot: The Parking Lot located at 57 Erie Street containing 20
parking spaces.
Parking Spaces: Twenty-Four (24) parking spaces located in the Parking
Lot. Provided Tenant is not in default hereunder and
Tenant pays Tenant's Tax Expenses Allocable to the
Additional Parking Lot and Tenant's Operating Expenses
Allocable to the Additional Parking Lot, Tenant shall also
have a revocable license to use (i) the balance of spaces
in the Parking Lot, (ii) beginning on the Expansion Rent
Commencement Date ten (10) parking spaces in the
Additional Parking Lot and (iii) beginning July 1, 1995, a
total of twenty (20) parking spaces in the Additional
Parking Lot, in each case, if available and only until
such
<PAGE>
time as Landlord requires use of said licensed space at which
time Tenant agrees to yield up. Landlord may terminate said
license, without recourse, upon ten (10) days notice. After
termination, revocation or if the license is otherwise
unavailable, Landlord agrees to assist Tenant in identifying
other possible parking spaces (at Tenant's expense) in the
immediate neighborhood; however, Landlord's termination of
the license or failure to so identify parking spaces shall
not be a default hereunder.
Rent
Commencement
Date: September 15, 1993
Expansion Rent
Commencement
Date: The earlier to occur of (i) Tenant's actual occupancy of any
portion of the Expansion Premises and the conduct of its
business thereon or (ii) January 1, 1995. so long as the
Landlord's Expansion Premises Work has been completed in
accordance with and subject to Section 4.1.1
Tenant's
Address: Cubist Pharmaceuticals, Inc.
24 Emily Street
Cambridge, MA 02139
Attn: Director of Finance
Landlord's
Address: Trust under the Will of Harry F. Stimpson
c/o Meredith & Grew
160 Federal Street
Boston, MA 02110
Attention: Robert M. Brierley
<PAGE>
EXHIBIT 1
---------
DESCRIPTION OF EXPANSION PREMISES
[ART APPEARS HERE]
<PAGE>
EXHIBIT 2
---------
. Construction of walls to separate Expansion Premises from remaining vacant
space.
. Removal of existing asbestos floor and any other asbestos in the Expansion
Premises.
. Construction of new building common area entrance and lobby to remaining
vacant space and provide second access point to the Expansion Premises.
. Repair roof leak.
<PAGE>
EXHIBIT 3
---------
Tenant Improvement Work
Plans and specifications prepared by Olson Lewis Architects & Planners,
Inc., 17 Elm Street, Minchester-by-the-Sea, Massachusetts 01944, the plans for
which are dated August 17, 1994 captioned "Phase II for Cubist, Incorporated."
<PAGE>
EXHIBIT 4
---------
Promissory Note
---------------
Boston, Massachusetts
$______________ _______________________
FOR VALUE RECEIVED, Cubist Pharmaceuticals, Inc. a Delaware corporation
with an address of 24 Emily Street, Cambridge, Massachusetts (the "Borrower"),
promise(s) to pay to the order of Harry F. Stimpson, III, Trustee under the will
of Harry F. Stimpson, or order (together with any successor holder or holders of
this Note, the "Lender") at its office c/o Meredith & Grew, 160 Federal Street,
Boston, Massachusetts 02110, or such other place as Lender may designate, the
principal sum of _______________ Dollars ($ ), or so much thereof as shall be
advanced hereunder, together with interest thereon, as hereinafter set forth.
Interest on the principal balance of this Note from time to time
outstanding shall accrue at the rate of twelve percent (12%) per year. Principal
and interest shall be payable in equal monthly installments in an amount
necessary to fully amortize the outstanding balance by the fifth anniversary of
the date hereof, regardless of when the principal is advanced, beginning with
the 1st day of ___________, and continuing on the 1st day of each month until
the fifth anniversary of the date hereof. Interest shall be computed on the
basis of a three hundred and sixty (360)-day year and shall be paid for the
actual number of days on which principal is outstanding. All payments shall be
applied first to interest and the balance to principal, except that in the event
of a default hereunder which is not cured within the applicable grace period,
any payment may be applied first to principal, at the option of Lender.
In any event, the entire outstanding principal balance of this Note,
together with any accrued interest and other charges as may be due hereunder,
shall be paid on the fifth anniversary of the date hereof (the "Maturity Date").
In the event that any regularly scheduled payment due hereunder is not paid
when due, Lender shall have the right, in addition to any other rights
hereunder, to collect a late charge as compensation for increased costs of
administering such late payment. Such late charge shall be in an amount equal to
three percent (3%) of the amount of such late payment, and shall be due and
payable upon demand.
In the event that any payment hereunder is not paid when due or upon a
default under (i) that certain Promissory Note dated November 1, 1993 in the
original principal amount of $543,393.00 from Cubist Pharmaceuticals, Inc. to
Harry F. Stimpson III, Trustee
<PAGE>
under will of Harry F. Stimpson (the "First Note"), (ii) that certain General
Security Agreement dated October 29, 1993 from Cubist Pharmaceuticals, Inc. to
Harry F. Stimpson III, Trustee under the will of Harry F. Stimpson (the
"Security Agreement"), or (iii) that certain Lease dated May 11, 1993 as amended
(the "Lease") by and between Lender as landlord and Borrower as tenant (this
Note, the Lease, the First Note and the Security Agreement are collectively
referred to herein as, the "Loan Documents") which default is not cured within
the applicable grace period, if any, Lender, at its option, may declare
immediately due and payable the entire outstanding balance of principal and
interest, together with all other charges which Lender may be entitled. If this
Note is so accelerated or any amounts due hereunder are not paid on the Maturity
Date, all amounts due hereunder shall, after such acceleration or such Maturity
Date, as the case may be, bear interest at the rate of sixteen percent (16%) per
year, until paid.
On any payment date, the outstanding balance of principal due hereunder may
be prepaid in whole, or in part in multiples of One Thousand Dollars
($1,000.00), provided that at least five (5) days' prior written notice of such
prepayment shall have been given to Lender.
Any notice required or permitted to be delivered hereunder shall be in
writing and shall be deemed to be delivered on the earlier of (i) the date
received, or (ii) the date of delivery, refusal, or non-delivery indicated on
the return receipt, if deposited in a United States Postal Service depository,
postage prepaid, sent registered or certified mail, return receipt requested,
addressed to the party to receive the same at the address of such party set
forth at the beginning of this Note, or at such other address as may be
designated in a notice delivered or mailed as herein provided.
The obligations of Borrower hereunder, if more than one, shall be joint and
several.
Borrower agrees to pay all charges (including reasonable attorney's fees)
of Lender in connection with the collection and/or enforcement of this Note or
any other Loan Document or in protecting or preserving the security for this
Note, whether or not suit is brought against Borrower.
The failure of Lender at any time to exercise any option or right hereunder
shall not constitute a waiver of Lender's right to exercise such option or right
at any other time.
Borrower and all endorsers and guarantors of this Note hereby jointly and
severally waive presentment, demand, notice, protest and all other suretyship
defenses generally and agree that (i) any renewal, extension or postponement of
the time of payment or any other indulgence, (ii) any modifications, supplement
or alteration of any of the Borrower's obligations undertaken in connection with
this Note or any of the other Loan Documents, or
<PAGE>
(iii) any substitution, exchange or release of collateral or the addition or
release of any person or entity primarily or secondarily liable, may be effected
without notice to Borrower or any endorser or guarantor or Borrower's
obligations, and without releasing Borrower or such endorser or guarantor from
any liability hereunder. Nothing contained herein shall be construed to permit
Lender to unilaterally alter the terms of this Note without agreement of the
Borrower.
This Note shall be governed by, construed, and enforced in accordance with
the laws of The Commonwealth of Massachusetts. If any provision of this Note is
held to be invalid or unenforceable by a court of competent jurisdiction, the
other provisions of this Note shall remain in full force and effect. If the
payment of any interest due hereunder would subject Lender to any penalty under
applicable law, then the payments due hereunder shall be automatically reduced
to what they would be at the highest rate authorized under applicable law.
This Note shall have the effect of an instrument under seal.
WITNESS: BORROWER:
Cubist Pharmaceuticals, Inc.,
a Delaware corporation
By: /s/ Scott M. Rocklage
- -------------------------- -------------------------
Name: Scott M. Rocklage
Title: President & CEO
<PAGE>
EXHIBIT 5
---------
Amendment to
General Security Agreement
--------------------------
AGREEMENT made this day of , 1994 between Cubist
------ ---------------
Pharmaceuticals, a Delaware corporation with a principal place of business at
24 Emily Street, Cambridge, MA ("Debtor") and Harry F. Stimpson III, Trustee
under the will of Harry F. Stimpson with a principal place of business at
c/o Meredith & Grew, 160 Federal Street, Boston, MA 02110 ("Secured Party").
RECITALS
--------
Secured Party made a loan to Debtor on October 29, 1993 in the original
principal amount $543,393.00 (the "Loan"). The Loan was secured by a Security
Agreement from Debtor to Secured Party (the "Security Agreement") under which
Debtor granted Secured Party a Security Interest in certain personal property
and fixtures located on the Premises.
Secured Party is the owner of the Premises known as 149 Sidney Street
(a/k/a 24 Emily Street) Cambridge, Massachusetts (the "Premises").
Secured Party obtained a mortgage loan from BayBank Boston, N.A.
("BayBank") and assigned the Loan and the Security Agreement to BayBank as
collateral therefor.
Debtor and Secured Party have agreed to expand the area that Debtor leases
in the Premises pursuant to an amendment (the "Amendment") to the Lease between
Secured Party and Debtor dated May 11, 1993, which Amendment is
dated , 1994.
-----------------
To evidence the expansion, Secured Party and Debtor are amending the Lease,
Secured Party is making an additional loan to Debtor, and Debtor is granting a
security interest in additional personal property and fixtures to Secured Party.
Debtor acknowledges and consents to the assignment of the Security
Agreement, as amended hereby, by Secured Party to BayBank.
NOW THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration the receipt and sufficiency of
which is hereby acknowledged, Debtor and Secured Party hereby agree as follows:
<PAGE>
1. Paragraph 1 of the Security Agreement is hereby deleted in its
entirety and the following replaced therefor:
Debtor grants to Secured Party a Security Interest (the "Security
Interest") in all personal property, fixtures and equipment (as such
terms are defined by the Uniform Commercial Code as in effect in
Massachusetts from time to time [the "Uniform Commercial Code"]) which
constitute either Tenant Improvement Work, Permanent Improvements or
Tenant Expansion Improvement Work, as those terms are defined in that
certain Lease (the "Lease") dated May 11, 1993, as amended by First
Amendment to Lease dated , 1994 by and between Debtor as
-------- --
Tenant and Secured Party as Landlord in which Debtor now has or
hereafter acquires any right or interest and the proceeds therefrom
("Collateral") presently including, but not limited to, the personal
property and fixtures listed on Exhibit A hereto. The Security
Interest shall secure the payment and performance of (i) Debtor's
Promissory Note dated November 1, 1993 in the principal amount of Five
Hundred Forty Three Thousand Three Hundred Ninety Three Dollars
($543,393.00) ("First Note") (ii) Debtor's Promissory Note of even
date in the principal amount of (the "Second Note") (iii)
---------
the payment and performance of all other liabilities and obligations
of Debtor to Secured Party of every kind and description, direct or
indirect, absolute or contingent, due or to become due, now existing
or hereafter arising under the Agreement (collectively with the First
Note and the Second Note called the "Obligations").
2. Financing Statements and Other Action. Debtor agrees to do all acts
-------------------------------------
which Secured Party deems necessary or desirable to protect the Security
Interest or to otherwise carry out the provisions of this Agreement, including,
but not limited to, the execution of financing, continuation, amendment and
termination statements and similar instruments and the procurement of waivers
and disclaimers of interest in the Collateral by the owners of any real estate
on which the Collateral is located. Debtor appoints Secured Party as Debtor's
attorney irrevocable to do all acts which Debtor may be required to do under
this Agreement.
3. Representations and Warranties. Debtor hereby represents and warrants
------------------------------
that all of the representations and warranties contained in the Security
Agreement are true, accurate and complete as of the date hereof.
<PAGE>
4. Affirmation. Except as expressly modified herein the Security
Agreement remains in full force and effect and is hereby ratified and confirmed.
This Agreement shall have the effect of a Massachusetts instrument under
seal.
DEBTOR
Cubist Pharmaceuticals, a
Delaware corporation
By:/s/ Scott M. Rocklage
-----------------------------
Name: Scott M. Rocklage
Title: President & CEO
SECURED PARTY:
/s/ Harry F. Stimpson Trustee
--------------------------------
Harry F. Stimpson, III, Trustee
under the will of Harry F.
Stimpson and not individually
Agreed to and accepted by:
BayBank Boston, N.A.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
<PAGE>
EXHIBIT A
---------
All goods, equipment, personal property and fixtures which constitute
Tenant Improvement Work, Permanent Improvements, Tenant Expansion Improvement
Work or Expansion Permanent Improvements as defined in that certain lease dated
May 11, 1993 as amended by First Amendment to Lease dated _________, __, 1994 by
and between Debtor as Tenant and Secured Party as Landlord.
<PAGE>
Cubist Pharmaceuticals, Inc.
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
In consideration of my employment or continued employment by Cubist
Pharmaceuticals, Inc. (together with any subsidiary of Cubist Pharmaceuticals,
Inc., the "Company"), and the compensation now and hereafter paid to me, I
hereby agree as follows:
1. Recognition of Company's Rights; Nondisclosure.
At all times during the term of employment and thereafter, I will hold in
strictest confidence and will not disclose, use, lecture upon or publish any of
the Company's Proprietary Information (defined below), except as such
disclosure, use or publication may be required in connection with my work for
the Company, or unless an officer of the Company expressly authorizes such in
writing.
The term "Proprietary Information" shall mean trade secrets,
confidential knowledge, data or any other propriety information of the Company.
By way of illustration but not limitation, "Proprietary Information" includes
(a) inventions, mask works, trade secrets, ideas, processes, formulas, source
and object codes, data, programs, other works of authorship, know-how,
improvements, discoveries, developments, designs and techniques (hereinafter
collectively referred to as "Inventions"): and (b) information regarding plans
for research, development, new products, regulatory matters, marketing and
selling, business plans, budgets and unpublished financial statements, licenses,
prices and costs, suppliers and customers; and information regarding the skills
and compensation of other employees of the Company.
2. Third Party Information. I understand, in addition, that the
Company has received, and in the future will receive, from5om third parties
confidential or proprietary information ("Third Party Information") subject to a
duty on the Company's part to maintain the confidentiality of such information
and to use it only for certain limited purposes. During the term of my
employment and thereafter, I will hold Third Party Information in the strictest
confidence and will not disclose to anyone (except in connection with my work
for the Company), unless expressly authorized by an officer of the Company in
writing.
-1-
<PAGE>
3. Assignment of Inventions.
3.1 Assignment.
(a) I hereby assign to the Company all my right, title and interest
in and to any and all Inventions (and all patent rights, copyrights, mask work
rights, trademarks, trade secret rights, all other rights throughout the world
in connection therewith, and the goodwill associated with all of the foregoing
(collectively, "Proprietary Rights")), whether or not patentable or registrable
under patent, copyright, trademark or similar statutes, made or conceived or
reduced to practice or learned by me, either alone or jointly with others,
during the period of my employment with the Company. Inventions assigned to, or
as directed by, the Company under this Paragraph 3 are hereinafter referred to
as "Company Inventions". I agree, upon request, to execute, verify and deliver
assignments of the Proprietary Rights to the Company or its designee and I
hereby appoint the Company my attorney-in-fact with respect to the Proprietary
Rights for the purpose of effecting any or all of the Company's rights to the
Proprietary Rights.
3.2 Government. I also agree to assign to or as directed by the
Company all my right, title and interest in and to any and all Inventions, full
title to which is required to be assigned to the United States of America by a
contract between the Company and United States of America or any of its
agencies.
3.3 Works for Hire. I acknowledge that all original works of
authorship which are made by me (solely or jointly with others) within the scope
of my employment and which are protectable by copyright are "works made for
hire", as that term is defined in the United States Copyright Act (17 U.S.C.
Section 101).
4. Enforcement of Proprietary Rights. From time to time, I will assist
the Company in every proper way to obtain and enforce United States and foreign
Proprietary Rights relating to Company Inventions in any and all countries. My
obligation to assist the Company with respect to Proprietary Rights relating to
such Company Inventions in any and all countries shall continue beyond the
termination of my employment, but the Company shall compensate me at a
reasonable rate after my termination for the time actually spent by me at the
Company's request on such assistance.
I hereby waive and quitclaim to the Company any and all claims, of any
nature whatsoever, which I now or may hereafter have for infringement of any
Proprietary Rights assigned hereunder to the Company.
-2-
<PAGE>
5. Obligation to Keep Company Informed. During the period of my
employment, I will promptly disclose all Inventions to the Company fully and in
writing and will hold such Inventions in trust for the sole right and benefit of
the Company. In addition, after termination of my employment, I will promptly
disclose all patent applications filed by me within a year after termination of
employment.
6. Prior Inventions. Inventions, if any, patented or unpatented, which
I made prior to the commencement of my employment with the Company are excluded
from the scope of this Agreement. To preclude any possible uncertainty, I have
set forth in Exhibit A attached hereto a complete list of all Inventions (i)
---------
that I have, alone or jointly with others, conceived, developed or reduced to
practice or caused to be conceived, developed or reduced to practice prior to
the commencement of my employment with the Company, (ii) that I consider to be
my property or the property of third parties and (iii) that I wish to have
excluded from the scope of this Agreement. If disclosure of any such Invention
on Exhibit A would cause me to violate any prior confidentiality agreement, I
---------
understand that I am not to list such Inventions in Exhibit A but am to inform
---------
the Company that all such Inventions have not been listed for that reason.
7. Covenant Not to Compete or Solicit.
7.1 Restrictive Covenants. I agree that during the period of my
employment by the Company I will not, without the Company's express written
consent, engage in any employment or business activity other than for the
Company. In view of the unique nature of the business of the Company and the
need of the Company to maintain its competitive advantage in the industry, I
agree that, for a period of three (3) years after the termination of my
employment with the Company for any reason whatsoever, I shall not, directly or
indirectly, within the United States of America or its Territories or
Possessions, or within any other country, (i) engage in, (ii) own an interest
in, (iii) be employed by, or consult for, or act as an advisor to, any person or
entity which engages in, or (iv) otherwise participate in any way in, any
activity which competes with the Business (as defined in Section 7.2 below).
During the term of my employment with the Company and for a period of three (3)
years thereafter, I also shall not solicit, or arrange to have any employee,
customer, supplier, or consultant or advisor to, the Company to terminate such
party's relationship with the Company. The time periods provided for in this
Section 7 shall be extended for a period of time equal to any period of time in
which I shall be in violation of any provision of this Section 7.
-3-
<PAGE>
7.2 Definition of Business; Covenant to Agree. For purposes of
Section 7.1 above, the term "Business" shall mean: (i) the current business of
--------
the Company, defined as the research, development, manufacture, promotion,
distribution, sale and license of treatments of diseases through or in
connection with the use of tRNA or tRNA synthetases as targets; and (ii) any
other business or businesses conducted by the Company at any time in the future,
but only to the extent that the Company and I shall have agreed in writing on an
accurate description of such other business or businesses. I hereby covenant
and agree that, promptly after the Company submits a proposed description of any
business conducted by the Company at any time in the future, I will use my best
efforts, in good faith, to reach a written agreement with the Company as to an
accurate description of such business, all for the purpose of ensuring that the
business covered by any such description shall be included within the definition
of "Business" for purposes of Section 7.1 above.
--------
8. No Improper Use of Materials. During my employment by the Company, I
will not improperly use or disclose any confidential information or trade
secrets, if any, of any former employer or any other person to whom I have an
obligation of confidentiality, and I will not bring onto the premises of the
Company any unpublished documents or any property belonging to any former
employer or any other person to whom I have an obligation of confidentiality
unless consented to in writing by that former employer or person.
9. No Conflicting Obligation. I represent that my performance of all
the terms of this Agreement and my performance of my duties as an employee of
the Company do not and will not break any agreement to keep in confidence
information acquired by me in confidence or in trust prior to my employment by
the Company. I have not entered into, and I agree I will not enter into, any
agreement either written or oral in conflict herewith.
10. Return of Company Documents. When I leave the employ of the
Company, I will deliver to the company any and all drawings, notes, memoranda,
specifications, devices, formulas, molecules, cells, storage media, including
software, documents and computer printouts, together with all copies thereof,
and any other material containing or disclosing any Company Inventions, Third
Party Information or Proprietary Information of the Company. I further agree
that any property situated on the Company's premises and owned by the Company,
including disks and other storage media, filing cabinets or other work areas, is
subject to inspection by Company personnel at any time with or without notice.
-4-
<PAGE>
11. Legal and Equitable Remedies. Because my services are personal and
unique and because I may have access to and may become acquainted with the
Proprietary Information of the Company, the Company shall have the right to
enforce this Agreement and any of its provisions by injunction, specific
performance or other equitable relief, without bond, without prejudice to any
other rights and remedies that the Company may have for a breach of this
Agreement, and I waive the claim or defense that the Company has an adequate
remedy at law. I shall not, in any action or proceeding to enforce any of the
provisions of this Agreement, assert the claim or defense that such an adequate
remedy at law exists.
12. Notices. Any notices required or permitted hereunder shall be given
to me at the address specified below or at such other address as I shall specify
in writing. Such notice shall be deemed given upon personal delivery to the
appropriate address or if sent by certified or registered mail, three days after
the date of mailing.
13. General Provisions.
13.1 Governing Law. This Agreement is executed under seal and will
be governed by and construed according to the laws of the Commonwealth of
Massachusetts.
13.2 Entire Agreement. This Agreement is the final, complete and
exclusive agreement of the parties with respect to the subject matter hereof and
supersedes and merges all prior discussions between us. No modification or
amendment of this Agreement, nor any waiver of any rights under this Agreement,
will be effective unless in writing signed by the party to be charged. Any
subsequent change or changes in my duties, salary or compensation will not
affect the validity or scope of this Agreement. As used in this Agreement, the
period of my employment includes any time during which I may be retained by the
Company as a consultant.
13.3 Severability. If one or more of the provisions in this Agreement are
deemed unenforceable by law, then the remaining provisions will continue in full
force and effect.
13.4 Successors and Assigns. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives and will be for
the benefit of the Company, its successors, and its assigns. I may not assign
any of my rights, or delegate any of my obligations, under this Agreement.
-5-
<PAGE>
13.5 Survival. The provisions of this Agreement shall survive the
termination of my employment and the assignment of this Agreement by the Company
to any successor in interest or other assignee.
13.6 Employment. I agree and understand that nothing in this Agreement
shall confer on me any right with respect to continuation of my employment with
the Company, nor shall it interfere in any way with my right or the Company's
right to terminate my employment at any time, with or without cause.
13.7 Waiver. No waiver by the Company of any breach of this Agreement shall
be a waiver of any preceding or succeeding breach. No waiver by the Company of
any right under this Agreement shall be construed as a waiver of any other
right. The Company shall not be required to give notice to enforce strict
adherence to all terms of this Agreement.
13.8 Counterparts. This Agreement may be executed in counterparts, all of
which together shall for all purposes constitute one Agreement, binding on each
of the parties hereto notwithstanding that each such party shall not have signed
the same counterpart.
13.9 Jurisdiction and Venue; Waiver of Jury Trial.
In case of any dispute hereunder, the parties will submit to the exclusive
jurisdiction and venue of any court of competent jurisdiction sitting in
Middlesex County, Massachusetts, and will comply with all requirements necessary
to give such court jurisdiction over the parties and the controversy. EACH
PARTY HERBY WAIVES ANY RIGHT TO A JURY TRIAL AND TO CLAIM OR RECOVER PUNITIVE
DAMAGES WITH RESPECT TO THIS AGREEMENT.
13.10 Disclosure. Within three (3) months after the start date of my
employment with any other employer, I shall disclose the existence and terms of
this Agreement to any employer or other person that I may work for or be engaged
by after the termination of my employment or engagement at the Company. I agree
that the Company may, after notification to me, provide a copy of this Agreement
to any business or enterprise (i) which I may directly or indirectly own,
manage, operate, finance, join, control or participate in the ownership,
management, operation, financing, or control of, or (ii) with which I may be
connected with as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise , or in connection with which I may use
or permit my name to be used. I will provide the names and addresses of any of
such persons or entities as the Company may from time to time reasonably
request.
-6-
<PAGE>
This Agreement shall be effective as of the first day of my employment with
the Company, namely:_______________, 19__.
I UNDERSTAND THAT THIS AGREEMENT AFFECTS MY RIGHTS TO INVENTIONS I MAKE
DURING MY EMPLOYMENT, AND RESTRICTS MY RIGHTS TO DISCLOSE OR USE THE COMPANY'S
CONFIDENTIAL INFORMATION OR TO COMPETE WITH THE COMPANY DURING OR SUBSEQUENT TO
MY EMPLOYMENT.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE
COMPLETELY FILLED OUT EXHIBIT A TO THIS AGREEMENT.
Dated:________________, 19__. __________________________________
Signature
__________________________________
Name of Employee
Address: __________________________________
__________________________________
__________________________________
ACCEPTED AND AGREED TO:
Cubist Pharmaceuticals, Inc.
By: ________________________
Signature
________________________
Print
Title:______________________
-7-
<PAGE>
EXHIBIT A
- --------------------------------------------------------------------------------
-8-
<PAGE>
MASTER LEASE AGREEMENT
CONDISCO, INC.- LESSOR
MASTER LEASE AGREEMENT dated August 30, 1993 by and between CONDISCO, INC.
("Lessor") and CUBIST PHARMACEUTICALS, INC. ("Lessee").
IN CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.19):
1. Property Leased.
Lessor leases to Lessee all of the Equipment described on each Schedule. In
the event of a conflict, the terms of a Schedule prevail over this Master Lease.
2. Term.
On the Commencement Date, Lessee will be deemed to accept the Equipment,
will be bound to its rental obligations for each item of Equipment and the term
of a Schedule will begin and continue through the Initial Term and thereafter
until terminated by either party upon prior written notice received during the
Notice Period. No termination may be effective prior to the expiration of the
Initial Term.
3. Rent and Payment.
Rent is due and payable in advance, in immediately available funds, on the
first day of each Rent Interval to the payee and at the location specified in
Lessor's invoice. Interim Rent is due and payable when invoiced. If any payment
is not made when due, Lessee will pay interest at the Overdue Rate. Upon
Lessee's execution of each schedule, Lessee will pay Lessor the Advance
specified on the Schedule. The Advance will be credited towards the final Rent
payment if Lessee is not then in default. No interest will be paid on the
Advance.
4. Selection; Warranty and Disclaimer of Warranties.
4.1 Selection. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor.
4.2 Warranty and Disclaimer of Warranties. Lessor warrants to Lessee that,
so long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Schedule any manufacturer's warranties for the Equipment. LESSOR MAKES NO OTHER
WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT
LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS FITNESS FOR A PARTICULAR
PURPOSE. Lessor is not responsible for any liability, claim, loss, damage or
expense of any kind (including strict liability in tort) caused by the Equipment
except for any loss or damage caused by the negligent acts of Lessor. In no
event is Lessor responsible for special, incidental or consequential damages.
5. Title; Relocation or Sublease; and Assignment.
5.1 Title. Lessee holds the Equipment subject and subordinate to the
rights of the Owner, Lessor, any Assignee and any Secured Party. Lessee
authorizes Lessor, as Lessee's agent, to prepare, execute and file in Lessee's
name precautionary Uniform Commercial Code financing statements showing the
interest of the Owner, Lessor, and any Assignee or Secured Party in the
Equipment and to insert serial numbers in Schedules as appropriate. Lessee will,
at its expense, keep the Equipment free and clear from any liens or
encumbrances of any kind (except any caused by Lessor) and will indemnify and
hold Lessor, Owner, and Assignee and Secured Party harmless from and against any
loss caused by Lessee's failure to do so.
5.2 Relocation or Sublease. Upon prior written consent, Lessee may
relocate Equipment to any location within the continental United States provided
(i) the Equipment will not be used by an entity exempt from federal income tax,
(ii) all additional costs (including any administrative fees, additional taxes
and insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor
and the Secured Party. Such consent to sublease will be granted if: (i) Lessee
meets the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) the sublease is
not to a leasing entity affiliated with the manufacturer of the Equipment
described on the Schedule. Lessor acknowledges Lessee's right to sublease for a
term which extends beyond the expiration of the Initial Term. If Lessee
subleases the Equipment for a term extending beyond the expiration of such
Initial Term of the applicable Schedule, Lessee will remain obligated upon the
expiration of the Initial Term to return such Equipment, or, at Lessor's sole
<PAGE>
discretion to (i) return Like Equipment or (ii) negotiate a mutually acceptable
lease extension or purchase. If the parties cannot mutually agree upon the terms
of an extension or purchase, the term of the Schedule will extend upon the
original terms and conditions until terminated pursuant to Section 2.
No relocation or sublease will relieve Lessee from any of its obligations
under this Master Lease and the relevant Schedule.
5.3 Assignment by Lessor. The terms and conditions of each Schedule have
been fixed by Lessor in order to permit Lessor to sell and/or assign or transfer
its interest or grant a security interest in each Schedule and/or the Equipment
to a Secured Party or Assignee. In that event, the term Lessor will mean the
Assignee and any Secured Party. However, any assignment, sale, or other
transfer by Lessor will not relieve Lessor of its obligations to Lessee and will
not materially change Lessee's duties or materially increase the burdens or
risks imposed on Lessee. The Lessee consents to and will acknowledge such
assignments in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's rights,
but will not be obligated to perform any of the obligations of Lessor.
The Secured Party will not disturb Lessee's quiet and peaceful
possession and unrestricted use of the Equipment so long as Lessee
is not in default and the Secured Party continues to receive all Rent
payable under the Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the Secured
Party, despite any defense or claim which it has against Lessor.
Lessee reserves its right to have recourse directly against Lessor for
any defense or claim;
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the
extent of the Secured Party's rights in that Equipment.
6. Net Lease; Taxes and Fees.
6.1 Net Lease. Each Schedule constitutes a net lease. Lessee's
obligation to pay Rent and all other amounts is absolute and unconditional and
is not subject to any abatement, reduction, set-off, defense, counterclaim,
interruption, deferment or recoupment for any reason whatsoever.
6.2 Taxes and Fees. Lessee will pay when due or reimburse Lessor for all
taxes, fees or any other charges (together with any related interest or
penalties not arising from the negligence of Lessor) accrued for or arising
during the term of each Schedule against Lessor, Lessee or the Equipment by any
governmental authority (except only Federal, state and local taxes on the
capital or the net income of Lessor). Lessor will file all personal property
tax returns for the Equipment and pay all property taxes due. Lessee will
reimburse Lessor for property taxes within thirty (30) days of receipt of an
invoice.
7. Care, Use and Maintenance; Attachments and Reconfigurations; and Inspection
by Lessor.
7.1 Care, Use and Maintenance. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available, Lessee will
maintain in force a standard maintenance contract with the manufacturer of the
Equipment, or another party acceptable to Lessor, and will provide Lessor with a
complete copy of that contract. If Lessee has the Equipment maintained by a
party other than the manufacturer, Lessee agrees to pay any costs necessary for
the manufacturer to bring the Equipment to the current release, revision and
engineering change levels, and to re-certify the Equipment as eligible for
manufacturer's maintenance at the expiration of the lease term. The lease term
will continue upon the same terms and conditions until recertification has been
obtained.
7.2 Attachments and Reconfigurations. Upon receiving the prior written
consent of Lessor, Lessee may reconfigure and install Attachments on the
Equipment. In the event of such a Reconfiguration or Attachment, Lessee will,
upon return of the Equipment, at its expense, restore the Equipment to the
original configuration specified on the Schedule in accordance with the
manufacturer's specifications and in the same operating order, repair and
appearance as when installed (normal wear and tear excluded). If any parts of
the Equipment are removed during a Reconfiguration or Attachment, Lessor may
require Lessee to provide additional security, satisfactory to the Lessor, in
order to ensure performance of Lessee's obligations set forth in this
subsection. Neither Attachments nor parts installed on Equipment in the course
of Reconfiguration will be accessions to the Equipment.
7.3 Inspection by Lessor. Upon request, Lessee, during reasonable business
hours and subject to Lessee's security requirements, will make the Equipment and
its related log and maintenance records available to Lessor for inspection.
8. Representations and Warranties of Lessee. Lessee hereby represents,
warrants and covenants that with respect to the Master Lease and each Schedule
executed hereunder:
(a) The Lessee is a corporation duly organized and validly existing in
good standing under the laws of the jurisdiction of its incorporation,
is duly qualified to do business in each jurisdiction (including the
jurisdiction where the Equipment is, or is to be, located) where its
ownership or lease of property or the conduct of its business requires
such qualification; and has full corporate power and authority to
2
<PAGE>
hold property under the Master Lease and each 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
Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Lessee, and the Master
Lease and each Schedule are not inconsistent with the Lessee'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 Schedule
constitute legal, valid and binding agreements of the Lessee,
enforceable in accordance with their terms.
(c) There are no actions, suits, proceedings or patent claims pending or, to
the knowledge of the Lessee, threatened against or affecting the Lessee
in any court or before any governmental commission, board or authority
which, if adversely determined, will have a material adverse effect on
the ability of the Lessee to perform its obligations under the Master
Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the
Lessee will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the Liabilities
and obligations of the Lessee as set forth in the financial Statements
and Liabilities and obligations which have occurred in the ordinary
course of business, and which have not been, in any case or in the
aggregate, materially adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become Licensed on reasonable terms under all patents,
patent applications, trademarks, trade names, inventions, franchises,
licenses, permits, computer software and copyrights necessary for the
operations of its business as now conducted, with no known infringement
of, or conflict with, the rights of others.
(g) All material contracts, agreements and instruments to which the Lessee
is a party are in full force and effect in all material respects, and
are valid, binding and enforceable by the Lessee in accordance with
their respective terms, subject to the effect of applicable bankruptcy
and other similar laws affecting the rights of creditors generally, and
rules of law concerning equitable remedies.
9. Delivery and Return of Equipment.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Schedule, Lessee shall,
pursuant to Lessor's instructions and at Lessee's full expense (including,
without limitation, expense 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. During the
period subsequent to receipt of a notice under Section 2, Lessor may demonstrate
the Equipment's operation in place and Lessee will supply any of its personnel
as may reasonably be required to assist in the demonstrations.
10. Labeling.
Upon request, Lessee will mark the Equipment indicating Lessor's interest.
Lessee will keep all Equipment free from any other marking or labeling which
might be interpreted as a claim of ownership.
11. Indemnity.
Lessee will 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 the ownership
(for strict liability in tort only), selection, possession, leasing, operation,
control, use, maintenance, delivery, return or other disposition of the
Equipment. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on equipment
owned by it. Any amounts received by Lessor under that insurance will be
credited against Lessee's obligations under this Section.
12. Rick of Loss.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each
item of Equipment in an amount not less than the Casualty Value. All policies
for such insurance will name the Lessor and any Secured Party as additional
insured and as loss payee, and will provide for at least thirty (30) days prior
written notice to the Lessor of cancellation or expiration, and will insure
Lessor's
3
<PAGE>
interests regardless of any breach or violation by Lessee of any representation,
warranty or condition contained in such policies and will be primarily without
right of contribution from any insurance effected by Lessor. Upon the execution
of any Schedule, the Lessee will furnish appropriate evidence of such insurance
acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such
Equipment has suffered a Casualty Loss. Within fifteen (15) days of a Casualty
Loss, Lessee will provide written notice of that loss to Lessor and Lessee will,
at Lessor's option, either, (a) replace the item of Equipment with Like
Equipment and marketable title to the Like Equipment will automatically vest in
Lessor or (b) pay the Casualty Value and after that payment and the payment of
all other amounts due and owing, Lessee's obligation to pay further Rent for the
item of Equipment will cease.
13. Default, Remedies and Mitigation.
13.1 Default. The occurrence of any one or more of the following Events of
Default constitutes a default under a Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when
due if that failure continues for five (5) days after written notice;
or
(b) Lessee's failure to perform any other term of condition of the
Schedule or the material inaccuracy of any representation or warranty
made by the Lessee in the Schedule or in any document or certificate
furnished to the Lessor hereunder if that failure or inaccuracy
continues for ten (10) days after written notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure
by Lessee to pay its debts when due, the insolvency of Lessee, the
filing by Lessee or the filing against Leessee of any petition under
any bankruptcy or insolvency law or for the appointment of a trustee
or other officer with similar powers, the adjudication of Lessee as
insolvent, the liquidation of Lessee, or the taking of any action for
the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule or other
agreement between Lessee and Lessor or its Assignee or Secured Party.
13.2 Remedies. Upon the occurrence of any of the above Events of Default,
Lessor, at its option may:
(a) enforce Lessee's performance of the provisions of the applicable
Schedule by appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default
Costs;
(c) with notice and demand, recover all sums due and accelerate and
recover the present value of the remaining payment stream of all Rent
due under the defaulted Schedule (discounted at the same rate of
interest at which such defaulted Schedule was discounted with a
Secured Party plus any prepayment fees charged to Lessor by the
Secured Party or, if there is no Secured Party, then discounted at 6%)
together with all Rent and other amounts currently due as liquidated
damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's
security requirements, Lessor may enter on Lessee's premises to remove
and repossess the Equipment without being liable to Lessee for damages
due to the repossession, except those resulting from Lessor's, its
assignees', agents' or representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by
law, are cumulative and may be exercised successively or concurrently.
13.3 Mitigation. Upon return of the Equipment pursuant to the terms of
Section 13.2, Lessor will use its best efforts in accordance with its normal
business procedures (and without obligation to give any priority to such
Equipment) to mitigate Lessor's damages as described below. EXCEPT AS SET FORTH
IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY
ANY OF LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or
otherwise dispose of all or any part of the Equipment at a public or private
sale for cash or credit with the privilege of purchasing the Equipment. The
proceeds from any sale, lease or other disposition of the Equipment are defined
as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair
Market Value of the Equipment at the expiration of the Initial Term
less the Default Costs; or
(b) if leased, the present value (discounted at three points over the
prime rate as referenced in the Wall Street Journal at the time of the
mitigation) of the rentals for a term not to exceed the Initial Term,
less the Default Costs.
4
<PAGE>
Any proceeds will be applied against liquidated damages and any other sums
due to Lessor from Lessee. However, Lessee is liable for, and Lessor may
recover, the amount by which the proceeds are less than the Liquidated damages
and other sums due to Lessor from Lessee.
14. Additional Provisions.
14.1 Board Attendance. Lessor or its duly appointed representative will
have the right to attend Lessee's corporate Board of Directors meetings and
Lessee will give Lessor reasonable notice in advance of any special Board of
Directors meeting, which notice will provide an agenda of the subject matter to
be discussed at such board meeting. Lessee will provide Lessor with a certified
copy of the minutes of each Board of Directors meeting within thirty (30) days
following the date of such meeting during the term of this Lease.
14.2 Financial Statements. Lessee will provide to Lessor the financial
statements specified in this Section, prepared in accordance with generally
accepted accounting principals, consistently applied (the "Financial
Statements"); provided, however, after the effective date of the initial
registration statement covering a pubic offering of Lessee's securities, the
term "Financial Statements" will be deemed to refer to only those statement
required by the Securities and Exchange Commission, to be provided no less
frequently than quarterly. Lessee will provide to Lessor (i) as soon as
practicable (within thirty (30) days) after the end of each month, the same
information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement of
cash flows, 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 preceding fiscal year, and
accompanied by an audit report and opinion of the independent certified public
accountants selected by Lessee. Lessee will promptly furnish to Lessor any
additional information (including but not limited to tax returns, income
statements, balance sheets, and names of principal creditors) as Lessor
reasonably believes necessary to evaluate Lessee's continuing ability to meet
financial obligations.
14.3 Obligation to Lease Additional Equipment. Upon notice to Lessee,
Lessor will not be obligated to Lease any Equipment which would have a
Commencement Date after said notice if: (i) Lessee is in default under this
Master Lease or any Schedule; (ii) Lessee is in default under any loan
agreement, the result of which would allow the Lender or any secured party to
demand immediate payment of the indebtedness; (iii) there is a material adverse
change in Lessee's credit standing; or (iv) Lessor determines (in reasonable
good faith) that Lessee will be unable to perform it obligations under this
Master Lease.
14.4 Merger and Sale Provisions. Lessee will notify Lessor of any
proposed Merger at least sixty (60) days prior to the closing date. Lessor may,
in its discretion, either (i) consent to the assignment of the Master Lease and
all relevant Schedules to the successor entity, or (ii) terminate the Master
Lease and all relevant Schedules. If Lessor elects to consent to the assignment,
Lessee and its successor will sign the assignment documentation provided by
Lessor. If Lessor elects to terminate the Master Lease and all relevant
Schedules, then Lessee will pay Lessor all amounts then due and owing and a
termination fee equal to the present value (discounted at 6%) of the remaining
Rent for the balance of the initial Term(s) of all Schedules, and will return
the Equipment in accordance with Section 9.
14.5 Entire Agreement. This Master Lease and associated Schedules
supersede all other oral or written agreements or understandings between the
parties concerning the Equipment including, for example, purchase orders. ANY
AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY ONLY BE ACCOMPLISHED BY A
WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT IS SOUGHT TO BE ENFORCED.
14.6 No Waiver. No action taken by Lessor or Lessee will be deemed to
constitute a waiver of compliance with any representation, warranty or covenant
contained in this Master Lease or a Schedule. The waiver by Lessor or Lessee of
a breach of any provision of this Master Lease or a Schedule will not operate or
be construed as a waiver of any subsequent breach.
14.7 Binding Nature. Each Schedule is binding upon, and inures to the
benefit of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR
OBLIGATIONS.
14.8 Survival of Obligations. All agreements, obligations including, but
not limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule or in any document delivered in
connection with those agreements are for the benefit of Lessor and any Assignee
or Secured Party and survive the execution, delivery, expiration or termination
of this Master Lease.
14.9 Notices. Any notice, request or other communication to either party
by the other will be given in writing and deemed received upon the earlier of
actual receipt or three days after mailing if mailed postage prepaid by regular
or airmail to Lessor (to the attention of "Lease Administrator") or Lessee, at
the address set out in the Schedule or, one day after it is sent by courier or
on the same day as sent via facsimile transmission, provided that the original
is sent by personal delivery or mail by the receiving party.
14.10 Applicable Law. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL
HAVE BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE
GOVERNED AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE
OF ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR
REMEDIES
<PAGE>
REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERICAL CODE WILL BE CONFERRED ON
LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 Severability. If any one or more of the provisions of this Master
Lease or any Schedule is for any reason held invalid, illegal or unenforceable,
the remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 Counterparts. This Master Lease and any Schedule may be executed in
any number of counterparts, each of which will be deemed an original, but all
such counterparts together constitute one and the same instrument. If Lessor
grants a security interest in all or any part of a Schedule, the Equipment or
sums payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate".
14.13 Nonspecified Features and Licensed Products. If the Equipment is
supplied from Lessor's inventory and contains any features not specified in the
Schedule, Lessee grants Lessor the right to remove any such features. Any
removal will be performed by the manufacturer or another party acceptable to
Lessee, upon the request of Lessor, at a time convenient to Lessee, provided
that Lessee will not unreasonably delay the removal of such features.
Lessee will obtain no title to Licensed Products which will at all times
remain the property of the owner of the Licensed Products. A license from the
owner may be required and it is Lessee's responsibility to obtain any required
license before the use of the Licensed Products. Lessee agrees to treat the
Licensed Products as confidential information of the owner, to observe all
copyright restrictions, and not to reproduce or sell the Licensed Products.
14.14 Additional Documents. Lessee will, upon execution of this Master
Lease and as may be requested thereafter, provide Lessor with a secretary's
certificate of incumbency and authority and any other documents reasonably
requested by Lessor. Upon the execution of each Schedule with a purchase price
in excess of $1,000,000, Lessee will provide Lessor with an opinion from
Lessee's counsel in a form acceptable to Lessor regarding the representations
and warranties in Section 8.
14.15 Electronic Communications. Each of the parties may communicate with
the other by electronic means under mutually agreeable terms.
14.16 Lessor's Right to Match. Lessee's rights under Section 5.2 and 7.2
are subject to Lessor's right to match any sublease or upgrade proposed by a
third party. Lessee will provide Lessor with the terms of the third party offer
and Lessor will have three (3) business days to match the offer. Lessee will
obtain such upgrade from or sublease the Equipment to Lessor if Lessor has
timely matched the third party offer.
14.17 Landlord/Mortgagee Waiver. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be
in a form satisfactory to Lessor.
14.18 Equipment Procurement Charges/Progress Payments. Lessee hereby
agrees that Lessor shall not, by virtue of its entering into this Lease, be
require to remit any payments to any manufacturer or other third party until
Lessee accepts the Equipment subject to this Lease.
14.19 Definitions.
Advance - means the amount due to Lessor by Lessee upon Lessee's execution of
_______
each Schedule.
Assignee - means an entity to whom Lessor has sold or assigned its rights as
________
owner and Lessor of Equipment.
Attachment - means any accessory, equipment or device and the installation
__________
thereof that does not impair the original function or use of the Equipment and
is capable of being removed without causing material damage to the Equipment and
is not an accession to the Equipment.
Casualty Loss - means the irreparable loss or destruction of Equipment.
_____________
Casualty Value - means the greater of the aggregate Rent remaining to be paid
______________
for the balance of the Lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
Commencement Certificate - means the Lessor provided certificate which must be
________________________
signed by Lessee within ten (10) days of the Commencement Date as requested by
Lessor.
Commencement Date - is defined in each Schedule.
_________________
Default Costs - means reasonable attorney's fees and remarketing costs resulting
_____________
from a Lessee default or Lessor's enforcement of its remedies.
Equipment - means the property described on a Schedule and any replacement for
_________
that property required or permitted by this Master Lease or a Schedule not
including any Attachment.
<PAGE>
Event of Default - means the events described in Subsection 13.1
- ----------------
Fair Market Value - means the aggregate amount which would be obtainable in an
- -----------------
arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
Initial Term - means the period of time beginning on the first day of the first
- ------------
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
Installation Date - means the day on which Equipment is installed and qualified
- -----------------
for a commercially available manufactuer's standard maintenance contract or
warranty coverage, if available.
Interim Rent - means the pro-rata portion of Rent due for the period from the
- ------------
Commencement Date through but not including the first full Rent Interval
included in the Initial Term.
Licensed Products - means any software or other Licensed product attached to the
- -----------------
Equipment.
Like Equipment - means replacement Equipment which is lien free and of the same
- --------------
model, type, configuration and manufacture as Equipment.
Like Part - means a substituted part which is lien free and of the same
- ---------
manufacturer and part number as the removed part, and which when installed on
the Equipment will be eligible for maintenance coverage with the manufacturer of
the Equipment.
Merger - means any consolidation or merger of the Lessee with or into any other
- ------
corporation or entity, any sale or conveyance of all or substantially all of the
assets of the Lessee to any other person or entity or any stock acquisition of
the Lessee by any other person or entity.
Notice Period - means the time period described in a Schedule during which
- -------------
Lessee may give Lessor notice of the termination of the term of that Schedule.
Overdue Rate - means the lesser of five percent (5%) of the payment due or the
- ------------
maximum rate permitted by the law of the state where the Equipment is located.
Owner - means the owner of the Equipment.
- -----
Reconfiguration - means any change to Equipment that would upgrade or downgrade
- ---------------
the performance capabilities of the Equipment in any way.
Rent - means the rent, including Interim Rent, Lessee will pay for each item of
- ----
Equipment expressed in a Schedule either as a specific amount equal to the
amount which Lessor pays for an item of Equipment multiplied by a lease rate
factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
Rent Interval - means a full calendar month or quarter as indicated on a
- -------------
Schedule.
Schedule - means an Equipment Schedule which incorporates all of the terms and
- --------
conditions of this Master Lease and, for purposes of Section 14.12, its
associated Commencement Certificate(s).
Secured Party - means an entity to whom Lessor has granted a security interest
in a Schedule and related Equipment for the purpose of securing a loan.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on
or as of the Day and year first above written.
CUBIST PHARMACEUTICALS, INC. COMDISCO, INC.
as Lessee as Lessor
By: [SIGNATURE APPEARS HERE] By: [SIGNATURE APPEARS HERE]
----------------------------------- ------------------------------
Title: PRESIDENT Title: [TITLE APPEARS HERE]
-------------------------------- ---------------------------
<PAGE>
EXHIBIT A
(MULTIPLE QUARTER DELIVERY)
SCHEDULE NO. VL-1 DATED AS OF August 30, 1993
---- ---------------
TO MASTER LEASE AGREEMENT DATED AS OF August 30, 1993 ("MASTER LEASE")
---------------
LESSEE: CUBIST PHARMACEUTICALS, INC. LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
- ------------------------ -----------------------
Mr. Tom Shea
Director of Finance
(617) 576-1999 (x203) 6111 North River Road
Rosemont, Illinois 60018
Attn: Capital Equipment Lease
Administration
Address for Notices:
- -------------------
24 Emily Street
Cambridge, MA 02139
Attn.: Tom Shea
Central Billing Location: PAYING AGENT:
- ------------------------ ------------
Same as Above
Comdisco, Inc.
P.O. Box 91744
Attn.: Chicago, Illinois 60693
Lessee Reference No.:__________________
(24 digits maximum)
Location of Equipment: Initial Term: 48 months
- --------------------- ------------ ---------
Lease Rate Factor: 2.52%
Attn.: ----------------- ----
EQUIPMENT (as defined below): Advance: $32,760.00
------- ----------
Item Machine Type/ Serial
No. Qty. Manufacturer Feature Description Number Rent
- ---- --- ------------ ------------ ----------- ------ ----
Equipment specifically approved by Lessor (including instrumentation,
production, manufacturing and test equipment, computers, office furniture, and
laboratory benches and hoods), which shall be delivered to and accepted by
Lessee during the period October 12, 1993 through October 12, 1994, for which
Lessor receives vendor invoices approved for payment, up to an aggregate
purchase price of $1,300,000.00; not including upgrades thereto and further
excluding custom use equipment, leasehold improvements, installation costs and
delivery costs, rolling stock, special tooling, custom equipment, "stand-alone"
software, application software bundled into computer hardware, hand held items,
molds and fungible items. In no event shall any furniture exceed $130,000.00 of
Lessor's aggregate cost hereunder. In no event shall any lab benches and hoods
exceed $130,000.00 of Lessor's aggregate cost hereunder.
<PAGE>
1. Notice Period: Not less than one hundred and twenty (120) days nor more
than twelve (12) months prior to the expiration of the lease term.
2. Equipment Purchase
Lessee acknowledges that it has either received or approved Lessor's
purchase documentation for the Equipment. The aggregate purchase price referred
to on the face of this Schedule shall include all Equipment purchased by Lessor,
consisting of amount financed under Sections (i), (ii) and (iii) below.
(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
November 12, 1993*. Lessor will not perform a Sale-Leaseback
Transaction for any request or accompanying Equipment ownership
documents which arrive after the date marked above by an asterisk
(*). Further, any sale-leaseback Equipment will be placed on
lease subject to: (1) Lessor prior approval of the Equipment; and
(2) if approved, at Lessor's actual net appraised Equipment value
pursuant to the schedule below:
PERCENT OF ORIGINAL
MANUFACTURER'S NET
ORIGINAL EQUIPMENT MANUFACTURER'S EQUIPMENT COST PAID BY
SHIP DATE LESSOR
--------------------------------- ----------------------
Between 8/13/93 and 11/12/93 100%
Between 6/13/93 and 8/12/93 80%
Between 3/13/93 and 6/12/93 70%
Between 12/13/92 and 3/12/93 65%
Between 9/13/92 and 12/12/92 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.
3. Commencement Date
The Commencement Date for each item of Equipment will be its
Installation Date. Lessee agrees to confirm the Commencement Date by providing
Lessor with Invoices containing the Equipment location, description, serial
number and cost, the Installation Date and Lessee's signature. Lessor will
summarize all invoices and or IAFs (Installation Advise Forms for IBM Equipment)
received in the same calender quarter into a Commencement Certificate in the
form attached to this Schedule as Exhibit 1 and the Initial Term will begin the
first day of the calender quarter thereafter. Each Commencement Certificate will
incorporate the terms and conditions of the Master Lease and this Schedule
andwill constitute a separate Schedule. Notwithstanding the foregoing, if the
Equipment pertains to Sale-Leaseback Equipment, the Commencement Date will be
the date Lessor tenders the purchase price for the Equipment.
4. Option to Extend
So long as no Event of Default shall have occurred and be continuing,
Lessee will have the right to extend the Initial Term of this Schedule for a
period of one (1) year by giving Lessor at (least one hundred and twenty (120)
days written notice prior to the expiration of the 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 Schedule will continue in effect
following said extended period until terminated by either party upon not less
than one hundred and twenty (120) days prior written notice, which notice shall
be effective as of the Rent Interval next following receipt.
5. Purchase Option
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than one
hundred and twenty (120) days prior to the expiration of the Initial Term,
Lessee will have the option at the expiration of the Initial Term of this
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. If the
parties are unable to agree 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 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 will not
be considered part of the Equipment.
6. Special Terms
Notwithstanding anything in the Master Lease to the contrary, the terms and
conditions of the Master Lease Agreement, as they pertain to this Schedule and
to the equipment lease of any Equipment pursuant to this Schedule and the Master
Lease Agreement, are hereby modified and amended as follows:
(a) Section 4.2, "Warranty and Disclaimer of Warranties"
---------------------------------------
In line 2 before the word "default", insert the word "material".
<PAGE>
In line 4 after the word "Equipment", add the following:
"; provided that if the manufacturer shall not permit the Lessor to assign
any of such warranties, the Lessor shall use its best efforts to confer
upon the Lessee all of the benefits of such warranties to the same extent
as if the Lessor had made an assignment of such warranties to the Lessee."
To the end of this Section add the following:
"Lessor hereby assigns during the term of this Schedule, or any extension
thereof, any and all rights granted to Lessor under Section 6 of the
Purchase Leaseback Agreement."
(b) Section 5.1, "Title"
-------
In line 2 after the words "Secured Party", add the following:
"; provided, however, that nothing in this sentence shall limit or diminish
Lessee's rights under this Master Lease and each Schedule, or Lessee's
leasehold interest in and to the Equipment".
In line 5, before the words "at its expense" insert the words "not grant
any security interest in and to the Equipment in and to the Equipment, and
will".
In the parenthetical phrase in line 6, insert "(i)" before the word
"(any)", and after the word "Lessor", add the following:
"or any creditors of the Owner, the Lessor, any Assignee and/or any Second
Party, (ii) liens and encumbrances for taxes, assessments or governmental
charges or levies, not due and delinquent, and/or (iii) other liens not
caused by Lessee".
Also in line 6, delete the word "Owner" and replace with the word "or", and
delete the words "and Secured Party" and insert the words ", as the case
may be,".
(c) Section 5.2, "Relocation or Sublease"
------------------------
In line 1 after the word "consent", add the words "of the Lessor (which
shall not be unreasonably withheld)".
In line 1 of the second paragraph, delete the word "reasonable", and after
the word "Party", add the words "(which shall not be unreasonably
withheld)"; in Line 9 after the word "Schedule," add the words "then
(unless otherwise agreed by the Lessor and the Lessee)"; in Line 11 after
the word "discretion", add a comma; in Line 12 after the word "If", add the
words "pursuant to, and in accordance with, the provisions of the
immediately preceding sentence,".
To the beginning of the third paragraph, add the words "Unless otherwise
agreed to by the Lessor and the Lessee,".
(d) Section 5.3, "Assignment by Lessor"
----------------------
In line 3 of subsection (a) after the words "so long as", delete the
remainder of the sentence and replace with the words "an Event of Default
shall not have occurred and is then continuing; and".
To the beginning of subsection (b), add the words "At the written request
of the Secured Party and the Lessor,"; in Line 1 after the word "payable",
add the word "hereunder".
To the end of this Section, add the following:
"Notwithstanding anything contained herein to the contrary, (i) no
assignment of this Lease or grant of a security interest with respect
thereto shall relieve Lessor of its obligations to service this Lease in
accordance with the terms of this Schedule and the Master Lease Agreement
and (ii) any Assignee of this Schedule shall agree to become bound by the
terms and conditions of this Schedule and the Master Lease Agreement as it
pertains to this Schedule."
(e) Section 7.1, "Care, Use and Maintenance"
--------------------------
In line 4 before the word "acceptable", insert the word "reasonably"; in
line 6 after the word "manufacturer", add the words "or any authorized
manufacturer's representative", and after the word "pay", add the words ",
at the expiration of the Lease term"; in line 8, delete the words "at the
expiration of the Lease term".
(f) Section 7.2, "Attachments and Reconfigurations"
----------------------------------
In line 1 after the word "Lessor", add the parenthetical "(which shall not
be unreasonably withheld)".
(g) Section 8, "Representations and Warranties of Lessee"
------------------------------------------
In line 5 of subsection (b) insert the word "material" before the words
"provision", "default" and "indenture"; to the end of this same
subsection, add the following: "; except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any
action, legal or equitable, and except as rights to indemnity or
contribution may be limited by applicable law."
(h) Section 9, "Delivery and Return of Equipment"
----------------------------------
In the last sentence after the words "Section 2," add the words "during the
period commencing on the date of receipt of the notice under Section 2 and
ending on the business day immediately preceding the date of the
termination of the Lease Term".
To the end of this Section, add the following:
"No such demonstrations shall interfere with Lessee's normal business
procedures."
10
<PAGE>
(i) Section 11, "Indemnity"
-----------
In Line 2 after the word "fees," delete the rest of the sentence and
replace with the following:
"incurred by the Lessor or such Assignee, as the case may be, or such
Secured Party and arising out of (i) the possession, leasing, operation,
control, use, maintenance, delivery, return or other disposition of the
Equipment by Lessee or (ii) any strict liability in tort of the Lessor or
such Assignee, as the case may be, or such Secured Party, solely on
account of its ownership of the Equipment."
To the end of this Section, add the following paragraph:
"Lessor will indemnify and hold Lessee harmless from and against any and
all claims, costs, expenses, damages and liabilities, including reasonable
attorneys' fees, arising from personal injury or property damages caused
by the negligent acts of Lessor or its agents."
(j) Section 12, "Risk of Loss"
--------------
To the end of the first sentence in the second paragraph, add the words
"or Lessee elects to pay the Casualty Value for any such damaged item of
Equipment."
In Line 3 of the second paragraph delete the word "Lessor's" and replace
with the word "Lessee's", and after the word "option", add the
parenthetical "(or, if an Event of Default shall have occurred and is
continuing, at the option of the Lessor)"; In Line 5 after the word
"amounts", add the words ", if any, then", and after the word "owing",
add the word "hereunder".
(k) Section 13.1, "Default"
---------
In Line 3 of subsection (b), delete the words "ten (10)" and replace with
the words "fifteen (15)"; to the end of this subsection, add the
following:
"Unless such default cannot be cured within fifteen (15) days and Lessee
is diligently attempting to clear up the default, then Lessee shall have
up to a maximum of sixty (60) days to cure."
In Line 4 of subsection (c) after the word "powers", add the parenthetical
"(which, in the case of any such petition filed against the Lessee, shall
not have been dismissed within sixty (60) days after the filing thereof)".
(l) To the end of subsection (d), add the words ", If such an Event of Default
continues beyond any applicable cure period."
(m) Section 13.3, "Mitigation"
------------
In Line 2 of subsection (a) after the words "Initial Term", add the words
"or any extension thereof".
(n) Section 14.1, "Board Attendance"
------------------
Delete this section entirely and replace with the following:
Within thirty (30) days following a meeting of the Board of Directors,
Lessee shall provide Lessor with a summary of the minutes of said meeting.
If an Event of Default occurs and is continuing on the part of Lessee,
then Lessor shall have the right to appoint a representative to attend
meetings of Lessee's Board of Directors, which representative shall be
entitled to advance notice of all such meetings."
(o) Section 14.2, "Financial Statements"
----------------------
Delete the last sentence in its entirety.
(p) Section 14.3, "Obligation to Lease Additional Equipment"
------------------------------------------
In Line 2, delete subsection (i) and replace with the following:
"(i) an Event of Default under this Master Lease or any Schedule shall
have occurred and is continuing;"
(q) Section 14.4, "Merger and Sale Provisions"
----------------------------
In Line 2 before the word "discretion", add the word "reasonable"; in Line
6, delete the words "all amounts then due and owing and"; in Line 7 after
the word "Schedules", add the words "and all other amounts then due and
owing hereunder".
(r) Section 14.7, "Binding Nature"
----------------
Delete this Section in its entirety and replace with the following:
"This Master Lease and each Schedule are binding upon, and inure to the
benefit of, Lessor, its successors and assigns. LESSEE MAY NOT ASSIGN ITS
RIGHTS OR OBLIGATIONS HEREUNDER WITHOUT THE LESSOR'S PRIOR WRITTEN CONSENT
(WHICH SHALL NOT BE UNREASONABLY WITHHELD)."
(s) Section 14.8, "Survival of Obligations"
-------------------------
In line 1, insert a comma before the word "including" and after the word
"to"; in Line 3 after the Word "Lessor", delete the word "and" and replace
with the word "or"; and after the word "Assignee", delete the word "or"
and replace with the words "and any"; in Line 4, add the words "for a
period of two (2) years" to the end of the sentence.
(t) Section 14.14, "Additional Documents"
----------------------
In Line 4 before the word "acceptable", insert the word "reasonably".
<PAGE>
(u) Section 14.17, "Landlord/Mortgagee Waiver"
---------------------------
In line 2 before the word "satisfactory", insert the word "reasonably".
(v) Section 14.19, "Definitions"
-------------
To the end of the definition "Assignee", add the words "pursuant to, and
in accordance with, the provisions of Section 5.3 hereof."
In Line 1 of the definition "Casualty Value" after the words "greater
of", insert the words "the present value (discounted at five percent
(5%)"; in Line 2 after the words "Casualty Loss", add the words ", less
the aggregate amount of any insurance proceeds actually received by
Lessor."
In Line 1 of the definition of "Default Costs" after the word "from",
delete the words "a Lessee default" and replace with the words "an Event
of Default".
To the end of the definition of "Secured Party", add the words "pursuant
to and in accordance with, the provisions of Section 5.3 hereof."
Master Lease: This Schedule is issued pursuant to the Master Lease identified
on page 1 of this Schedule. All of the terms and conditions of the Master Lease
are incorporated in and made a part of this Schedule as if they were expressly
set forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Master Lease (including, without limitation, the
representations and warranties set forth in Section 8) except as modified herein
by this Schedule. This Schedule may not be amended or rescinded except by a
writing signed by both parties.
CUBIST PHARMACEUTICALS, INC. COMDISCO, INC.
as Lessee as Lessor
By: [SIGNATURE APPEARS HERE] By: [SIGNATURE APPEARS HERE]
---------------------------- ---------------------------
Title: President Title: [TITLE APPEARS HERE]
------------------------- ------------------------
Date: 10-21-93 Date: 11-1-93
-------------------------- -------------------------
<PAGE>
EXHIBIT 1
COMMENCEMENT CERTIFICATE
------------------------
This Certificate dated ______________ is executed pursuant to Schedule no.
VL-1 to the Master Lease Agreement dated between Comdisco, Inc. ("Lessor") and
Cubist Pharmaceuticals, Inc. ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease and Schedule No. are
incorporated herein and made a part hereof and this Commencement Certificate
constitutes a Schedule for the Equipment described below.
1. Equipment:
---------
Equipment
Qty Mfgr Type/Model Serial # Location
--- ---- ---------- -------- --------
(See attached Invoices)
2. Installation Date: (See attached Invoices)
------------------
3. Initial Term Starts on:
-----------------------
4. Total Equipment Cost:
---------------------
5. Rent:
-----
6. Representations of Lessee:
--------------------------
Each item of Equipment has been delivered to the location indicated above,
tested, inspected, found to be in good working order and accepted by the
Lessee on its Installation Date.
13
<PAGE>
EXHIBIT A
(MULTIPLE QUARTER DELIVERY)
SCHEDULE NO. VL-2 DATED AS OF November 28,1994
---- ----------------
TO MASTER LEASE AGREEMENT DATED AS OF August 30, 1993 ("MASTER LEASE")
-----------------
LESSEE: CUBIST PHARMACEUTICALS, INC. LESSOR: COMDISCO, INC.
Admin.Contact/Phone No.: Address for all Notices:
- ------------------------ ------------------------
Mr. Tom Shea
Director of Finance
(617) 576-1999 (x203) 6111 North River Road
Rosemont, Illinois 60018
Attn.: Capital Equipment
Lease Administration
Address for Notices:
- --------------------
24 Emily Street
Cambridge, MA 02139
Attn.: Tom Shea
Central Billing Location: Paying Agent:
- ------------------------- -------------
Same as Above
Comdisco, Inc.
P.O. box 91744
Attn.: Chicago, Illinois 60693
Lessee Reference No.: -----------------
(24 digits maximum)
Location of Equipment: Initial Term: 48 months
- ---------------------- ------------ ----------
Lease Rate Factor: 2.515%
----------------- ------
Attn.:
EQUIPMENT (as defined below): Advance: $ 15,090.00
-------- -----------
Item Machine Type/ Serial
No. Qty. Manufacturer Feature Description Number Rent
- ---- ---- ------------ ------------- ----------- ------ ----
Contingency:
This transaction is wholly contingent upon Lessee's successful completion
of their Series C Preferred Stock equity financing.
Equipment specifically approved by Lessor (including instrumentation,
production, manufacturing and test equipment, computers, office furniture,
and laboratory benches and hoods), which shall be delivered to and accepted
by Lessee during the period January 9, 1995 through January 9, 1996, for
which Lessor receives vendor invoices approved for payment, up to an
aggregate purchase price of $600,000.00; not including upgrades thereto and
further excluding custom use equipment, leasehold improvements,
installation costs and delivery costs, rolling stock, special tooling,
custom equipment, "stand alone" software, application software bundled into
computer hardware, hand held items, molds and fungible items. In no event
shall any lab benches and hoods exceed $60,000.00 of Lessor's aggregate
cost hereunder.
14
<PAGE>
1. Notice Period: Not less than one hundred and twenty (120) days nor more
than twelve (12) months prior to the expiration of the lease term.
2. Equipment Purchase
Lessee acknowledges that it has either received or approved Lessor's
purchase documentation for the Equipment. The aggregate purchase price referred
to on the face of this Schedule shall include all Equipment purchased by Lessor,
consisting of amounts financed under Sections (i), (ii) and (iii) below.
(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 February 9, 1995 *. Lessor will not perform a Sale-
Leaseback Transaction for any request or accompanying Equipment
ownership documents which arrive after the date marked above by
an asterisk (*). Further, any sale-Leaseback Equipment will be
placed on Lease subject to: (1) Lessor prior approval of the
Equipment; and (2) if approved, at Lessor's actual net appraised
Equipment value pursuant to the schedule below:
PERCENT OF ORIGINAL
ORIGINAL EQUIPMENT MANUFACTURER'S NET
MANUFACTURER'S EQUIPMENT COST PAID
SHIP DATE COST PAID BY LESSOR
------------------ -------------------
Between 11/10/94 and 2/9/95 100%
Between 9/10/94 and 11/9/94 80%
Between 6/10/94 and 9/9/94 70%
Between 3/10/94 and 6/9/94 65%
Between 12/10/93 and 3/9/94 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.
3. Commencement Date
The Commencement Date for each item of Equipment will be its
Installation Date. Lessee agrees to confirm the Commencement Date by
providing Lessor with Invoices containing the Equipment location, description,
serial number and cost, the Installation Date and Lessee's signature. Lessor
will summarize all Invoices and/or IAFs (Installation Advise Forms for IBM
Equipment) received in the same calendar quarter into a Commencement Certificate
in the form attached to this Schedule as Exhibit 1 and the Initial Term will
begin the first day of the calendar quarter thereafter. Each Commencement
Certificate will incorporate the terms and conditions of the Master Lease and
this Schedule and will constitute a separate Schedule. Notwithstanding the
foregoing, if the Equipment pertains to Sale-Leaseback Equipment, the
Commencement Date will be the date Lessor tenders the purchase price for the
Equipment.
4. Option to Extend
So long as no Event of Default shall have occurred and be continuing,
Lessee will have the right to extend the Initial Term of this Schedule for a
period of one (1) year by giving Lessor at least one hundred and twenty (120)
days written notice prior to the expiration of the 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 Schedule will continue in effect following
said extended period until terminated by either party upon not less than one
hundred and twenty (120) days prior written notice, which notice shall be
effective as of the Rent Interval next following receipt.
5. Purchase Option
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than one
hundred and twenty (120) days prior to the expiration of the Initial Term,
Lessee will have the option at the expiration of the Initial Term of this
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. If the
parties are unable to agree 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 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 will not
be considered part of the Equipment.
6. Special Terms
Notwithstanding anything in the Master Lease to the contrary, the terms and
conditions of the Master Lease Agreement, as they pertain to this Schedule and
to the equipment lease of any Equipment pursuant to this Schedule and the Master
Lease Agreement, are hereby modified and amended as follows:
(a) Section 4.2, "Warranty and Disclaimer of Warranties"
----------------------------------------
In line 2 before the word "default", insert the word "material".
<PAGE>
In line 4 after the word "Equipment", add the following:
"; provided that if the manufacturer shall not permit the Lessor
to assign any of such warranties, the Lessor shall use its best
efforts to confer upon the Lessee alL the benefits of such
warranties to the same extent as if the Lessor had made an
assignment of such warranties to the Lessee."
To the end of this Section add the following:
"Lessor hereby assigns during the term of this Schedule, or any
extension thereof, any and all rights granted to Lessor under
Section 6 of the Purchase Leaseback Agreement."
(b) Section 5.1, "Title"
-------
In line 2 after the words "Secured Party", add the following:
"; provided, however, that nothing in this sentence shall limit
or diminish Lessee's rights under this Master Lease and each
Schedule, or Lessee's leasehold interest in and to the
Equipment".
In line 5, before the words "at its expense" insert the words
"not grant any security interest in and to the Equipment, and
will".
In the parenthetical phrase in line 6, insert "(i)" before the
word "any", and after the word "Lessor", add the following:
"or any creditors of the Owner, the Lessor; any Assignee and/or
any second Party, (ii) liens and encumbrances for taxes,
assessments or governmental charges or Levies, not due and
delinquent, and/or (iii) other liens not caused by Lessee".
Also in line 6, delete the word "Owner" and replace with the
word "or", and delete the words "and Secured Party" and insert
the words ", as the case may be,".
(c) Section 5.2, "Relocation or Sublease"
------------------------
In line .1 after the word "consent", add the words "of the
Lessor (which shall not be unreasonably withheld)".
In line 1 of the second paragraph, delete the word "reasonable",
and after the word "Party", add the words "(which shall not be
unreasonably withheld)"; in line 9 after the word "Schedule,"
add the words "then (unless otherwise agreed by the Lessor and
the Lessee)"; in line 11 after the word "discretion", add a
comma; in line 12 after the word "If", add the words "pursuant
to, and in accordance with, the provisions of the immediately
preceding sentence,".
To the beginning of the third paragraph, add the words "Unless
otherwise agreed to by the Lessor and the Lessee,".
(d) Section 5.3, "Assignment by Lessor"
----------------------
In line 3 of subsection (a) after the words "so long as",
delete the remainder of the sentence and replace with the words
"an Event of Default shall not have occurred and is then
continuing; and".
To the beginning of subsection (b), add the words "At the
written request of the Secured Party and the Lessor,"; in line 1
after the word "payable", add the word "hereunder".
To the end of this Section, add the following:
"Notwithstanding anything contained herein to the contrary, (i)
no assignment of this Lease or grant of a security interest with
respect thereto shall relieve Lessor of its obligations to
service this Lease in accordance with the terms of this Schedule
and the Master Lease Agreement and (ii) any Assignee of this
Schedule shall agree to become bound by the terms and conditions
of this Schedule and the Master Lease Agreement as it pertains
to this Schedule."
(e) Section 7.1, "Care, Use and Maintenance"
---------------------------
In line 4 before the word "acceptable", insert the word
"reasonably"; in line 6 after the word "manufacturer", add the
words "or any authorized manufacturer's representative", and
after the word "pay", add the words ", at the expiration of the
Lease term"; in line 8, delete the words "at the expiration of
the Lease term".
(f) Section 7.2, "Attachments and Reconfigurations"
----------------------------------
In line 1 after the word "Lessor", add the parenthetical "(which
shall not be unreasonably withheld)".
(g) Section 8, "Representations and Warranties of Lessee"
-----------------------------------------
In line 5 of subsection (b) insert the word "material" before
the words "provision", "default" and "indenture"; to the end of
this same subsection, add the following:
"; except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws
of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in
any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law."
(h) Section 9, "Delivery and Return of Equipment"
----------------------------------
In the last sentence after the words "Section 2," add the words
"during the period commencing on the date of receipt of the
notice under Section 2 and ending on the business day
immediately preceding the date of the termination of the Lease
Term".
<PAGE>
To the end of this Section, add the following:
"No such demonstrations shall interfere with Lessee's normal business
procedures."
(i) Section 11, "Indemnity"
-----------
In line 2 after the word "fees," delete the rest of the sentence and
replace with the following:
"incurred by the Lessor or such Assignee, as the case may be, or such
Secured Party and arising out of (i) the possession, leasing, operation,
control, use, maintenance, delivery, return or other disposition of the
Equipment by Lessee or (ii) any strict liability in tort of the Lessor or
such Assignee, as the case may be, or such Secured Party, solely on
account of its ownership of the Equipment."
To the end of this Section, add the following paragraph:
"Lessor will indemnify and hold Lessee harmless from and against any and
all claims, costs, expenses, damages and liabilities, including reasonable
attorneys' fees, arising from personal injury or property damages caused by
the negligent acts of Lessor or its agents."
(j) Section 12, "Risk of Loss"
--------------
To the end of the first sentence in the second paragraph, add the words
"or Lessee elects to pay the Casualty Value for any such damaged item
of Equipment."
In line 3 of the second paragraph delete the word "Lessor's" and replace
with the word "Lessee's", and after the word "option", add the
parenthetical "(or, if an Event of Default shall have occurred and is
continuing, at the option of the Lessor)"; in line 5 after the word
"amounts", add the words ", if any then", and after the word "owing",
add the word "hereunder".
(k) Section 13.1, "Default"
---------
In line 3 of subsection (b), delete the words "ten (10)" and replace
with the words "fifteen (15)"; to the end of this subsection , add the
following:
"unless such default cannot be cured within fifteen (15) days and Lessee
is diligently attempting to clear up the default, then Lessee shall have up
to a maximum of sixty (60) days to cure."
In line 4 of subsection (c) after the word "powers", add the parenthetical
"(which, in the case of any such petition filed against the Lessee,
shall not have been dismissed within sixty (60) days after the filing
thereof)".
(l) To the end of subsection (d), add the words ", if such an Event of Default
continues beyond any applicable cure period."
(m) Section 13.3, "Mitigation"
------------
In line 2 of subsection (a) after the words "Initial Term", add the words
"or any extension thereof".
(n) Section 14.1, "Board Attendance"
------------------
Delete this section entirely and replace with the following:
Within thirty (30) days following a meeting of the Board of Directors,
Lessee shall provide Lessor with a summary of the minutes of said meeting.
If an Event of Default occurs and is continuing on the part of Lessee, then
Lessor shall have the right to appoint a representative to attend
meetings of Lessee's Board of Directors, which representative shall be
entitled to advance notice of all such meetings."
(o) Section 14.2, "Financial Statements"
----------------------
Delete the last sentence in its entirety.
(p) Section 14.3, "Obligation to Lease Additional Equipment"
------------------------------------------
In line 2, delete subsection (i) and replace with the following:
"(i) an Event of Default under this Master Lease or any Schedule shall
have occurred and is continuing;".
(q) Section 14.4, "Merger and Sale Provisions"
----------------------------
In line 2 before the word "discretion", add the word "reasonable"; in
line 6, delete the words "all amounts then due and owing and";
in line 7 after the word "Schedules", add the words "and all other amounts
then due and owing hereunder".
(r) Section 14.7, "Binding Nature"
----------------
Delete this section in its entirety and replace with the following:
"This Master lease and each Schedule are binding upon, and inure to the
benefit of, Lessor, its successors and assigns. LESSEE MAY NOT ASSIGN ITS
RIGHTS OR OBLIGATIONS HEREUNDER WITHOUT THE LESSOR'S WRITTEN CONSENT
(WHICH SHALL NOT BE UNREASONABLY WITHHELD)."
(s) Section 14.8, "Survival of Obligations"
-------------------------
<PAGE>
In line 1, insert a comma before the word "including" and after the word
"to"; in line 3 after the Word "Lessor", delete the word "and" and replace
with the word "or"; and after the word "Assignee", delete the word "or" and
replace with the words "and any"; in line 4, add the words "for a period of
two (2) years" to the end of the sentence.
(t) Section 14.14, "Additional Documents"
----------------------
In line 4 before the word "acceptable", insert the word "reasonably".
(u) Section 14.17, "Landlord/Mortgagee Waiver"
---------------------------
In line 2 before the word "satisfactory", insert the word "reasonably".
(v) Section 14.19, "Definitions"
-------------
To the end of the definition "Assignee", add the words "pursuant to, and in
accordance with, the provisions of Section 5.3 hereof."
In line 1 of the definition "Casualty Value" after the words "greater of",
insert the words "the present value (discounted at five percent (5%)"; in
line 2 after the words "Casualty Loss", add the words", less the aggregate
amount of any insurance proceeds "actually received by Lessor."
In line 1 of the definition of "Default Costs" after the word "from",
delete the words "a Lessee default" and replace with the words "an Event
of Default".
To the end of the definition of "Secured Party", add the words "pursuant
to, and in accordance with, the provisions of the Section 5.3 hereof."
Master Lease: This Schedule is issued pursuant to the Master Lease identified on
page 1 of this Schedule. All of the terms and conditions of the Master Lease are
incorporated in and made a part of this Schedule as if they were expressly set
forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Master Lease (including, without limitation, the
representations and warranties set forth in Section 8) except as modified herein
by this Schedule. This Schedule may not be amended or rescinded except by a
writing signed by both parties.
CUBIST PHARMACEUTICALS, INC. COMDISCO, INC.
as Lessee as Lessor
By: SIGNATURE APPEARS HERE By: SIGNATURE APPEARS HERE
------------------------------- ---------------------------
Title: DIRECTOR OF FINANCE Title: POSITION
---------------------------- ------------------------
Date: 12/5/94 Date: 2/7/95
----------------------------- -------------------------
DRS; 11/29/94
<PAGE>
EXHIBIT 1
COMMENCEMENT CERTIFICATE
------------------------
This Certificate dated _______________ is executed pursuant to Schedule
No. VL-2 to the Master Lease Agreement dated between Comdisco, Inc. ("Lessor")
and Cubist Pharmaceuticals, Inc. ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease and Schedule No. are
incorporated herein and made a part hereof and this Commencement Certificate
constitutes a Schedule for the Equipment described below.
1. Equipment:
---------
Equipment
Qty Mfgr Type/Model Serial # Location
--- ---- ---------- -------- --------
(See attached invoices)
2. Installation Date: (See attached invoices)
-----------------
3. Initial Term Starts on:
----------------------
4. Total Equipment Cost:
--------------------
5. Rent:
----
6. Representations of Lessee:
-------------------------
Each item of Equipment has been delivered to the location indicated
above, tested, inspected, found to be in good working order and accepted
by the Lessee on its Installation Date.
<PAGE>
EXHIBIT A
(MULTIPLE QUARTER DELIVERY)
SCHEDULE NO. VL-3 DATED AS OF February 26, 1996
---- -------------------
TO MASTER LEASE AGREEMENT DATED AS OF August 30, 1993 ("MASTER LEASE")
-----------------
LESSEE: CUBIST PHARMACEUTICALS, INC. LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
- ------------------------ -----------------------
Mr. Tom Shea
Director of Finance
(617) 576-1999 (x203) 6111 North River Road
Rosemont, Illinois 60018
Attn: Capital Equipment Lease
Administration
Address for Notices:
- -------------------
24 Emily Street
Cambridge, MA 02139
Attn: Tom Shea
Central Billing Location: PAYING AGENT:
- ------------------------ ------------
Same as above
Comdisco, Inc.
P.O. Box 91744
Attn.: Chicago, Illinois 60693
Lessee Reference No.: ______________________
(24 digits maximum)
Location of Equipment: Initial Term: 48 months
- --------------------- ------------ ----------
Lease Rate Factor: 2.538%
----------------- -------
Attn.:
EQUIPMENT (as defined below): Advance: Part I: $ 12,690.00
------- -----------
Less Commitment Deposit
- 5,000.00
Net Part I Advance: $ 7,690.00
---------
Part II: $ 2,538.00
---------
Item Machine Type/ Serial
No. Qty. Manufacturer Feature Description Number Rent
- ---- ---- ------------ ------------- ----------- ------ ----
Equipment specifically approved by Lessor, which shall be delivered to and
accepted by Lessee during the period April 8, 1996 through April 8, 1997, for
which Lessor receives vendor invoices approved for payment, up to an aggregate
purchase price of $500,000.00 ("Part I"). During such period, Lessee shall have
the option to request from Lessor an additional $100,000.00 of lease financing
subject to a review of Lessee by Lessor ("Part II"). The Lease financing
provided by Lessor hereby shall not include upgrades to any equipment and shall
further exclude custom use equipment, leasehold improvements, installation costs
and delivery costs, rolling stock, special tooling, custom equipment,
"stand-alone" software, application software bundled into computer hardware,
hand held items, molds and fungible items.
<PAGE>
1. Notice Period: Not less than one hundred and twenty (120) days nor more
than twelve (12) months prior to the expiration of the lease term.
2. Equipment Purchase
Lessee acknowledges that it has either received or approved Lessor's
purchase documentation for the Equipment. The aggregate purchase price referred
to on the face of this Schedule shall include all Equipment purchased by Lessor,
consisting of amounts financed under Section (i), (ii) and (iii) below.
(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 May 8, 1996*. Lessor will not perform a Sale-Leaseback
Transaction for any request or accompanying Equipment ownership
document which arrive after the date market above by an asterisk
(*). Further, any sale-leaseback Equipment will be placed 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:
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT MANUFACTURER'S PERCENT OF ORIGINAL MANUFACTURER'S
SHIP DATE NET EQUIPMENT COST PAID BY LESSOR
_________________________________ __________________________________
<S> <C>
Between 2/9/96 and 3/8/96 100%
Between 12/9/95 and 2/8/96 80%
Between 9/9/95 and 12/8/95 70%
Between 6/9/95 and 9/8/95 65%
Between 3/9/95 and 6/8/95 60%
</TABLE>
(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.
3. Commencement Date
The Commencement Date for each item of Equipment will be its Installation
Date. Lessee agrees to confirm the Commencement Date by providing Lessor with
Invoices containing the Equipment location, description, serial number and cost,
the Installation Date and Lessor's signature. Lessor will summarize all
Invoices and/or IAFs (Installation Advise Forms for IRM Equipment) received in
the same calendar quarter into Commencement Certificate in the form attached to
this Schedule as Exhibit 1 and the Initial Term will begin in the first day of
the calendar quarter thereafter. Each Commencement Certificate will incorporate
the terms and conditions of the Master Lease and this Schedule and will
constitute a separate Schedule. Notwithstanding the foregoing, if the Equipment
pertains to Sale-Leaseback Equipment, the Commencement Date will be the date
Lessor tenders the purchase price for the Equipment.
4. Option to Extend
So long as no Event of Default shall have occurred and be continuing,
Lessee will have the right to extend the Initial Term of this Schedule for a
period of one (1) year by giving Lessor at least one hundred and twenty (120)
days written notice prior to the expiration of the Initial Term. In such event,
the rent to be paid during said extended period shall be mutually agreed upon
and if the parities 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 schedule will continue in effect following
said extended period until terminated by either party upon not less than one
hundred and twenty (120) days prior written notice, which notice shall be
effective as of the Rent Interval next following receipt.
5. Purchase Option
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier that twelve (12) months and no later than one
hundred and twenty (120) days prior to the expiration of the Initial Term,
Lessee will have the option at the expiration of the Initial Term of this
Schedule to purchase all, but not less than all, or 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 of
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 schedule shall constitute a Security
Agreement under the Uniform Commerical Code of the state in which the Equipment
is located. Lessor and Lessee agree that for purposes of this paragraph, any
licensed software will not be considered part of the Equipment.
6. Special Terms
Notwithstanding anything in the Master Lease to the contrary, the terms and
conditions of the Master Lease Agreement, as they pertain to this Schedule and
to the equipment lease of any Equipment pursuant to this Schedule and the Master
Lease Agreement, are hereby modified and amended as follows:
(a) Section 4.2 "Warranty and Disclaimer of Warranties"
_______________________________________
In line 2 before the word "default", insert the word "material".
In line 4 after the word "Equipment", add the following:
"; provided that if the manufacturer shall not permit the Lessor to assign
any of such warranties, the Lessor shall use its best efforts to confer
upon the Lessee all of the benefits of such warranties to the same extent
as if the Lessor had made an assignment of such warranties to the Lessee."
To the end of this Section add the following:
"Lessor hereby assigns during the term of this Schedule, or any extension
thereof, any and all rights granted to Lessor under Section 8 of the
Purchase Leaseback Agreement."
<PAGE>
(b) Section 5.1, "Title"
-----
In line 2 after the words "Secured Party", add the following:
"; provided, however, that nothing in this sentence shall limit or diminish
Lessee's rights under this master Lease and each Schedule, or Lessee's
leasehold interest in and to the Equipment".
In line 5, before the words "at its expense" insert the words "not grant
any security interest in and to the Equipment, and will".
In the parenthetical phrase in line 6, insert "(i)" before the word "any",
and after the word "Lessor", add the following:
"or any creditors of the Owner, the Lessor, any Assignee and/or any Secured
Party, (ii) liens and encumbrances for taxes, assessments or governmental
charges or levies, not due and delinquent, and/or (iii) other liens not
caused by Lessee".
Also in line 6, delete the word "Owner" and replace with the word "or", and
delete the words "and Secured Party" and insert the words ", as the case
may be,".
(c) Section 5.2, "Relocation or Sublease"
------------------------
In line 1 after the word "consent", add the words "of the Lessor (which
shall not be unreasonably withheld)".
In line 1 of the second paragraph, delete the word "reasonable", and after
the word "Party", add the words "(which shall not be unreasonably
withheld)"; in line 9 after the word "Schedule," add the words "then
(unless otherwise agreed by the Lessor and the Lessee)"; in line 11 after
the word "discretion", add a comma; in line 12 after the word "If", add the
words "pursuant to, and in accordance with, the provisions of the
immediately preceding sentence,".
To the beginning of the third paragraph, add the words "Unless otherwise
agreed to by the Lessor and the Lessee,".
(d) Section 5.3, "Assignment by Lessor"
----------------------
In line 3 of subsection (a) after the words "so long as", delete the
remainder of the sentence and replace with the words "an Event of Default
shall not have occurred and is then continuing; and".
To the beginning of subsection (b), add the words "At the written request
of the Secured Party and the Lessor,"; in line 1 after the word "payable",
add the word "hereunder".
To the end of this Section, add the following:
"Notwithstanding anything contained herein to the contrary, (i) an
assignment of this lease or grant of a security interest with respect
thereto shall relieve Lessor of its obligations to service this Lease in
accordance with the terms of this Schedule and the Master Lease Agreement
and (ii) any Assignee of this Schedule shall agree to become bound by the
terms and conditions of this Schedule and the Master Lease Agreement as it
pertains to this Schedule."
(e) Section 7.1, "Care, Use and Maintenance"
---------------------------
In line 4 before the word "acceptable", insert the word "reasonably"; in
line 6 after the word "manufacturer", add the words "or any authorized
manufacturer's representative", and after the word "pay", add the words ",
at the expiration of the Lease term"; in line 6, delete the words "at the
expiration of the Lease term".
(f) Section 7.2, "Attachments and Reconfigurations"
----------------------------------
In line 1 after the word "Lessor", add the parenthetical "(which shall not
be unreasonably withheld)".
(g) Section 8, "Representations and Warranties of Lessee"
------------------------------------------
In Line 5 of subsection (b) insert the word "material" before the words
"provision", "default" and "indenture"; to the end of this same subsection,
add the following:
"; except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable
law."
(h) Section 9, "Delivery and Return of Equipment"
----------------------------------
In the last sentence after the word "Section 2," add the words "during the
period commencing on the date of receipt of the notice under Section 2 and
ending on the business day immediately preceding the date of the
termination of the Lease Term".
"No such demonstrations shall interfere with Lessee's normal business
procedures."
(i) Section 11, "Indemnity"
-----------
In line 2 after the word "fees," delete the rest of the sentence and
replace with the following:
"incurred by the Lessor or such Assignee, as the case may be, or such
Secured Party and arising out of (i) the possession, leasing, operation,
control, use, maintenance, delivery, return of other disposition of the
Equipment by Lessee or (ii) any strict liability in tort of the Lessor or
such Assignee, as the case may be, or such Secured Party, solely on account
of its ownership of the Equipment."
To the end of this Section, add the following paragraph:
"Lessor will indemnify and hold Lessee harmless from and against any and
all claims, costs, expenses, damages and liabilities, including reasonable
attorneys' fees, arising from personal injury or property damages caused by
the negligent acts of Lessor or its agents."
(j) Section 12, "Risk of Loss"
--------------
To the end of the first sentence in the second paragraph, add the words "or
Lessee elects to pay the Casualty Value for any such damaged item of
Equipment."
<PAGE>
In line 3 of the second paragraph the word "Lessor's" and replace with the
word "Lessee's", and after the word "option", add the parenthetical "(or,
if an Event of Default shall have occurred and is continuing, at the option
of the Lessor"; in line 5 after the word "amounts", add the words ", if
any, then", and after the word "owing", add the word "hereunder".
(k) Section 13.1, "Default"
---------
In line 3 of subsection (b), delete the words "ten (10)" and replace with
the words "fifteen (15)"; to the end of this subsection, add the following:
"unless such default cannot be cured within fifteen (15) days and Lessee
is diligently attempting to clear up the default, then Lessee shall have up
to a maximum of sixty (60) days to cure."
In line 4 of subsection (c) after the word "powers", add the parenthetical
"(which, in the case of any such petition filed against the Lessee, shall
not have been dismissed within sixty (60) days after the filing thereof)".
(l) To the end of subsection (d), add the words ", if such an Event of Default
continues beyond any applicable cure period."
(m) Section 13.3, "Mitigation".
-------------
In line 2 of subsection (a) after the words "Initial Term", add the words
"or any extension thereof".
(n) Section 14.1, "Board Attendance"
------------------
Delete this section entirely and replace with the following:
Within thirty (30) days following a meeting of the Board of Directors,
Lessee shall provide Lessor with a summary of the minutes of said
meeting. If an Event of Default occurs and is continuing on the part
of Lessee, then Lessor shall have the right to appoint a representative
to attend meetings of Lessee's Board of Directors, which representative
shall be entitled to advance notice of all such meetings."
(o) Section 14.2, "Financial Statements"
---------------------
Delete the last sentence in its entirety.
(p) Section 14.3, "Obligation to Lease Additional Equipment"
------------------------------------------
In line 2, delete subsection (i) and replace with the following:
"(i) and Event of Default under this Master Lease or any Schedule shall
have occurred and is continuing;".
(q) Section 14.4, "Merger and Sale Provisions"
----------------------------
In line 2 before the word "discretion", add the word "reasonable"; in line
6, delete the words "all amounts then due and owing and"; in line 7 after
the word "Schedules", add the words "and all other amounts then due and
owing hereunder".
(r) Section 14.7, "Binding Nature"
----------------
Delete this section in its entirety and replace with the following:
"This Master Lease and each Schedule are binding upon, and inure to the
benefit of, Lessor, its successors and assigns. LESSEE MAY NOT ASSIGN
ITS RIGHTS OR OBLIGATIONS HEREUNDER WITHOUT THE LESSOR'S PRIOR WRITTEN
CONSENT (WHICH SHALL NOT BE UNREASONABLY WITHHELD)."
(s) Section 14.8, "Survival of Obligations"
--------------------------
In line 1, insert a comma before the word "including" and after the word
"to"; in line 3 after the word "Lessor", delete the word "and" and
replace with the word "or"; and after the word "Assignee", delete the word
"or" and replace with the words "and any"; in line 4, add the words
"for a period of two (2) years" to the end of the sentence.
(t) Section 14.14, "Additional Documents"
----------------------
In line 4 before the word "acceptable", insert the word "reasonably".
(u) Section 14.17, "Landlord/Mortgagee Waiver"
---------------------------
In line 2 before the word "satisfactory", insert the word "reasonably".
(v) Section 14.19, "Definitions"
-------------
To the end of the definition "Assignee", add the words "pursuant to, and in
accordance with, the provisions of Section 5.3 hereof."
In line 1 of the definition "Casualty Value" after the words "greater of",
insert the words "the present value (discounted at five percent (5%)"; in
line 2 after the words "Casualty Loss", add the words ", less the aggregate
amount of any insurance proceeds; actually received by Lessor."
In line 1 of the definition of "Default Costs" after the word "from",
delete the words "a Lessee default" and replace with the words "an
Event of Default".
To the end of the definition of "Secured Party", add the words "pursuant"
to, and in accordance with, the provisions of Section 5.3 hereof."
(w) Part II Advance Rent
--------------------
Notwithstanding anything herein to the contrary, Advance Rent under
Part II hereof shall be due and payable at such time as Lessor makes
Part II funding available to Lessee. Lessor shall not be obligated
to fund until the Advance Rent is paid.
<PAGE>
Master Lease: This Schedule is issued pursuant to the Master Lease identified
on page 1 of this Schedule. All of the terms and conditions of the Master Lease
are incorporated in and made a part of this Schedule as if they were expressly
set forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Master Lease (including, without limitation, the
representations and warranties set forth in Section 8) except as modified herein
by this Schedule. This Schedule may not be amended or rescinded except by a
writing signed by both parties.
CUBIST PHARMACEUTICALS, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ Signature By: /s/ James P. Labe
------------------------------- -----------------------
Title: Director of Finance & Administration Title: James P. Labe, President
--------------------------- --------------------
Date: 4/4/96 Date: Venture Lease Division
----------------------------- ---------------------
<PAGE>
EXHIBIT 1
COMMENCEMENT CERTIFICATE
------------------------
This Certificate dated ____________________ is executed pursuant to
Schedule No. VL-3 to the Master Lease Agreement dated between Comdisco, Inc.
("Lessor") and Cubist Pharmaceuticals, Inc. ("Lessee"). All of the terms,
conditions, representations and warranties of the Master Lease and Schedule No.
are incorporated herein and made a part hereof and this Commencement Certificate
constitutes a Schedule for the Equipment described below.
1. Equipment:
---------
Equipment
Qty Mfgr Type/Model Serial # Location
--- ---- ---------- -------- --------
(See attached Invoices)
2. Installation Date: (See attached Invoices)
-----------------
3. Initial Term Starts on:
----------------------
4. Total Equipment Cost:
--------------------
5. Rent:
----
6. Representations of Lessee:
-------------------------
Each item of Equipment has been delivered to the location indicated
above, tested, inspected, found to be in good working order and accepted
by the Lessee on its Installation Date.
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES
ACT OF 1933.
WARRANT AGREEMENT
To Purchase Shares of Series B Convertible Preferred Stock of
CUBIST PHARMACEUTICALS, INC.
Dated as of August 30, 1993 (the "Effective Date")
WHEREAS, Cubist Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), has entered into a Master Lease Agreement dated as of August 30,
1993, Equipment Schedule No. VL-1, and related Schedules (the "Leases") with
Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series B Convertible
Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of the mutual convenants and
agreements contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
----------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 240,500 fully paid and
non-assessable shares of the Company's Series B Convertible Preferred Stock
("Preferred Stock") at a purchase price of $.50 per share (the "Exercise
Price"). The Exercise Price and the number and kind of shares purchasable
hereunder are subject to adjustment as provided in Sections 3 and 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
-----------------------------
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period ending on
the earlier of (i) the tenth anniversary of the Effective Date, or (ii) the
fifth anniversary of the closing of the Company's initial public offering. The
Warrantholder agrees to a ninety (90) day lockup period from the effective date
of the Company's initial public offering and, if requested by the underwriter,
will agree to an additional ninety (90) day lockup period for a maximum lockup
of one hundred eighty (180) days.
3. EXERCISE OF THE PURCHASE RIGHTS.
-------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, at any time or from time to time prior to the expiration of
the term set forth in Section 2 above, for all or any part of the shares of
Preferred Stock (but not for a fraction of a share). In the event, however, that
pursuant to the Company's Certificate of Incorporation, as amended, an event
causing mandatory conversion of the Company's Preferred Stock shall have
occurred, then this Warrant Agreement shall be exercisable for the number of
shares of Common Stock of the Company into which the number of shares of
<PAGE>
Preferred Stock purchasable pursuant to this warrant Agreement would have been
so converted had the Warrantholder exercised his purchase rights hereunder in
full immediately prior to such mandatory conversion (and, in such event, any
reference to "Preferred Stock" in this Warrant Agreement shall be deemed, when
the context requires, to be a reference to "Common Stock"). The Warrantholder
shall exercise his purchase rights hereunder by tendering to the Company at its
principal office a notice of exercise in the form attached hereto as Exhibit I
(the "Notice of Exercise"), duly completed and executed. Promptly upon receipt
of the Notice of Exercise and the payment of the aggregate Exercise Price for
the number of shares of Preferred Stock being purchased (said payment to be
made in accordance with the terms set forth below), and in no event later than
twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a
certificate for the number of shares of Preferred Stock purchased and shall
execute the Notice of Exercise indicating the number of shares which remain
subject to future purchases, if any.
The aggregate Exercise Price may be paid at the Warrantholder's election
either (i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance")
as determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be exercised
under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
As used herein, the current fair market value of the Preferred Stock shall
mean, with respect to each share of Preferred Stock, the fair market value
thereof as determined (in good faith) by the Board of Directors of the Company.
In the event that this Warrant Agreement shall at any time, become exercisable
for Common Stock pursuant to, and in accordance with, the provisions of the
first paragraph of this Section 3, then, the current fair market value of Common
Stock shall mean, with respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public offering, and
if the Company's Registration Statement relating to such public offering
has been declared effective by the SEC, than the initial "Price to Public"
specified in the final prospectus with respect to the offering;
(ii) if this Warrant Agreement is exercised after, and not in connection
with the Company's initial public offering and:
(a) if traded on a securities exchange, the fair market value shall be
deemed to be the average of the closing prices over a twenty-one (21)
day period ending three days before the day the current fair market
value of the securities is being determined; or
(b) if actively traded over-the-counter, the fair market value shall
be deemed to be the average of the closing bid and asked prices quoted
on the NASDAQ system (or similar system) over the twenty-one (21) day
period ending three days before the day the current fair market value
of the securities is being determined;
2
<PAGE>
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market, value of Common Stock shall be the highest price per
share which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined is good faith by its Board of
Directors, unless the Company shall become subject to a merger, acquisition
or other consolidation pursuant to which the Company is not the surviving
party, in which case the fair market value of Common Stock shall be deemed
to be the value received by the holders of the Company's Preferred Stock
on a common equivalent basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES
---------------------
(a) Authorization and Reservation of Shares. During the terms of this
---------------------------------------
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
-----------------------
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
1933 Act, as then in effect, or any similar Federal statute then enforced, or
any state securities law), or listing on any domestic securities exchange,
before such shares may be issued, the Company will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
registered, listed or approved for listing on such domestic securities exchange,
as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant Agreement, but in lieu of such
fractional shares the Company shall make a cash payment therefor upon the basis
of the Exercise Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights of other rights as a shareholder of the Company prior to the exercise of
the Warrant Agreement.
7. WARRANTHOLDER REGISTRY.
----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
-----------------
In addition to any adjustment, pursuant to Section 3 hereof, to the number
and kind of shares purchasable hereunder the Exercise Price and the number and
kind of shares purchasable hereunder are subject to adjustment, as follows:
3
<PAGE>
(a) Merger and Sale of Assets. If at any time there shall be a capital
-------------------------
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person shall be effected in such a way that holders of Preferred Stock shall be
entitled to receive securities with respect to or in exchange for Preferred
Stock (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to purchase and receive, upon exercise of this Warrant
Agreement, the number of shares of preferred stock or other securities of the
successor corporation resulting from such Merger Event, equivalent in value to
that which would have been issuable if Warrantholder and exercised this Warrant
Agreement immediately prior to the Merger Event. In any such case, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant Agreement
with respect to the rights and interest of the Warrantholder after the Merger
Event to the end that the provisions of this Warrant Agreement (including
adjustments of the Exercise Price and number of shares purchasable upon exercise
of this Warrant Agreement) shall be applicable to the greatest extent possible.
(b) Reclassification of Shares. If the company at any time shall, by
---------------------------
combination, reclassification, exchange, or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such changes with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
------------------------------------
combine or subdivide its Preferred Stock, (i) the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination, and (ii) the number of shares of
Preferred Stock purchasable hereunder shall be proportionately increased in the
case of a subdivision, or proportionately decreased in the case of a
combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
---------------
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's Preferred
Stock, then the Exercise Price shall be adjusted, from and after the record date
of such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
Preferred Stock outstanding immediately prior to such dividend or distribution,
and (ii) the denominator of which shall be the total number of all shares of
the Company's Preferred Stock outstanding immediately after such dividend or
distribution. The Warrantholder shall thereafter be entitled to purchase, at the
Exercise Price resulting from such adjustment, the number of shares of Preferred
Stock (calculated to the nearest whole share) obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Preferred Stock issuable upon the exercise hereof immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment.
(e) Antidilution Rights. Any shares of Preferred Stock purchased upon
-------------------
exercise of the Warrantholder's rights hereunder shall be entitled to additional
antidilution rights as set forth in the Company's Certificate of Incorporation,
as amended. A true and complete copy of the Company's Certificate of
Incorporation, as amended through the Effective Date, is attached hereto as
4
<PAGE>
Exhibit III (the "Charter"). The Company shall promptly provide the
Warrantholder with any restatement, amendment, modification or waiver of the
Charter.
(f) Notice of Adjustments. If: (i) the Company shall declare any dividend
---------------------
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription prorata to the holders
of any class of its Preferred or other convertible stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event; or
(iv) there shall be any voluntary or involuntary dissolution, liquidation or
winding up of the Company; then, in connection with each such event, the Company
shall send to the Warrantholder: (A) at least twenty (20) days' prior written
notice of the date on which the books of the Company shall close or a record
shall be taken for such dividend, distribution, subscription rights (specifying
the date on which the holders of Preferred Stock shall be entitled thereto) or
for determining rights to vote in respect of such Merger Event, dissolution,
liquidation or winding up; and (B) in the case of any such Merger Event,
dissolution, liquidation or winding up, at least (20) days' prior written notice
of the date when the same shall take place (and specifying the date on which the
holders of Preferred Stock shall be entitled to exchange their Preferred Stock
for securities or other property deliverable upon such Merger Event,
dissolution, liquidation or winding up). In the case of a public offering, the
Company shall give Warrantholder at least twenty (20) days written notice prior
to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the adjusted Exercise
Price, and (v) the number of shares subject to purchase hereunder after giving
effect to such adjustment, and shall be given in accordance with Section 12(e)
hereof.
(g) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice receivable by Warrantholder. The notice period shall
begin on the date such notice is given in accordance with Section 12(e) hereof.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
------------------------------
exercise of the Warrantholders rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any material provision of, or constitute a material default under,
any
<PAGE>
material indenture, mortgage, contract or other instrument to which it is a
party or by which it is bound, and the Leases and this Warrant Agreement
constitute legal, valid and binding agreements of the Company, enforceable in
accordance with their respective terms; except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution may be
limited by applicable law.
(c) Consents and Approvals. No consent or approval of, giving of notice
----------------------
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
-----------------
Preferred Stock or any other securities and the Company have been duly
authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws. In
addition:
(i) The authorized capital of the Company consists of (A) 40,000,000
shares of Common Stock, of which 3,550,000 shares are issued and outstanding,
and (B) 22,000,000 shares of Preferred Stock of which (1) 5,000,000 shares have
been designated as shares of Series A Convertible Preferred Stock, all of which
are issued and outstanding, and (2) 15,500,000 shares have been designated as
shares of Preferred Stock, of which 14,270,000 shares are issued and
outstanding.
(ii) The Company has reserved 1,450,000 shares of Common Stock for
issuance under its 1993 Stock Option Plan, under which 921,000 options are
outstanding at an average price of $0.01 per share. There are no other options,
warrants, conversion privileges or other rights presently outstanding to
purchase or otherwise acquire any authorized but unissued shares of the
Company's capital stock or other securities of the Company.
(e) Insurance. The Company has in full force and effect insurance
---------
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in this
----------------------------------------
Warrant Agreement and that certain Shareholders' Rights Agreement, dated as of
August 30, 1993, among the Company and the stockholders named therein, the
Company is not, pursuant to the terms of any other agreement currently in
existence, under any obligation to register under the 1933 Act any of its
presently outstanding securities or any of its securities which may hereafter be
issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
------------------
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant Agreement will constitute a transaction exempt from (i)
the registration requirements of Section 5 of the 1933 Act, in reliance upon
Section 4(2) thereof, and (ii) the qualification requirements of any applicable
state securities laws.
(h) Compliance with Rule 144. At the written request of the Warrantholder,
------------------------
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
Agreement in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the
6
<PAGE>
Warrantholder, within ten days after receipt of such request, a written
statement confirming the Company's compliance with the filing requirements of
the Securities and Exchange Commission as set forth in such Rule, as such Rule
may be amended form time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
--------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
------------------
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
-------------
Stock issuable upon exercise of this Warrant Agreement is not registered under
the 1933 Act or qualified under applicable state securities laws on the ground
that the issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel shall be outside counsel to the Warrantholder)
satisfactory to the Company and its counsel to the effect that (A) appropriate
action necessary for compliance with the 1933 Act has been taken, or (B) an
exemption from the registration requirements of the 1933 Act is available.
Notwithstanding the foregoing, the restrictions imposed upon the transferability
of any of its rights to acquire Preferred Stock or Preferred Stock issuable on
the exercise of such rights do not apply to transfers from the beneficial owner
of any of the aforementioned securities to its nominee or from such nominee
to its beneficial owner, and shall terminate as to any particular share of
Preferred Stock when (1) such security shall have been effectively registered
under the 1933 Act and sold by the holder thereof in accordance with such
registration or (2) such security shall have been sold without registration in
compliance with Rule 144 under 1933 Act, or (3) a letter shall have been issued
to the Warrantholder at its request by the staff of the Securities and Exchange
Commission or a ruling shall have been issued to the Warrantholder at its
request by such Commission stating that no action shall be recommended by such
staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant Agreement or for such shares of Preferred Stock not bearing any
restrictive legend.
(d) Financial Risk: Accredited Investor Status. The Warrantholder has
------------------------------------------
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of its investment, and has the ability to
bear the economic risks of its investment. The Warrantholder is an accredited
investor as such term is defined in Rule 501(a) of the 1933 Act.
7
<PAGE>
(e) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
11. TRANSFERS.
---------
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrant Agreements exceed three (3) transfers. The transfer shall be recorded on
the books of the Company upon receipt by the Company of a notice of transfer in
the form attached hereto as Exhibit II (the "Transfer Notice"), at its principal
offices and the payment to the Company of all transfer taxes and other
governmental charges imposed on such transfer.
12. MISCELLANEOUS.
-------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon the parties hereto and their respective successors and assigns.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
Delaware.
(d) Counterparts. This Warrant Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery, overnight
mail, or mail as hereinafter set forth, delivery by overnight mail, or seven (7)
days after deposit in the United States mail, by registered or certified mail,
addressed (i) to the Warrantholder at 6111 North River Road, Rosemont, Illinois
60018 attention: James Labe, Venture Leasing Director, cc: Legal Department,
(and/or, if by facsimile (708) 518-5465) and (ii) to the Company at 24 Emily
Street, Cambridge, MA 02139, attn: Thomas Shea, Director of Finance (and/or if
by facsimile, (617) 576-0233), or at such other address as any such party may
subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damage as a
result of any such default and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
<PAGE>
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, be amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant Agreement, but will at all times
in good faith assist in the carrying out of all such terms and in the taking of
all such actions as may be necessary or appropriate in order to protect the
rights of the Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions
--------
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
------------
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended
----------
by a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Leases referenced in the preamble of this Warrant Agreement
exceeds $1,000,000, the Company will also provide Warrantholder with an opinion
from the Company's counsel with respect to those same representations,
warranties and covenants. The Company shall also supply such other documents as
the Warrantholder may from time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: CUBIST PHARMACEUTICALS, INC.
By: [SIGNATURE APPEARS HERE]
----------------------------------
Title: President
-------------------------------
Warrantholder: COMDISCO, INC.
By: [SIGNATURE APPEARS HERE]
----------------------------------
Title: [TITLE APPEARS HERE]
-------------------------------
WJM:ska/sb
10/19/93 11/1/93
9
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To:
------------------------------
(1) The undersigned Warrantholder hereby elects to purchase shares
---------
of the Preferred Stock of Cubist Pharmaceuticals, Inc., pursuant to the
terms of the Warrant Agreement dated the 30th day of August, 1993 (the
"Warrant Agreement") between Cubist Pharmaceuticals, Inc. and the
Warrantholder, and tenders herewith payment of the purchase price for such
shares in full, together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Preferred Stock of Cubist
Pharmaceuticals, Inc., the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the Warrant
Agreement.
(3) Please issue a certificate or certificates representing said shares of
Preferred Stock in the name of the undersigned or in such other name as is
specified below.
- ----------------------------------
(Name)
- ----------------------------------
(Address)
Warrantholder: COMDISCO, INC.
By:
------------------------------
Title:
---------------------------
Date:
----------------------------
10
<PAGE>
ACKNOWLEDGEMENT OF EXERCISE
The undersigned , hereby acknowledge receipt of the
------------------
"Notice of Exercise" from Comdisco, Inc., to purchase shares of the
-------
Preferred Stock of Cubist Pharmaceuticals, Inc., pursuant to the terms of the
Warrant Agreement, and further acknowledges that shares remain subject
-------
to purchase under the terms of the Warrant Agreement.
Company:
By:
---------------------------------
Title:
------------------------------
Date:
-------------------------------
11
<PAGE>
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement
execute this form and supply required information. Do
not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
- --------------------------------------------------------------------------------
(Please Print)
whose address is
---------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated
--------------------------------------------------------
Holder's Signature
-------------------------------------------
Holder's Address
---------------------------------------------
--------------------------------------------------------------
Signature Guaranteed:
-----------------------------------------------------------
NOTE: The signature to this Transfer Notice
must correspond with the name as it
appears on the face of the Warrant
Agreement, without alteration or
enlargement or any change whatever.
Officers of corporations and those acting
in a fiduciary or other representative
capacity should file proper evidence of
authority to assign the foregoing Warrant
Agreement.
12
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE
COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
WARRANT AGREEMENT
To Purchase Shares of Series C Convertible Preferred Stock of
CUBIST PHARMACEUTICALS, INC.
Dated as of February 28, 1995 (the "Effective Date")
WHEREAS, Cubist Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), has entered into a Master Lease Agreement dated as of August 30,
1993, Equipment Schedule No. VL-2 dated as of November 29, 1994, and related
Schedules (the "Leases") with Comdisco, Inc., a Delaware corporation (the
"Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series C Convertible
Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of the mutual covenants and
agreements contained herein, the Company and Warrantholder agree as follows;
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
----------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 92,500 fully paid and
non-assessable shares of the Company's Series C Convertible Preferred Stock
("Preferred Stock") at a purchase price of $0.60 per share (the "Exercise
Price"). The Exercise Price and the number and kind of shares purchasable
hereunder are subject to adjustment as provided in Sections 3 and 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
-----------------------------
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period ending on the earlier
of (i) the tenth anniversary of the Effective Date, or (ii) the fifth
anniversary of the closing of the Company's initial public offering. The
Warrantholder agrees to a ninety (90) day lockup period from the effective date
of the Company's initial public offering and, if requested by the underwriter,
will agree to an additional ninety (90) day lockup period for a maximum lockup
of one hundred eighty (180) days.
3. EXERCISE OF THE PURCHASE RIGHTS.
-------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, at any time, or from time to time, prior to the expiration of
the term set forth in Section 2 above, for all or any part of the shares of
Preferred Stock (but not for a fraction of a share). In the event, however, that
pursuant to the Company's Certificate of Incorporation, as amended, an event
causing mandatory conversion of the Company's Preferred Stock shall have
occurred, then this Warrant Agreement shall be exercisable for the number of
<PAGE>
shares of Common Stock of the Company into which the number of shares of
Preferred Stock purchasable pursuant to this Warrant Agreement would have been
so converted had the Warrantholder exercised his purchase rights hereunder in
full immediately prior to such mandatory conversion (and, in such event, any
reference to "Preferred Stock" in this Warrant Agreement shall be deemed, when
the context requires, to be a reference to "Common Stock"). The Warrantholder
shall exercise his purchase rights hereunder by tendering to the Company at its
principal office a notice of exercise in the form attached hereto as Exhibit I
(the "Notice of Exercise"), duly completed and executed. Promptly upon receipt
of the Notice of Exercise and the payment of the aggregate Exercise Price for
the number of shares of Preferred Stock being purchased (said payment to be made
in accordance with the terms set forth below), and in no event later than
twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a
certificate for the number of shares of Preferred Stock purchased and shall
execute the Notice of Exercise indicating the number of shares which remain
subject to future purchases, if any.
The aggregate Exercise Price may be paid at the Warrantholder's election
either (i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance")
as determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
As used herein, the current fair market value of the Preferred Stock shall
mean, with respect to each share of Preferred Stock, the fair market value
thereof as determined (in good faith) by the Board of Directors of the Company.
In the event that this Warrant Agreement shall, at any time, become exercisable
for Common Stock pursuant to, and in accordance with, the provisions of the
first paragraph of this Section 3, then, the current fair market value of Common
Stock shall mean, with respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public offering, and
if the Company's Registration Statement relating to such public offering
has been declared effective by the SEC, then the initial "Price to Public"
specified in the final prospectus with respect to the offering;
(ii) if this Warrant Agreement is exercised after, and not in connection
with the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value shall
be deemed to be the average of the closing prices over a twenty-one
(21) day period ending three days before the day the current fair
market value of the securities is being determined, or
(b) if actively traded over-the-counter, the fair market value
shall be deemed to be the average of the closing bid and asked
prices quoted on the NASDAQ system (or similar system) over the
twenty-one (21) day period ending three days before the day the
current fair market value of the securities is being determined;
<PAGE>
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Common Stock shall be the highest price per
share which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by its Board of
Directors, unless the Company shall become subject to a merger, acquisition
or other consolidated pursuant to which the Company is not the surviving
party, in which case the fair market value of Common Stock shall be deemed
to be the value received by the holders of the Company's Preferred Stock on
a common equivalent basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
---------------------
(a) Authorization and Reservation of Shares. During the term of this
---------------------------------------
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
-----------------------
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
1933 Act, as then in effect, or any similar Federal statute then enforced, or
any state securities law), or listing on any domestic securities exchange,
before such shares may be issued, the Company will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
registered, listed or approved for listing on such domestic securities exchange,
as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant Agreement, but in lieu of such
fractional shares the Company shall make a cash payment therefor upon the basis
of the Exercise Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant Agreement.
7. WARRANTHOLDER REGISTRY.
----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
-----------------
In addition to any adjustment, pursuant to Section 3 hereof, to the number
and kind of shares purchasable hereunder, the Exercise Price and the number and
kind of shares purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sales of Assets. If at any time there shall be a capital
--------------------------
reorganization of the shares of the Company's stock (other than a combination,
3
<PAGE>
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person shall be effected in such a way that holders of Preferred Stock shall be
entitled to receive securities with respect to or in exchange for Preferred
Stock (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to purchase and receive, upon exercise of this Warrant
Agreement, the number of shares of preferred stock or other securities of the
successor corporation resulting from such Merger Event, equivalent in value to
that which would have been issuable if Warrantholder had exercised this Warrant
Agreement immediately prior to the Merger Event. In any such case, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant Agreement
with respect to the rights and interest of the Warrantholder after the Merger
Event to the end that the provisions of this Warrant Agreement (including
adjustments of the Exercise Price and number of shares purchasable upon exercise
of this Warrant Agreement) shall be applicable to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time
------------------------------------
shall combine or subdivide its Preferred Stock, (i) the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination, and (ii) the number of shares of
Preferred Stock purchasable hereunder shall be proportionately increased in the
case of a subdivision, or proportionately decreased in the case of a
combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
---------------
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's Preferred
Stock, then the Exercise Price shall be adjusted, from and after the record date
of such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
Preferred Stock outstanding immediately prior to such dividend or distribution,
and (ii) the denominator of which shall be the total number of all shares of the
Company's Preferred Stock outstanding immediately after such dividend or
distribution. The Warrantholder shall thereafter be entitled to purchase, at the
Exercise Price resulting from such adjustment, the number of shares of Preferred
Stock (calculated to the nearest whole share) obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Preferred Stock issuable upon the exercise hereof immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment.
(e) Antidilution Rights. Any shares of Preferred Stock purchased upon
-------------------
exercise of the Warrantholder's rights hereunder shall be entitled to additional
antidilution rights as set forth in the Company's Certificate of Incorporation,
as amended. A true and complete copy of the Company's Certificate of
Incorporation, as amended through the Effective Date, is attached hereto as
Exhibit III (the "Charter"). The Company shall promptly provide the
Warrantholder with any restatement, amendment, modification or waiver of the
Charter.
4
<PAGE>
(f) Notice of Adjustments. If: (i) the Company shall declare any dividend
---------------------
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription prorata to the holders
of any class of its Preferred or other convertible stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event; or
(iv) there shall be any voluntary or involuntary dissolution, liquidation or
winding up of the Company, then, in connection with each such event, the Company
shall send to the Warrantholder: (A) at least twenty (20) days' prior written
notice of the date on which the books of the Company shall close or a record
shall be taken for such dividend, distribution, subscription rights (specifying
the date on which the holders of Preferred Stock shall be entitled thereto) or
for determining rights to vote in respect of such Merger Event, dissolution,
liquidation or winding up; and (B) in the case of any such Merger Event,
dissolution, liquidation or winding up, at least twenty (20) days' prior written
notice of the date when the same shall take place (and specifying the date on
which the holders of Preferred Stock shall be entitled to exchange their
Preferred Stock for securities or other property deliverable upon such Merger
Event, dissolution, liquidation or winding up). In the case of a public
offering, the Company shall give Warrantholder at least twenty (20) days written
notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the adjusted Exercise
Price, and (v) the number of shares subject to purchase hereunder after giving
effect to such adjustment, and shall be given in accordance with Section 12 (e)
hereof.
(g) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date such notice is given in accordance with Section 12 (e) hereof.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
------------------------------
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance of Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any material provision of, or constitute a material default under,
any material indenture, mortgage, contract or other instrument to which it is a
party or by which it is bound, and the Leases and this Warrant Agreement
constitute legal, valid and binding agreements of the Company, enforceable in
accordance
5
<PAGE>
with their respective terms; except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be limited by applicable
law.
(c) Consents and Approvals. No consent or approval of, giving of notice
----------------------
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
-----------------
Preferred Stock or any other Securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) The authorized capital of the Company consists of (A) 40,000,000
shares of Common Stock, of which 6,147,308 shares are issued and
outstanding, and (B) 38,667,000 shares of Preferred Stock of which (1)
5,000,000 shares have been designated as shares of Series A Convertible
Preferred Stock, all of which are issued and outstanding, and (2)
33,667,000 shares have been designated as shares of Preferred Stock, of
which 14,733,370 shares are issued and outstanding as Series B Convertible
Preferred Stock, and 10,000,000 shares as Series C Convertible Preferred
Stock.
(ii) The Company has reserved 3,000,000 shares of Common Stock for
issuance under its 1993 Stock Option Plan, under which 354,525 options are
outstanding at an average price of $0.01 per share. There are no other
options, warrants, conversion privileges or other rights presently
outstanding to purchase or otherwise acquire any authorized but unissued
shares of the Company's capital stock or other securities of the Company
with the exception of the 240,500 warrants issued to Comdisco, Inc. per the
Warrant Agreement dated as of August 30, 1993.
(e) Insurance. The Company has in full force and effect insurance
---------
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts. as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in this
----------------------------------------
Warrant Agreement and that certain Shareholders' Rights Agreement, dated as of
August 30, 1993, among the Company and the stockholders named therin, the
Company is not, pursuant to the terms of any other agreement currently in
existence, under any obligation to register under the 1933 Act any of its
presently outstanding securities or any of its securities which may hereafter be
issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
------------------
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant Agreement will constitute a transaction exempt from (i)
the registration requirements of Section 5 of the 1933 Act, in reliance upon
Section 4(2) thereof, and (ii) the qualification requirements of any applicable
state securities laws.
(h) Compliance with Rule 144. At the written request of the
------------------------
Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise
of the Warrant Agreement in compliance with Rule 144 promulgated by the
6
<PAGE>
Securities and Exchange Commission, the Company shall furnish to the
Warrantholder, within ten days after receipt of such request, a written
statement confirming the Company's compliance with the filing requirements of
the Securities and Exchange Commission as set forth in such Rule, as such Rule
may be amended from time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
--------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
------------------
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and Warrantholder has no present intention of
selling or engaging in any public distribution of the same except pursuant to a
registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
-------------
Stock issuable upon exercise of this Warrant Agreement is not registered under
the 1933 Act or qualified under applicable state securities laws on the ground
that the issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel shall be outside counsel to the Warrantholder)
satisfactory to the Company and its counsel to the effect that (A) appropriate
action necessary for compliance with the 1933 Act has been taken, or (B) an
exemption from the registration requirements of the 1933 Act is available.
Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant Agreement or for such shares of Preferred Stock not bearing any
restrictive legend.
(d) Financial Risk; Accredited Investor Status. The Warrantholder has
------------------------------------------
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of its investment, and has the ability to
bear the economic risks of its investment. The Warrantholder is an accredited
<PAGE>
investor as such term is defined in Rule 501(a) of the 1933 Act.
(e) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
11. TRANSFERS.
---------
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interest in all of the
Warrant Agreements exceed three (3) transfers. The transfers shall be recorded
on the books of the Company upon receipt by the Company of a notice of transfer
in the form attached hereto as Exhibit II (the "Transfer Notice"), at its
principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
12. MISCELLANEOUS.
-------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon the parties hereto and their respective successors and assigns.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
Delaware.
(d) Counterparts. This Warrant Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given
-------
in writing and shall be deemed effectively given upon personal delivery
facsimile transmission (provided that the original is sent by personal
delivery, overnight mail, or mail as hereinafter set forth), delivery by
overnight mail, or seven (7) days after deposit in the United States mail, by
registered or certified mail, addressed (i) to the Warrantholder at 6111 North
River Road, Rosemont, Illinois 60018, attention: James Labe, Venture Leasing
Director, cc: Legal Department, (and/or, if by facsimile, (708) 518-5465) and
(ii) to the Company at 24 Emily Street, Cambridge, MA 02139, attn: Thomas Shea,
Director of Finance (and/or if by facsimile, (617) 576-0232), or at such other
address as any such party may subsequently designate by written notice to the
other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as
8
<PAGE>
a result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant Agreement, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate in order to
protect the rights of the Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions
--------
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
------------
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended
----------
by a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Leases referenced in the preamble of this Warrant Agreement
exceeds $1,000,000, the Company will also provide Warrantholder with an opinion
from the Company's counsel with respect to those same representations,
warranties and covenants. The Company shall also supply such other documents as
the Warrantholder may from time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: CUBIST PHARMACEUTICALS, INC.
By: /s/ Scott M. Rocklage
-----------------------------------
Title: PRESIDENT & CEO
--------------------------------
Warrantholder: COMDISCO, INC.
By: /s/ [signature illegible]
-----------------------------------
Title: [illegible]
--------------------------------
DRS;2/13/94
9
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To: _________________________________
(1) The undersigned Warrantholder hereby elects to purchase _______ shares of
the Preferred Stock of Cubist Pharmaceuticals, Inc., pursuant to the terms
of the Warrant Agreement dated the 28th day of February, 1995 (the "Warrant
Agreement dated the 28th day of February, 1995 (the "Warrant Agreement")
between Cubist Pharmaceuticals, Inc. and the Warrantholder, and tenders
herewith payment of the purchase price for such shares in full, together
with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Preferred Stock of Cubist
Pharmaceuticals, Inc., the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the Warrant
Agreement.
(3) Please issue a certificate or certificates representing said shares of
Preferred Stock in the name of the undersigned or in such other name as is
specified below.
______________________________________
(Name)
______________________________________
(Address)
Warrantholder: COMDISCO, INC.
By: __________________________________
Title: _______________________________
Date: ________________________________
10
<PAGE>
ACKNOWLEDGEMENT OF EXERCISE
The undersigned ___________________________________________, hereby
acknowledge receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase
______ shares of the Preferred Stock of Cubist Pharmaceuticals, Inc., pursuant
to the terms of the Warrant Agreement, and further acknowledges that _____
shares remain subject to purchase under the terms of the Warrant Agreement.
Company:
By: ________________________
Title: _____________________
Date: ______________________
11
<PAGE>
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute
this form and supply required information. Do not use this form
to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
_____________________________________________________________________________
(Please Print)
whose address is_____________________________________________________________
____________________________________________________________________________
Dated _______________________________________________________
Holder's Signature __________________________________________
Holder's Address ____________________________________________
_____________________________________________________________
Signature Guaranteed: ______________________________________________________
NOTE: The signature to this Transfer Notice must correspond
with the name as it appears on the face of the Warrant
Agreement, without alteration or enlargement or any
change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the
foregoing Warrant Agreement.
12
<PAGE>
NEITHER THIS OPTION NOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE OF THIS
OPTION HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"). THIS
OPTION HAS BEEN ACQUIRED FOR INVESTMENT AND NEITHER THIS OPTION NOR THE SHARES
OF STOCK ISSUABLE UPON ITS EXERCISE CAN BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL THE REGISTRATION PROVISIONS OF THE ACT HAVE BEEN
COMPLIED WITH OR UNLESS AND UNTIL THE COMPANY HAS RECEIVED AN ACCEPTABLE OPINION
OF COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. ANY OF SUCH SHARES ISSUED
UPON EXERCISE OF THIS OPTION WILL BE SUBJECT TO THE TRANSFER RESTRICTIONS AND
OTHER PROVISIONS CONTAINED IN THE FORM OF STOCK RESTRICTION AGREEMENT ATTACHED
HERETO AS EXHIBIT A.
------- -
CUBIST PHARMACEUTICALS, INC.
Option to Purchase 120,000 Shares of
Series C Convertible Preferred Stock
1. Cubist Pharmaceuticals, Inc., a Delaware corporation (the "Company"),
hereby grants to Julius Rebek, Jr., an individual with a business address at
Massachusetts Institute of Technology, Department of Chemistry, 77 Massachusetts
Avenue, Room 18-207, Cambridge, Massachusetts 02139 (the "Optionee"), an option
(the "Option") to purchase from the Company, subject to and upon the terms,
provisions and conditions set forth herein, One Hundred Twenty Thousand
(120,000) shares (the "Optioned Shares") of the Series C Convertible Preferred
Stock, $.001 par value per share (the "Stock"), of the Company, at a purchase
price per share equal to $0.60 (the "Purchase Price Per Share"), for an
aggregate purchase price for all Optioned Shares equal to Seventy Two Thousand
Dollars ($72,000.00).
2. The Optionee may from time to time, on one or more occasions, exercise
this Option, in whole or in part, any time before it expires by giving written
notice to the Company specifying the number of Optioned Shares with respect to
which the Option is then being exercised. The notice shall be accompanied by
payment in the form of cash, or certified or bank check payable to the order of
the Company, in an amount equal to the aggregate purchase price payable for the
number of Optioned Shares specified in the Optionee's written notice. In
addition, the Optionee shall execute and deliver to the Company, together with
the Optionee's written notice of exercise, his executed counterpart of the form
of Stock Restriction Agreement attached hereto as Exhibit A (the "Stock
------- -
Restriction Agreement"). Receipt by the Company of such notice, payment and
executed counterpart shall constitute the exercise of this Option. Within 30
days thereafter, the Company shall deliver or cause to be delivered to the
Optionee or his agent a
<PAGE>
-2-
certificate or certificates for the number of Optioned Shares then being
purchased.
3. This Option shall expire on the earlier of (i) May 15, 2005 or (ii)
the effective date of the Company's initial public offering.
4. The number and kind of Optioned Shares to be delivered upon exercise
of this Option, and the Purchase Price Per Share, will be subject to adjustment
from time to time as follows:
(a) If the Company at any time subdivides the outstanding shares of
Stock, or issues a stock dividend on its outstanding shares of Stock, the
Purchase Price Per Share in effect immediately prior to such subdivision or
the issuance of such stock dividend shall be proportionately decreased, and
the number of Optioned Shares shall be proportionately increased, and if
the Company at any time combines the outstanding shares of Stock, the
Purchase Price Per Share in effect immediately prior to such combination
shall be proportionately increased, and the number of Optioned Shares shall
be proportionately decreased, effective at the close of business on the
date of such subdivision, stock dividend or combination, as the case may
be.
(b) In case of any capital reorganization or any reclassification of
the capital stock of the Company or in case of the consolidation or merger
of the Company with or into another corporation or the conveyance of all or
substantially all of the assets of the Company to another corporation, this
Option shall thereafter be exercisable for the number of shares of Stock or
other securities or property to which the Optionee would have been entitled
to upon such conversion, reorganization, reclassification, consolidation,
merger or conveyance if immediately prior thereto the Optionee had
exercised this Option and purchased all of the Optioned Shares for which
this Option was then exercisable.
(c) Upon any mandatory conversion of the Stock into Common Stock of
the Company, this Option shall cease to be exercisable for the Optioned
Shares and shall become exercisable for that number of shares of Common
Stock of the Company into which the number of Optioned Shares then
purchasable hereunder would have been convertible immediately prior to such
mandatory conversion. The Purchase Price Per Share for each such share of
Common Stock purchasable pursuant to this Option shall be equal to the
Adjustment Price (as defined in Section 4(e)(iii) of the Company's
Certificate of Designation, Preference and Rights of Series C Convertible
Preferred Stock, as amended from time to time) in effect immediately prior
to such mandatory conversion.
<PAGE>
-3-
(d) Each adjustment in the number and kind of Optioned Shares
purchasable hereunder from time to time shall be calculated to the nearest
whole share with fractional shares disregarded.
5. Before this Option is exercised, the Optionee, in his capacity as
such, will not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote, to receive dividends or other
distributions, and will not be entitled to receive any notice of any proceedings
of the Company.
6. This Option may not be divided and is not assignable or transferable,
except by will or by the laws of descent and distribution.
7. Until this Option expires, the Company will reserve and keep available
enough shares of Stock to satisfy the requirements of this Option. The Company
will not be obligated to sell any shares of Stock or other securities upon
exercise of this Option if, at the time, the Company believes such sale would
likely violate any applicable laws or governmental rules or regulations.
8. The Optionee hereby represents and warrants to, and agrees with, the
Company that all of the representations, warranties and acknowledgments set
forth in Section 3 of the Stock Restriction Agreement shall be true and correct
as of the date hereof to the same extent as if the Optionee were executing and
delivering the Stock Restriction Agreement on the date hereof.
9. This Option and any of its terms may be changed, waived, or terminated
only by a written instrument signed by the party against which enforcement of
that change, waiver, or termination is sought.
10. Each of the Company and the Optionee agrees upon request to execute
any further documents or instruments necessary or desirable to carry out the
purposes or intent of this Option.
11. This Option is governed by and is to be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts.
Dated: May 15, 1995
CUBIST PHARMACEUTICALS, INC.
By:/s/ Scott M. Rocklage
-----------------------------
Scott M. Rocklage, President
<PAGE>
-4-
AGREED AND ACCEPTED:
/s/Julius Rebek, Jr
- -------------------
Julius Rebek, Jr.
<PAGE>
EXHIBIT A
---------
STOCK RESTRICTION AGREEMENT
THIS STOCK RESTRICTION AGREEMENT, dated __________ (This "Agreement"), is
made by and among CUBIST PHARMACEUTICALS, INC., a Delaware corporation (the
"Corporation"), and Julius Rebek, Jr., with a business address Massachusetts
Institute of Technology, Department of Chemistry, -- Massachusetts Avenue, Room
18-207, Cambridge, Massachusetts 02139 (the "Stockholder").
Background
The Corporation is a corporation duly organized and existing under the laws
of the State of Delaware. The Stockholder is the holder of a stock option
exercisable for an aggregate of 120,000 shares of Stock (as defined below). The
Stockholder intends to exercise such stock option for the purpose of acquiring
shares of Stock. It is a condition precedent to the exercise of such stock
option that the Stockholder enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto, intending to be legally bound hereby agree
as follows:
SECTION 1. Definitions. As used herein, the following terms shall have the
following respective meanings:
"ACT" shall mean the Securities Act of 1933, as amended.
"INITIAL PUBLIC OFFERING" shall mean the Corporation's first firm
commitment underwritten public offering of Common Stock registered under the
Act.
"STOCK" shall mean the Corporation's [Series C Convertible Preferred Stock,
per value $.001 per share] [Common Stock, $.001 par value per share].
SECTION 2. Sale of Stock.
-------------
a. The Corporation agrees to sell to the Stockholder, and the
Stockholder hereby agrees to purchase from the Corporation, an aggregate of
__________ shares of Stock (the "Shares") at a purchase price of $.60 per share
for an aggregate purchase price of $________. The aggregate purchase price shall
be payable to the Corporation by delivery to the Corporation at the time of
execution of this Agreement of a check in the amount of $________.
<PAGE>
b. Upon receipt by the Corporation of the aggregate purchase price
set forth above, the Corporation shall issue, in the name of the Stockholder, a
certificate or certificates evidencing the Shares, which certificate shall bear
the legends set forth in Section 4(d) below.
SECTION 3. Acknowledgments and Covenants. The Stockholder further
-----------------------------
acknowledges and agrees that:
(1) That he is an "accredited investor" within the meaning of
Rule 501(a) of Regulation D promulgated under the Act by virtue of the fact that
(i) his individual income without regard to that of his spouse exceeded $200,000
in the last two full calendar years and he reasonably expects such individual
income to exceed $200,000 in the current year, (ii) his and his spouse's joint
income exceeded $300,000 in the last two full calendar years and he reasonably
expects such joint income to exceed $300,000 in the current year, (iii) his net
worth or joint net worth with that of his spouse exceeds $1,000,000, or (iv) he
is an officer or director of the Corporation.
(2) That he has an adequate means of providing for his current
needs and personal contingencies, he has no need now, and anticipates no need in
the foreseeable future, to sell the Shares which he hereby agrees to purchase,
and he currently has sufficient financial liquidity to afford a complete loss of
his investment in the Corporation.
(3) That he has received and carefully reviewed any and all
materials relating to the Corporation that he has requested.
(4) That he has had an opportunity to ask questions of and
receive answers from the authorized representatives of the Corporation, and to
review any relevant documents and records concerning the business of the
Corporation and the terms and conditions of this investment, and that any such
questions have been answered to the full satisfaction of the undersigned.
(5) That he has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of an
investment in the Corporation, or he and his financial and investment advisors
together have such knowledge and experience in financial and business matters
that they are capable of evaluating the merits and risks of an investment in the
Corporation.
(6) That the Shares purchased by him hereunder are being
acquired for his own account for investment and not with a view toward
subdivision, resale, or redistribution thereof in a manner prohibited under the
Act, and he does not presently have any reason to anticipate any change in his
<PAGE>
circumstances or other particular occasion or event which would cause him to
sell the Shares. He has no contract, undertaking, agreement, understanding, or
arrangement with any person to sell, transfer, or pledge to any person any part
or all of the Shares purchased by him hereunder, or any interest therein, and
has no present plans to enter into the same.
(7) That (i) it has been called to his attention in connection
with his investment in the Corporation that such investment is speculative in
nature and involves a high degree of risk, and (ii) he is aware that the
Corporation is in the start-up stage and thus has a limited operating history.
(8) The Shares have not been registered under the Act, or any
applicable state securities laws by reason of exemptions from the registration
requirements of the Act and such laws, and the Shares (or any part thereof) may
not to be sold, transferred or otherwise disposed of in the absence of an
effective registration statement for the Shares under the Act or unless an
exemption from such registration is available.
(9) He will not attempt to sell, transfer or otherwise dispose
of all or any portion of the Shares in the absence of an effective registration
statement unless (i) an exemption from such registration is available under the
Act and (ii) if requested by the Corporation, he shall have furnished to the
Corporation with an opinion of reputable securities counsel satisfactory in form
and substance of the Corporation and its counsel that such proposed sale,
transfer or other disposition would not be in violation of the Act and
applicable state securities laws.
(10) He is a resident of the Commonwealth of Massachusetts.
(11) He acknowledges that the Corporation and its officers,
directors, employees, agents, and representatives are relying on the truth and
accuracy of the foregoing representations and warranties in the offering of the
Shares for sale to him without having first registered such shares under the
Act.
(12) Appropriate restrictive endorsement(s) will be placed upon
the certificates evidencing the Shares to reflect the foregoing and that the
Corporation will give appropriate stop transfer instructions to the person(s) in
charge of the transfer of its securities.
SECTION 4. Restrictions on Transfers; Legends on Stock Certificates.
------------------------- ------------------------------
a. Neither the Shares nor any shares of Common Stock issued upon
conversion of any of the Shares (collectively, the "Conversion Shares") shall be
sold, transferred assigned, pledged, encumbered or otherwise disposed of in any
way
<PAGE>
(including, without limitation, by operation of law) unless and until (i) such
shares or such Conversion Shares, as the case may be, proposed to be sold,
transferred, assigned, pledged, encumbered or otherwise disposed of are
registered pursuant to an effective registration filed with the Securities and
Exchange Commission pursuant to the Actor (ii) if required by the Corporation,
the Corporation shall have received an opinion, in form and substance
satisfactory to the Corporation, from the Corporation's legal counsel to the
effect that the sale, transfer, assignment, pledge, encumbrance or other
disposition of such Shares or such Conversion Shares, as the case may be, does
not require registration under the Act or any applicable state securities laws.
b. All transferees of Shares or Conversion Shares shall be required
as a condition of such transfer to agree in writing, in form satisfactory to the
Corporation, that they shall receive and hold such Shares or Conversion Shares
subject to the provisions of this Agreement.
c. The Stockholder understands and agrees that neither the
Corporation nor any agent of the Corporation shall be under any obligation to
recognize any transfer of any of the Shares or the Conversion Shares if, in the
opinion of counsel for the Corporation, such transfer would result in violation
by the Corporation of any federal or state law with respect to the offering,
issuance or sale of securities, or if such transfer would violate any provisions
of this Agreement.
d. Certificates representing the Shares or the Conversion Shares
issued to the Stockholder will bear legends in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE PLEDGED, HYPOTHECATED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS UNLESS (i) AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE UNDER THE ACT AND (ii) IF REQUESTED BY THE
CORPORATION, THE HOLDER SHALL HAVE FURNISHED TO THE CORPORATION A
SATISFACTORY OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
PLEDGE, HYPOTHECATION, SALE OR TRANSFER IS EXEMPT THEREFROM UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN
A STOCK RESTRICTION AGREEMENT, DATED __________, AMONG CUBIST
PHARMACEUTICALS, INC. AND THE REGISTERED HOLDER OF THESE SECURITIES, AND NO
<PAGE>
TRANSFER OF SUCH SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT
NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE
TO THE SECRETARY OF CUBIST PHARMACEUTICALS, INC.
SECTION 5. Withholding.
-----------
a. Upon the request of the Corporation, the Stockholder shall
promptly pay to the Corporation, or make arrangements satisfactory to the
Corporation regarding payment of any federal, state or local taxes of any kind
required by law to be withheld with respect to the Shares issued pursuant to
this Agreement (or any distributions of other securities or property, including
cash, thereon or issued in replacement thereof).
b. The Corporation shall have the right to the extent permitted by
law, to deduct from any payments of any kind otherwise due to Stockholder any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to the Shares issued pursuant to this Agreement (or any distributions of
other securities or property, including cash, thereon or issued in replacement
thereof).
SECTION 6. Severability; Governing Law. If any provisions of this
---------------------------
Agreement shall be determined to be illegal and unenforceable by any court of
law, the remaining provisions shall be severable and enforceable in accordance
with their terms. This Agreement shall be governed by, and construed in
accordance with, the internal substantive laws (and not the choice of law rules)
of the Commonwealth of Massachusetts.
SECTION 7. Successors and Assigns. This Agreement shall bind and inure to
----------------------
the benefit of the parties and their respective successors and assigns, legal
representatives and heirs.
SECTION 8. Notices. All notices, requests, consents and other
-------
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or by telecopy, or if sent
by a nationally-recognized overnight courier or first class registered or
certified mail, return receipt requested, postage prepaid, addressed to such
party at the address set forth below or at such other address as may hereafter
be designated in writing by such party to the other parties:
<PAGE>
(i) if to the Corporation, to:
Cubist Pharmaceuticals, Inc.
24 Emily Street
Cambridge, Massachusetts 02138
Attention: Scott M. Rocklage,
President
Telecopier:(617) 576-1999
(ii) If to the Stockholder, to his, her or its address set
forth above.
All such notices, requests, consents and other communications shall be deemed to
have been delivered (a) in the case of personal delivery or delivery by
telecopy, on the date of such delivery, (b) in the case of dispatch by
nationally-recognized overnight courier, on the next business day following such
dispatch and (c) in the case of mailing, on the third business day after the
posting thereof.
SECTION 9. Modification. Neither this Agreement nor any provisions hereof
------------
can be modified, waived, changed, discharged, or terminated except by an
instrument in writing signed by the party against whom the enforcement of any
modification, waiver, change, discharge or termination is sought.
SECTION 10. Headings. The headings of the sections of this Agreement have
--------
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
SECTION 11. Nouns and Pronouns. Whenever the context may require, any
------------------
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice-versa.
SECTION 12. Entire Agreement. This Agreement and the other writings
----------------
referred to herein or delivered pursuant hereto contain the entire agreement
among the parties hereto with respect to the subject matter hereof and supersede
all prior and contemporaneous written or oral agreements and understandings with
respect thereto.
SECTION 13. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
CUBIST PHARMACEUTICALS, INC.
By:_______________________________
Scott M. Rocklage, President
__________________________________
Julius Rebek, Jr.
<PAGE>
BD&G DRAFT
6/5/96
CUBIST PHARMACEUTICALS, INC.
AMENDED AND RESTATED SHAREHOLDERS' RIGHTS AGREEMENT
This AMENDED AND RESTATED SHAREHOLDERS' RIGHTS AGREEMENT (this "Agreement")
is made as of June 25, 1996 by and among (i) Cubist Pharmaceuticals, Inc., a
Delaware corporation (the "Company"), (ii) each of Paul R. Schimmel and Julius
Rebek, Jr. in his capacity as a founder of the Company (a "Founder" and,
collectively, the "Founders"), (iii) Mitra Tayadoni-Rebek and The Julius Rebek,
Jr. Family Trust, in their respective capacities as holders of common stock,
$0.001 par value per share, of the Company (in such capacities, collectively,
the "Initial Founder Transferees" and each individually an "Initial Founder
Transferee"), (iv) each person listed in Exhibit A hereto (collectively, the
------- -
"Initial Investor Parties" and each individually an "Initial Investor Party"),
(v) Bristol-Myers Squibb Company, a Delaware corporation (the "Series D
Investor"), (vi) each person or entity that subsequently becomes a party to this
Agreement upon the due execution and delivery by such person or entity and the
Company of an Instrument of Adherence in the form of Exhibit B attached hereto
------- -
(collectively, the "Additional Investor Parties" and each individually an
"Additional Investor Party") and (vii) each person or entity that subsequently
becomes a party to this Agreement upon the due execution and delivery by such
person or entity and the Company of an Instrument of Adherence in the form of
Exhibit C attached hereto (collectively, the "Additional Founder Transferees"
- ------- -
and each individually an "Additional Founder Transferee").
W I T N E S S E T H:
-------------------
WHEREAS, the Company has agreed to issue and sell to the Series D Investor,
and the Series D Investor has agreed to purchase from the Company, 2,816,902
shares (the "Series D Shares") of Series D Convertible Preferred Stock, $0.001
par value per share ("Series D Preferred Stock"), all upon the terms and
conditions set forth in that certain Stock Purchase Agreement, dated of even
date herewith, between the Company and the Series D Investor (the "Series D
Agreement"); and
WHEREAS, the terms of the Series D Agreement provide that it shall be a
condition precedent to the Company's obligation to sell the Series D Shares to
the Series D Investor, and the Series D Investor's obligation to purchase the
Series D Shares from the Company, for the Company, the Founders, the Initial
Founder Transferees, the Initial
<PAGE>
-2-
Investor Parties and the Series D Investor to execute and deliver this
Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto hereby agree as follows:
1. DEFINITIONS. The following terms shall have the meanings provided
-----------
therefor below or elsewhere in this Agreement as described below:
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
--------
"Additional Founder Transferees" and "Additional Founder Transferee" shall
------------------------------ -----------------------------
have the meanings ascribed thereto in the preamble of this Agreement.
"Additional Investor Parties" and "Additional Investor Party" shall have
--------------------------- -------------------------
the meanings ascribed thereto in the preamble of this Agreement.
"Board" shall mean the board of directors of the Company.
-----
"Budget" shall have the meaning ascribed thereto in Section 5.1(d) hereof.
------
"Common Stock" shall mean the Company's common stock, $0.001 par value per
------------
share.
"Company" shall have the meaning ascribed thereto in the preamble to this
-------
Agreement.
"Conversion Shares" shall mean shares of Common Stock issued upon
---------- ------
conversion of any of the Preferred Shares.
"Designating Party" shall have the meaning ascribed thereto in Section 2.2
-----------------
hereof.
"Excluded Securities" shall have the meaning ascribed thereto in Section
-------------------
3.1(f).
"Founder" and "Founders" shall have the meanings ascribed thereto in the
------- --------
preamble to this Agreement.
<PAGE>
-3-
"Founder Transferees" shall mean, collectively, the Initial Founder
-------------------
Transferees and the Additional Founder Transferees.
"Initial Founder Transferees" and "Initial Founder Transferee" shall have
--------------------------- --------------------------
the meanings ascribed in the preamble of this Agreement.
"Initial Investor Parties" and "Initial Investor Party" shall have the
------------------------ ----------------------
meanings ascribed in the preamble of this Agreement.
"Institutional Investors" shall mean, collectively, DSV Partners IV, Alta V
------------- ---------
Limited Partnership, Customs House Partners, WPG Enterprise Fund, L.P., Weiss,
Peck & Greer Venture Associates II, L.P., Weiss, Peck & Greer Venture Associates
II (Overseas), L.P., Interwest Partners V, Interwest Investors V, H&Q Healthcare
Investors, H&Q Life Sciences Investors, Rovent II Limited Partnership, Advent
Performance Materials Limited Partnership, Advent International Investors II
Limited Partnership, Life Science Entrepreneur Fund, Bristol-Myers Squibb
Company, and any of their respective assignees or transferees pursuant to, and
in accordance with, Sections 5.4 and 6 hereof.
"Investors" shall mean, collectively, the Initial Investor Parties, the
---------
Series D Investor and the Additional Investor Parties in their respective
capacities as holders of Preferred Shares and/or Conversion Shares.
"Majority Holders" shall mean, at the relevant time of reference thereto,
----------------
those Investors holding and/or having the right to acquire, as the case may be,
more than fifty percent (50%) of the shares of Common Stock issued and/or
issuable upon conversion of the Preferred Shares.
"Nominee" and "Nominees" shall have the meanings ascribed thereto in
------- --------
Section 2.2 hereof.
"Non-Participating Holder" shall have the meaning ascribed thereto in
------------------------
Section 3.1(e) hereof.
"Offer" shall have the meaning ascribed thereto in Section 3.1(a) hereof.
-----
"Offered Securities" shall have the meaning ascribed thereto in Section
------------------
3.1(a) hereof.
"Offeree" and "Offerees" shall have the meanings ascribed thereto in
------- --------
Section 3.1(b) hereof
"Percentage Entitlement" shall have the meaning ascribed thereto in Section
----------------------
3.1(b) hereof.
<PAGE>
-4-
"Preferred Shares" shall mean the Series A Shares, the Series B Shares, the
----------------
Series C Shares and the Series D Shares, collectively.
"Prior Shareholders' Rights Agreement" shall mean that certain
------------------------------------
Shareholders' Rights Agreement, dated February 28, 1995, by and among the
Company, the Founders and the persons listed on Exhibit A thereto, as amended by
---------
that certain First Amendment to Shareholders' Rights Agreement, dated May 17,
1995, by and among the Company, the Founders and the persons listed on Schedules
---------
1, 2 and 3 thereto.
- - - -
"Qualifying Holder" shall have the meaning ascribed thereto in Section 4.11
-----------------
hereof.
"Registrable Shares" shall mean any or all shares of Common Stock owned by,
------------------
or issuable to, any of the Investors (regardless of whether or not such shares
of Common Stock were or are acquired upon conversion of any of the Preferred
Shares); provided, however, that such shares of Common Stock shall cease to be
-------- --------
Registrable Shares if all of the shares of Common Stock held by an Investor may
be sold, without limitation as to volume, pursuant to Rule 144.
"Required Holders" shall mean, at the relevant time of reference thereto,
----------------
those Investors holding and/or having the right to acquire, as the case may be,
at least sixty percent (60%) of the shares of Common Stock issued and/or
issuable upon conversion of the Preferred Shares.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act and any
--------
successor or substitute rule, law or provision.
"Schedule of Exceptions" shall mean the Schedule of Exceptions to the
----------------------
Series D Agreement.
"SEC" shall mean the Securities and Exchange Commission.
---
"Second Series C Agreement" shall mean that certain Stock Purchase
-------------------------
Agreement, dated May 17, 1995, by and among the Company and the persons listed
on Exhibit A thereto, pursuant to which the Company issued and sold 5,589,169
---------
shares of Series C Preferred Stock.
"Securities" shall have the meaning ascribed thereto in Section 3.1(a)
----------
hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Series A Agreement" shall mean that certain Stock Purchase Agreement,
------------------
dated as of September 16, 1992, between the Company, the
<PAGE>
-5-
Founders and the Series A Holder, pursuant to which the Company issued and sold
the Series A Shares to the Series A Holder.
"Series A Holder" shall mean DSV Partners IV, in its capacity as a holder
---------------
of shares of Series A Preferred Stock.
"Series A Preferred Stock" means the Company's Series A Convertible
------------------------
Preferred Stock, $0.001 par value per share.
"Series A Required Holders" shall mean, at the relevant time of reference
-------------------------
thereto, those Investors holding and/or having the right to acquire, as the case
may be, at least sixty percent (60%) of the shares of Common Stock issued and/or
issuable upon conversion of the Series A Shares.
"Series A Shares" shall mean the 5,000,000 shares of Series A Preferred
---------------
Stock issued by the Company pursuant to the Series A Agreement.
"Series B Agreement" shall mean that certain Stock Purchase Agreement,
------------------
dated as of August 30, 1993, among the Company and the persons listed in Exhibit
-------
A thereto, pursuant to which the Company issued and sold 14,270,000 shares of
- -
Series B Preferred Stock to such persons.
"Series B Holders" shall mean the holders of shares of Series B Preferred
----------------
Stock.
"Series B Preferred Stock" shall mean the Company's Series B Convertible
------------------------
Preferred Stock, $0.001 par value per share.
"Series B Required Holders" shall mean, at the relevant time of reference
-------------------------
thereto, those Investors holding and/or having the right to acquire, as the case
may be, at least sixty percent (60%) of the shares of Common Stock issued and/or
issuable upon conversion of the Series B Shares.
"Series B Shares" shall mean, collectively, (i) the 14,270,000 shares of
---------------
Series B Preferred Stock issued by the Company pursuant to the Series B
Agreement to the persons listed on Exhibit A thereto, (ii) the 200,000 shares of
------- -
Series B Preferred Stock issued by the Company to Comdisco, Inc. pursuant to
that certain Stock Purchase Agreement, dated December 17, 1993, between the
Company and Comdisco, Inc., and (iii) the 263,370 shares of Series B Preferred
Stock issued by the Company to Scott M.
<PAGE>
-6-
Rocklage pursuant to that certain Subscription Agreement, dated as of July 21,
1994, between the Company and Mr. Rocklage.
"Series C Agreement" shall mean that certain Stock Purchase Agreement dated
------------------
February 28, 1995, by and among the Company and the persons listed on Exhibit A
---------
thereto, pursuant to which the Company issued and sold 7,744,000 shares of
Series C Preferred Stock.
"Series C Preferred Stock" shall mean the Company's Series C Convertible
------------------------
Preferred Stock, $0.001 par value per share.
"Series C Required Holders" shall mean, at the relevant time of reference
-------------------------
thereto, those Investors holding and/or having the right to acquire, as the case
may be, at least sixty percent (60%) of the shares of Common Stock issued and/or
issuable upon conversion of the Series C Shares.
"Series C Shares" shall mean, collectively, (i) the 7,744,000 share of
---------------
Series C Preferred Stock issued by the Company Series C Preferred Stock issued
by the Company pursuant to the Series C Agreement to the persons listed on
Exhibit A thereto, (ii) the 1,684,644 shares of Series C Preferred Stock issued
- ---------
by the Company upon conversion of those certain Convertible Demand Promissory
Notes, each dated December 29, 1994, made by the Company in favor of certain
stockholders of the Company, and (iii) the 5,589,169 shares of Series C
Preferred Stock issued by the Company pursuant to the Second Series C Agreement.
"Series D Agreement" shall have the meaning ascribed thereto in the
------------------
recitals to this Agreement.
"Series D Investor" shall have the meaning ascribed thereto in the preamble
-----------------
to this Agreement.
"Series D Preferred Stock" shall have the meaning ascribed thereto in the
------------------------
recitals to this Agreement.
"Series D Required Holders" shall mean, at the relevant time of reference
-------------------------
thereto, those Investors holding and/or having the right to acquire, as the case
may be, at least sixty percent (60%) of the shares of Common Stock issued and/or
issuable upon conversion of the Series D Shares.
"Series D Shares" shall have the meaning ascribed thereto in the recitals
---------------
to this Agreement.
<PAGE>
-7-
"Shares" shall mean shares of Series A Preferred Stock, shares of Series B
------
Preferred Stock, shares of Series C Preferred Stock, shares of Series D
Preferred Stock and/or shares of Common Stock currently owned (either
beneficially or of record) or subsequently acquired by any of the Investors,
Founders or Founder Transferees.
"Shareholders" shall mean the Investors, the Founders and the Founder
------------
Transferees, collectively.
2. VOTING.
------
2.1. Number and Election of Directors. In connection with the submission
--------------------------------
to the stockholders of the Company of any proposal to set the number of
directors that shall serve on the Board or to elect directors, whether such
proposal is submitted at an annual or special meeting of stockholders of the
Company or by written consent of stockholders in lieu of a meeting, each
Shareholder shall vote all of its, her or his Shares (i) to set the number of
directors on the Board at eight (8) and (ii) to elect as a director of the
Company any Nominee or Nominees designated pursuant to, and in accordance with,
the provisions of Section 2.2 below.
2.2 Designation of Nominees. The following persons (each a "Designating
-----------------------
Party") shall have the right to designate the following numbers of nominees for
election as directors of the Company (collectively, the "Nominees" and each
individually a "Nominee"): each Founder - one (1) Nominee (which Nominee shall
be such Founder); the Series A Holder - one (1) Nominee; the Series B Holders -
two (2) Nominees (which Nominees shall be Terry McGuire and Ellen Feeney so long
as they are the authorized representatives of Alta V Limited Partnership and
Weiss Peck & Greer Venture Partners, L.P., respectively); and the Board - three
(3) Nominees (one of whom shall be the chief executive officer of the Company
and the other two shall be prominent business persons who are not otherwise
affiliated with the Company or the Investors). In the absence of any
designation by a Designating Party, the person or persons previously designated
by such Designating Party and then serving as a director or directors of the
Company shall be deemed to be such Designating Party's Nominee or Nominees, as
the case may be.
2.3 Removal; Vacancies.
------- ---------
(a) Each Designating Party (other than a Founder) shall have the right
to cause its Nominee or Nominees to be removed as a director or directors of the
Company for any reason whatsoever. At the request of any Designating Party
(other than a Founder), each Shareholder shall vote all of its Shares, whether
at a meeting of
<PAGE>
-8-
stockholders or by written consent of the stockholders in lieu of a meeting, to
effect the removal of such Designating Party's Nominee.
(b) In the event that any person (other than a Founder) shall cease to
serve as a director of the Company for any reason whatsoever, such person's
Designating Party shall be entitled to designate a successor. For purposes of
this Section 2, any such designation of a successor by or on behalf of the
Series B Holders shall be made by those Series B Holders who own more than 50%
of the Series B Shares. Each Shareholder hereby agrees to use its best efforts,
including, without limitation the voting all of such Shareholder's Shares
(whether at a meeting of stockholders or by written consent of stockholders in
lieu of a meeting), to cause such successor Nominee to be elected to the Board.
2.4. Best Efforts. Each Shareholder hereby agrees to use its best efforts
------------
to cause compliance with all of the provisions of this Section 2, including,
without limitation, by the Company, its officers, employees and agents.
2.5. Termination. The provisions of this Section 2 shall terminate on the
-----------
earlier of (i) August 30, 2003 or (ii) the consummation of the first firm
commitment underwritten public offering of shares of the Company pursuant to an
effective registration statement on Form S-1 (or its then equivalent) under the
Securities Act.
3. RIGHT OF FIRST REFUSAL.
----------------------
3.1. Right of First Refusal.
----------------------
(a) The Company shall not issue any shares of any class of its capital
stock, any other equity security or any option, warrant, convertible security or
other right to acquire any such capital stock or other equity security
(collectively, the "Securities") to any person or entity unless it shall have
given written notice to each Offeree, other than a Non-Participating Holder,
stating its desire to issue such Securities (the "Offered Securities") and the
terms upon which it intends to issue such Securities (the "Offer"). Thereafter,
each Offeree (other than a Non-Participating Holder) shall have a first option
to purchase its Percentage Entitlement of the Offered Securities at the price
and on the terms and conditions specified in the Offer.
(b) For purposes of this Section 3, the term "Offerees" shall mean,
collectively, the Founders, the Founder Transferees and the Investors, and the
term "Offeree" shall mean any one of the Offerees. Each Offeree's "Percentage
Entitlement" to purchase the Offered
<PAGE>
-9-
Securities shall be equal to such percentage of all shares of Common Stock at
the time outstanding and/or issuable upon conversion of all outstanding
Preferred Shares as is represented by the number of shares of Common Stock then
held by such Offeree and/or then issuable upon conversion of the Preferred
Shares held by such Offeree (if any). The right to purchase Offered Securities
pursuant to this Section 3.1 shall be exercised by such Offeree, by giving,
within 21 business days after delivery of such notice by the Company, a counter-
notice, which counter-notice shall state that such Offeree desires to purchase
its Percentage Entitlement of the Offered Securities.
(c) If an Offeree shall elect pursuant to Section 3.1(b) to purchase
its Percentage Entitlement of the Offered Securities, such Offeree shall be
obligated to purchase its Percentage Entitlement of the Offered Securities, and
the Company shall be obligated to sell to such Offeree all of its Percentage
Entitlement of such Offered Securities, at the price and on the terms and
conditions contained in such Offer, except that the closing date of such
purchase and sale shall take place within 30 business days after the giving of
the counter-notice pursuant to Section 3.1(b); provided, however, that in the
-------- -------
event that all or any part of the purchase price stated in the Offer is not
payable in cash, such Offeree may make payment in cash in an amount at least
equal to the fair market value of the non-cash consideration of such Offer.
(d) If any Offeree fails to elect to purchase, or to consummate the
purchase of, all of its Percentage Entitlement of the Offered Securities
pursuant hereto, the Company may thereafter issue to any other person or persons
that amount of Offered Securities not purchased pursuant to the terms hereof and
specified in such Offer at the price and on the terms and conditions contained
in such Offer. In the event that the Company does not so consummate the issue
of the Offered Securities within 60 business days (x) after the expiration of
the final applicable counter-notice period, in the event of a failure to give
any applicable timely counter-notice, or (y) after a failure to purchase within
the applicable required period if a counter-notice is duly given, the Offered
Securities shall again become subject to this Agreement.
(e) Notwithstanding anything in this Section 3.1 to the contrary, if
an Offeree at any time fails to elect to purchase, or to consummate the purchase
of, its entire Percentage Entitlement of any Offered Securities pursuant to, and
in accordance with, the provisions of this Section 3.1, all of such Offeree's
rights under this Section 3.1 shall thereupon immediately terminate. For
purposes of this Section 3.1, any such Offeree shall be referred to as a "Non-
Participating Holder".
<PAGE>
-10-
(f) The provisions of this Section 3.1 shall not apply to (i) any
grant, or any issuance as a result of any grant or exercise of, any stock
options to employees, consultants, directors or affiliates of the Company that
has been duly authorized by vote of the Board, (ii) any issuance of shares of
capital stock of the Company to employees, consultants, directors or affiliates
of the Company that has been duly authorized by vote of the Board, (iii) any
issuance of shares of capital stock of the Company in connection with the
acquisition of a business or property by the Company, provided that such
acquisition and such issuance have been duly authorized by the Board, (iv) the
sale and issuance of the Preferred Shares to the Initial Investor Parties and
the Series D Investor, (v) the issuance of shares of Series C Preferred Stock
upon exercise of outstanding warrants previously issued to Comdisco, Inc., (vi)
the issuance of shares of Series B Preferred Stock issuable upon exercise of
outstanding warrants previously issued to Comdisco, Inc., (vii) the issuance of
shares of Series C Preferred Stock upon exercise of outstanding options
previously granted to each of Paul Schimmel and Julius Rebek, Jr., and (viii)
the issuance of shares of Common Stock upon conversion of any shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock. The securities referred to in clauses (i) through (viii) of
this Section 3.1(f) are hereinafter referred to, collectively, as the "Excluded
--------
Securities".
- ----------
3.2. Termination. The provisions of this Section 3 shall terminate
-----------
concurrently with the closing of the first firm commitment underwritten public
offering of shares of the Company pursuant to an effective registration
statement on Form S-1 (or its then equivalent) under the Securities Act. Any
shares issued and sold by the Company in any such public offering shall not be
subject to the restrictions imposed by Section 3.1 above.
3.3. Waiver. The rights of each Offeree under this Section 3 with respect
------
to any issuance of Securities may be waived in writing by the Required Holders,
and any such written waiver by the Required Holders shall be binding upon each
Offeree, regardless of whether such Offeree executed such written waiver.
4. REGISTRATION RIGHTS.
-------------------
4.1. Demand Registration.
-------------------
(a) Registration Upon Request. Upon the Company's receipt of a
-------------------------
written request from the Majority Holders requesting that the Company effect the
registration under the Securities Act, as amended (the "Securities Act"), of all
or part of the Registrable Shares and specifying
<PAGE>
-11-
the intended method of disposition thereof, the Company shall, within ten (10)
days after receipt of such notice, give written notice to all Investors and
shall promptly use its best efforts to effect the registration under the
Securities Act of the number of Registrable Shares which the Investors request
to be registered within twenty (20) days after the mailing of such notice by the
Company; provided that the Company has not given a notice of the type
--------
specified in this Section 4.1(a), Section 4.2 hereof or Section 4.3(a) hereof
or, if it has, provided that the Company is not continuing to pursue the
registration referred to in such notice; and provided, further that the
-----------------
obligations of the Company under this Section 4.1(a) shall be
subject to the limitations set forth in Sections 4.1(c), 4.1(d), 4.1(e) and
4.1(f) below. Subject to the provisions of Section 4.1(c) below, the Company may
include in any registration pursuant to this Section 4.1(a) additional shares of
Common Stock for sale for its own account or for the account of any other
person.
(b) Selection of Underwriters. If a registration pursuant to Section
-------------------------
4.1(a) hereof involves an underwritten offering, the underwriter or underwriters
thereof shall be selected, after consultation with the Company, by the Investors
who have requested that Registrable Shares be registered, provided that such
--------
underwriter or underwriters shall be acceptable to the Company. The Company
covenants that it shall not unreasonably withhold its acceptance of any such
underwriter or underwriters.
(c) Priority of Demand Registrations. If a registration pursuant to
--------------------------------
Section 4.1(a) hereof involves an underwritten offering, and the managing
underwriter shall advise the Company in writing that, in its opinion, the number
of shares of Common Stock requested to be included in such registration exceeds
the number which can be sold in such offering, the Company will include in such
registration, to the extent of the number of shares of Common Stock which the
Company is so advised can be sold in such offering, (i) first, the number of
Registrable Shares requested to be included in such registration by the
Investors, pro rata among the Investors on the basis of the number of
Registrable Shares requested to be registered in such registration and (ii)
second, the other shares of Common Stock of the Company proposed to be included
in such registration, in accordance with the priorities, if any, then existing
among the Company and the holders of such other securities.
(d) Limitation on Number of Registrations. The Company shall not be
-------------------------------------
required to effect more than one registration pursuant to the provisions of
Section 4.1(a) hereof; provided, however, that if, on account of the operation
-------- -------
of Section 4.1(c) hereof, the number of Registrable Shares
<PAGE>
-12-
included in such registration is less than ninety percent (90%) of the number of
Registrable Shares requested to be included in such registration by the
Investors, then the Company shall be required to effect an additional
registration pursuant to the provisions of Section 4.1(a) hereof.
(e) Deferral. Notwithstanding anything in this Section 4 to the
--------
contrary, if the Company shall furnish to the Investors requesting a
registration pursuant to Section 4.1(a) or to any Investors requesting a
registration pursuant to Section 4.3(a), a certificate signed by the President
or Chief Executive Officer of the Company stating that the Board has made the
good faith determination that such registration would require premature
disclosure of material, nonpublic information concerning the Company, its
business or prospects and that it is therefore essential to defer such
registration, then the Company shall have the right to defer such registration
for a period of not more than 90 days after receipt of the request from such
Investors; provided, however, that the Company may not utilize this right more
-------- -------
than once with respect to each request made pursuant to, and in accordance with,
this Agreement for a registration pursuant to Section 4.1(a) or Section 4.3(a)
hereof. In the event the Company exercises its right of deferral under this
Section 4.1(e), the holders of Registrable Securities requesting the
registration will be entitled to withdraw such request and, if such request is
withdrawn, such registration will not count as a registration under 4.1 or 4.3,
as the case may be.
(f) Limitation on Requests. Notwithstanding anything in this Section
----------------------
4.1 to the contrary, the Investors may not request a registration pursuant to
this Section 4.1 (i) during the 180 day period following the closing of the
Company's initial public offering, (ii) during the 180 day period following the
effective date of any registration statement filed in connection with a
registration pursuant to this Section 4.1 or (iii) within ninety (90) days of
the effective date of any registration statement filed by the Company with the
SEC pursuant to Section 4.3(a) hereof.
4.2. "Piggyback" Registration. If, at any time after the Company's
------------------------
initial public offering, the Company proposes to register any of its Common
Stock under the Securities Act, whether as a result of a primary or secondary
offering of Common Stock or pursuant to registration rights granted to holders
of other securities of the Company (but excluding in all cases any registration
pursuant to Sections 4.1 or 4.3 or any registrations to be effected on Forms S-4
or S-8 or other applicable successor Forms), the Company shall, each such time,
give to the Investors written notice of
<PAGE>
-13-
its intent to do so. Upon the written request of any Investor given within 30
days after the giving of any such notice by the Company, the Company shall use
its best efforts to cause to be included in such registration the Registrable
Shares of such selling Investor, to the extent requested to be registered;
provided that (i) the number of Registrable Shares proposed to be sold by
- --------
such selling Investor is equal to at least twenty-five percent (25%) of the
total number of Registrable Shares then held by such selling Investor, (ii) such
selling Investor agrees to sell those of its Registrable Shares to be included
in such registration in the same manner and on the same terms and conditions as
the other shares of Common Stock which the Company proposes to register, and
(iii) if the registration is to include shares of Common Stock to be sold for
the account of the Company, the proposed managing underwriter does not advise
the Company that in its opinion the inclusion of such selling Investor's
Registrable Shares (without any reduction in the number of shares to be sold for
the account of the Company) is likely to affect adversely the success of the
offering or the price the Company would receive for any shares of Common Stock
offered by it pursuant thereto, in which case the rights of such selling
Investor shall be as provided in Section 4.7 hereof.
4.3. Form S-3 Registration.
---------------------
(a) Registration Upon Request; Limitations. In the event the Company
--------------------------------------
shall receive from any Investor or Investors a written request or requests that
the Company effect a registration on Form S-3, or any successor or substitute
form, with respect to all or a part of the Registrable Shares owned by such
Investor or Investors, then the Company will promptly give written notice of the
proposed registration and the Investor's or Investors' request therefor to all
other Investors, and, as soon as practicable, use its best efforts to effect
such registration of all or such portion of such Investor's or Investors'
Registrable Shares as are specified in such request, together with all or such
portion of the Registrable Shares of any other Investor or Investors joining in
such request as are specified in a written request given within twenty (20) days
after receipt of such written notice from the Company; provided, however, that
-------- -------
the Company has not given a notice of the type specified in Section 4.1(a)
hereof, Section 4.2 hereof or this Section 4.3(a) or, if it has, provided that
the Company is not continuing to pursue the registration referred to in such
notice; and provided, further, that the obligations of the Company under this
-------- -------
Section 4.3(a) shall be subject to the limitations set forth in Sections 4.3(c),
4.3(d), 4.3(e) and 4.3(f) below. The Company may include in any registration
pursuant to Section 4.3(a) hereof additional shares of Common Stock for sale for
its own account or for the account of any other person. No registration under
this Section 4.3(a) shall be underwritten
<PAGE>
-14-
unless the Company shall otherwise elect in its sole and absolute discretion.
(b) Selection of Underwriters. If a registration pursuant to Section
-------------------------
4.3(a) hereof involves an underwritten offering, the underwriter or underwriters
thereof shall be selected by the Company.
(c) Limitation on Size of Registration. Unless a registration pursuant to
----------------------------------
Section 4.3(a) hereof involves an underwritten offering, in which case Section
4.7 hereof regarding underwriting requirements shall be applicable, the
aggregate number of Registrable Shares eligible for registration pursuant to a
single registration statement under Section 4.3(a) shall be equal to thirty
percent (30%) of the number of shares of the Company registered under the
Securities Act on the date notice is provided by the Investor(s) to the Company
pursuant to Section 4.3(a) hereof. In the event the number of Registrable
Shares requested for registration by the Investors pursuant to Section 4.3(a)
exceeds the number of shares eligible for registration pursuant to this Section
4.3(c), the Registrable Shares to be included in such registration shall be
apportioned pro rata among such Investor(s) in accordance with the number of
Registrable Shares requested by such Investor(s) for inclusion in such
registration.
(d) Limitation on Number of Registrations. The Company shall not be
-------------------------------------
required to effect more than three (3) registrations during any calendar year
pursuant to the provisions of Section 4.3(a) hereof.
(e) Limitation on Company's Obligation. Notwithstanding anything in this
----------------------------------
Section 4.3 to the contrary, the Company shall not be obligated to effect any
registration pursuant to this Section 4.3:
(1) if Form S-3, or any successor or substitute form, is not then
available for the registration of such Registrable Shares proposed to be sold
and distributed by such Investor or Investors;
(2) if such Investor or Investors, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Shares and such other securities (if any) at an
aggregate price to the public of less than $500,000; or
(3) if the Company shall be entitled to defer any such registration
pursuant to, and in accordance with the provisions of, Section 4.1(e).
<PAGE>
-15-
(f) Limitation on Requests. Notwithstanding anything in this Section 4.3
----------------------
to the contrary, no Investor may request a registration pursuant to this Section
4.3 (i) during the 180 day period following the effective date of any
registration statement filed in connection with a registration pursuant to
Section 4.1 hereof or (ii) within ninety (90) days of the effective date of any
other registration statement filed by the Company with the SEC pursuant to this
Section 4.3; provided, however, that (x) with respect to the second registration
-------- -------
statement requested by any or all Investors during a calendar year pursuant to
Section 4.3(a) hereof, the ninety day period referred to in the foregoing clause
(ii) of this Section 4.3(f) shall be reduced by the number of days that the
Company deferred registration, pursuant to Section 4.1(e) hereof, of the first
registration statement filed pursuant to Section 4.3(a) hereof during such
calendar year, and (y) with respect to the third registration statement
requested by any or all Investors during a calendar year pursuant to Section
4.3(a) hereof, the ninety day period referred to in the foregoing clause (ii) of
this Section 4.3(f) shall be reduced by the number of days that the Company
deferred registration, pursuant to Section 4.1(e) hereof, of the second
registration statement filed pursuant to Section 4.3(a) hereof during such
calendar year.
4.4. Obligations of the Company. Whenever the Company is required under
--------------------------
Section 4.1, 4.2 or 4.3 hereof to use its best efforts to effect the
registration of any of the Registrable Shares of the Investors, the Company
shall, as expeditiously as reasonably possible:
(1) Prepare and file with the SEC a Registration Statement with
respect to such Registrable Shares and use its best efforts to cause such
Registration Statement to become and remain effective; provided, however
--------
that the Company shall in no event be obligated to cause any such
registration to remain effective for more than 90 days;
(2) Prepare and file with the SEC such amendments and supplements to
such Registration Statement and the prospectus used in connection therewith
as may be necessary to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
Registration Statement;
(3) Furnish to the selling Investors such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other
<PAGE>
-16-
documents as the selling Investors may reasonably request in order to
facilitate the disposition of such Registrable Shares; and
(4) Use its best efforts to register and qualify such Registrable
Shares under such other securities or Blue Sky laws of such jurisdictions
as shall be reasonably appropriate in the opinion of the Company and the
managing underwriters, provided that the Company shall not be required in
--------
connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions, and provided further that (anything in this Section 4 to the
----------------
contrary notwithstanding with respect to the bearing of expenses) if any
jurisdiction in which the securities shall be qualified shall require that
expenses incurred in connection with the qualification therein of the
securities be borne by selling shareholders, then the selling Investors
shall, to the extent required by such jurisdiction, pay their pro rata
--- ----
share of selling expenses.
4.5. Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 4 that
the selling Investors shall furnish to the Company such information regarding
them and the shares of Common Stock held by them as the Company shall reasonably
request and as shall be required in order to effect any such registration by the
Company.
4.6. Expenses of Registration. All expenses incurred in connection with a
------------------------
registration pursuant to this Section 4 (excluding underwriting commissions and
discounts and counsel fees of the selling Investors), including without
limitation all registration and qualification fees, printing, and fees and
disbursements of counsel for the Company, shall be borne by the Company;
provided, however, that the Company shall not be required to pay for Blue Sky
- -------- -------
registration or qualification expenses in connection with states in which the
Company is not registering or qualifying its original issue shares or the
Registrable Shares of the Investors upon exercise of their demand registration
rights; and provided, further, that the Investors participating as selling
-------- -------
shareholders in the second or third registration pursuant to Section 4.3 hereof
during any calendar year shall pay all expenses incurred in connection with such
registration(s) on a pro rata basis in accordance with the number of Registrable
Shares which are included in such registration(s) by such Investors thereunder.
4.7. Underwriting Requirements; Reduction of Shares to be Included in a
------------------------- ---------------------------------------
Registration. In connection with any offering involving an
- ------------
<PAGE>
-17-
underwriting of being issued by the Company or being sold pursuant to any demand
registration rights of any shareholder of the Company, the Company shall not be
required under Section 4.2 hereof or otherwise to include the Registrable Shares
of any Investor therein unless such Investor accepts and agrees to the terms of
the underwriting as agreed upon between the Company and the underwriters
selected by the Company, and then only in such quantity as (without any
reduction in the numbers of shares to be sold for the account of the Company)
will not, in the opinion of the underwriters, jeopardize the success of the
offering by the Company. Except as otherwise provided in Section 4.1(c) above,
if the total number of shares of stock which all selling stockholders of the
Company (including, without limitation, the selling Investors) request to be
included in any offering exceeds the number of shares which the underwriters
believe to be compatible with the success of the offering, the Company shall
only be required to include in the offering so many of the shares of stock of
the selling shareholders (including, without limitation, the selling Investors)
as the underwriters believe will not (without any reduction in the number of
shares to be sold for the account of the Company) jeopardize the success of the
offering (the shares so included to be apportioned pro rata among the selling
shareholders according to the total number of shares of Common Stock owned by
said selling shareholders, or in such other proportions as shall mutually be
agreed to by such selling shareholders), provided that no such reduction shall
be made with respect to any securities offered for the account of the Company in
connection with a registration statement pursuant to Section 4.2 hereof.
4.8. Delay of Registration. The Investors shall not take any action to
---------------------
restrain, enjoin or otherwise delay any registration as the result of any
controversy which might arise with respect to the interpretation or
implementation of this Section 4.
4.9. Indemnification. In the event that any Registrable Shares of the
---------------
Investors are included in a Registration Statement under this Section 4:
(1) To the extent permitted by law, the Company will indemnify and
hold harmless each selling Investor, any underwriter (as defined in the
Securities Act) for the Company, and each officer and director of such
selling Investor or such underwriter and each person, if any, who controls
such selling Investor or such underwriter within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint
or several, to which they may become subject under the Securities Act or
otherwise, insofar
<PAGE>
-18-
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in such Registration Statement,
including any preliminary prospectus or final prospectus contained therein
or any amendments or supplements thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required
to be stated therein, or necessary to make the statements therein not
misleading; and will reimburse such selling Investor, such underwriter or
such officer, director or controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action if it is
judicially determined that there were material misstatements or omission;
provided, however, that the indemnity agreement contained in this Section
-------- -------
4.9(1) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such
loss, damage, liability or action to the extent that it arises out of or is
based upon an untrue statement or alleged untrue statement or omission made
in connection with such Registration Statement, preliminary prospectus,
final prospectus, or amendments or supplements thereto, in reliance upon
and in conformity with written information furnished expressly for use in
connection with such registration by the selling Investors, any underwriter
for them or controlling person with respect to them.
(2) To the extent permitted by law, each selling Investor will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed such Registration Statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter for the Company (within the meaning of the Securities Act), and
all other selling Investors against any losses, claims, damages or
liabilities to which the Company or any such director, officer, controlling
person, or underwriter may become subject to, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any untrue or
alleged untrue statement of any material fact contained in such
Registration Statement, including any preliminary prospectus contained
therein or any amendments or supplements thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or
<PAGE>
-19-
necessary to make the statements therein not misleading, in each case to
the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such Registration Statement,
preliminary prospectus, final prospectus, or amendments or supplements
thereto, in reliance upon and in conformity with written information
furnished by the selling Investor expressly for use in connection with such
registration; and such selling Investor will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or other selling Investor in connection
with investigating or defending any such loss, claim, damage, liability or
action if it is judicially determined that there were material
misstatements or omissions, provided, however, that the indemnity
-----------------
agreement contained in this Section 4.9(2) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if
such settlement is effected without the consent of those selling
Investor(s) against which the request for indemnity is being made (which
consent shall not be unreasonably withheld).
(3) Promptly after receipt by an indemnified party under this Section
4.9 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 4.9, notify the indemnifying party in writing of
the commencement thereof and the indemnifying party shall have the right to
participate in and, to the extent the indemnifying party desires, jointly
with any other indemnifying party similarly noticed, to assume at its
expense the defense thereof with counsel mutually satisfactory to the
parties. The failure to notify an indemnifying party promptly of the
commencement of any such action, if prejudicial to his ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 4.9, but the omission so to notify the
indemnifying party will not relieve him of any liability which he may have
to any indemnified party otherwise other than under this Section 4.9.
4.10. Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Investors the use of Section 4.3 hereof and the benefits
of Rule 144 and any other rule or regulation of the SEC that may at any time
permit the Investors to sell shares of Common Stock to the public without
registration, the Company agrees to use its best efforts: (i) to make and keep
public information available, as those terms are understood and defined in the
General Instructions to Form S-3, or any
<PAGE>
-20-
successor or substitute form, and in Rule 144, at all times subsequent to the
effective date of the first Registration Statement covering a public offering
filed by the Company, (ii) to file with the SEC in a timely manner all reports
and other documents required to be filed by an issuer of securities registered
under the Securities Act or the 1934 Act, (iii) as long as any Investor owns any
shares of Common Stock, to furnish in writing upon such Investor's request a
written statement by the Company that it has complied with the reporting
requirements of Rule 144 (at any time after ninety (90) days after the effective
date of said first Registration Statement filed by the Company), and of the
Securities Act and the 1934 Act (at any time after it has become subject to such
reporting requirements), and to furnish to such Investor a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as may be reasonably requested in availing
such Investor of any rule or regulation of the SEC permitting the selling of any
such shares without registration and (iv) undertake any additional actions
reasonably necessary to maintain the availability of a registration statement on
Form S-3, including any successor or substitute forms, or the use of Rule 144.
4.11. Transfer of Registration Rights. The registration rights of the
-------------------------------
Investors under this Section 4 may not be transferred or assigned to any person
other than a Qualifying Holder without the prior written consent of the Company.
For purposes of this Section 4.11, the term "Qualifying Holder" shall mean, with
-----------------
respect to any Investor, (i) any partner thereof, (ii) any corporation or
partnership controlling, controlled by, or under common control with, such
Investor or any partner thereof, and (iii) any other direct transferee from such
Investor of at least 90% of the Preferred Shares and/or shares of Common Stock
owned by such Investor.
4.12. Lockup Agreement. Each Investor hereby agrees that, at the written
----------------
request of the Company or any managing underwriter of any underwritten public
offering of securities of the Company, such Investor shall not, without the
prior written consent of the Company or such managing underwriter, sell, make
any short sale of, loan, grant any option for the purchase of, pledge, encumber,
or otherwise dispose of, or exercise any registration rights with respect to,
any Shares during the 180 day period commencing on the effective date of the
registration statement relating to such underwritten public offering of the
Company's securities.
5. COVENANTS OF THE COMPANY.
<PAGE>
-21-
5.1 Affirmative and Negative Covenants. The Company hereby covenants
----------------------------------
and agrees as follows:
(a) Corporate Existence. The Company shall maintain its
-------------------
corporate existence and qualification and make no material change
(directly or through subsidiaries) in the present nature of its
business.
(b) Interested Transactions. The Company shall not buy, sell or
-----------------------
lease any assets to, borrow or lend any money to, or deal with or
enter into any other transactions or agreements with, any officer,
director, employee, consultant of the Company or any person owning
five percent (5%) or more of any class of capital stock of the
Company, or any relative or affiliate of any of the foregoing persons,
other than (i) employment or consulting arrangements with its
officers, directors, employees or consultants which are approved by a
majority of those members of the Board designated by the Series A
Holder and/or the Series B Holders pursuant to Section 2 hereof, (ii)
any equity compensation arrangement, whether in the form of stock
option grants, restricted stock issuances or otherwise, which is
approved by a majority of those members of the Board designated by the
Series A Holder and/or the Series B Holders pursuant to Section 2
hereof, (iii) any agreement or arrangement for the licensing of
technology or intellectual property to or from the Company which is
approved by a majority of those members of the Board designated by the
Series A Holder and/or the Series B Holders pursuant to Section 2
hereof, and (iv) other arrangements set forth in the Schedule of
Exceptions or otherwise expressly contemplated by the Series D
Agreement.
(c) Financial Statements. The Company shall furnish each
--------------------
Investor with (A) quarterly unaudited consolidated balance sheets and
statements of income, cash flow and stockholders equity of the Company
for such quarter and such portion of the Company's fiscal year then
ended, setting forth the corresponding figures for such periods in the
preceding year, within 30 days after the end of each fiscal quarter;
(B) annual audited consolidated and consolidating financial statements
including a balance sheet and statements of income, cash flow and
stockholders equity within 90 days after the end of each fiscal year,
certified by
<PAGE>
-22-
an independent public accounting firm reasonably acceptable to the
Majority Holders; and (C) such additional financial or other
information as such Investor shall reasonably request; provided,
---------
however, that in no event shall the Series D Investor be
-------
entitled to any scientific, technical, financial or other information
concerning, relating to or used in connection with any strategic
alliance, joint venture, sponsored research program, licensing
arrangement, or any other kind of agreement, relationship or
arrangement entered into by the Company for purposes of discovering,
developing, manufacturing or commercializing drugs.
(d) Budget and Operating Forecast. With respect to each fiscal
-----------------------------
year of the Company, at least 45 days prior to the beginning of each
such fiscal year, the Company shall prepare and submit an operating
plan with quarterly breakdowns (the "Budget") for such fiscal year to
the Board for its approval. The approved Budget shall be furnished to
each Investor promptly after its approval but in no event later than
10 days prior to the start of the fiscal year to which it relates.
The Budget shall be reviewed periodically, but no less frequently than
quarterly and deviations from or material changes to the Budget shall
be submitted to the Board for its approval. The Company shall not
make material changes to the Budget without such prior approval, and
upon such approval information concerning such material changes or
deviations shall be furnished to each Investor within 10 days.
(e) Other Information. The Company shall deliver to each
-----------------
Investor, promptly after the occurrence thereof, written notice and a
description of any event of default or other event, including any
litigation, which might have a materially adverse impact upon the
Company, its financial condition, results of operations, prospects or
business. Furthermore, the Company shall permit each Investor, or its
agents, to visit and inspect the Company's properties, to examine its
books and records and to discuss the Company's affairs, finances and
accounts with its officers, all at such reasonable time as requested
by such Investor, provided, however, that in no event shall the Series
-------- -------
D Investor be entitled, as a result of or in connection with any such
visit, inspection, examination and/or discussion, to any scientific,
technical, financial or other information concerning, relating to or
used in connection with any strategic alliance, joint venture,
<PAGE>
-23-
sponsored research program, licensing arrangement, or any other kind
of agreement, relationship or arrangement entered into by the Company
with any third party for purposes of discovering, developing,
manufacturing or commercializing drugs.
(f) Capital Expenditures; Commitments. The Company shall not,
---------------------------------
and shall cause each of its subsidiaries, if any, not to, (i) incur
capital expenditures or make commitments for capital expenditures,
services or product development in excess of the greater of $250,000
or 110% of the amount budgeted in the yearly budget and operating plan
of the Company referred to in Section 5.1(d) hereof, for any such
expenditure or commitment; provided, however, that the restrictions
-----------------
imposed by this Section 5.1(f) shall not be applicable with respect to
capital expenditure projects or commitments for capital expenditures
commenced, or entered into, as the case may be, prior to June [__],
1996 and disclosed in the Schedule of Exceptions.
(g) Proprietary Information and Invention Agreements. The
------------------------------------------------
Company shall require, as a condition to employment with the Company
or continued employment with the Company, that each of its employees,
and each of the employees of each of its subsidiaries, enter into a
Proprietary Information and Invention Agreement in the form attached
as Exhibit A hereto.
------- -
(h) Rule 144 Compliance. At all times after completion of the
-------------------
Company's initial public offering, the Company agrees to take such
actions as may be necessary to enable a holder of Common Stock to
complete the sale of Common Stock in accordance with Rule 144 of the
Securities and Exchange Commission under the Act.
(i) Listing. If the shares of Common Stock of the Company are
-------
listed on any national securities exchange, the Company will, at its
expense and as expeditiously as possible, use its best efforts to
cause the shares of Common Stock required to be reserved for the
purposes of conversion of the Preferred Shares to be listed or duly
approved for listing on such national securities exchange.
<PAGE>
-24-
(j) Composition of the Board of Directors. The Company will not
----------------------------------------
change the size or the election procedures for the election of the
Company's Board of Directors.
(k) Additional Negative Covenants. So long as any of the
--------------------------------
Preferred Shares is outstanding, the Company shall not, without the
affirmative vote or written consent of the Required Holders:
(i) amend the Certificate of Incorporation or the By-laws
of the Company; or
(ii) alter or change the powers, preferences or rights of
any class or series of capital stock of the Company, or
the qualifications, limitations or restrictions
thereof, if any such alteration or change would
adversely affect the rights of the holders of Series A
Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock; or
(iii) authorize, issue or agree to issue any additional
shares of any class or series of capital stock (other
than Excluded Securities), or authorize, issue, or
agree to issue any security (other than Excluded
Securities) convertible into or exercisable for any
shares of any class or series of capital stock of the
Company (other than Excluded Securities) or increase
the number of authorized shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock; or
(iv) allow any subsidiary of the Company to become a party
to or bound by any contract or agreement that by its
terms expressly proscribes or limits either absolutely
or conditionally that subsidiary's ability to declare
and pay dividends to the Company; or
<PAGE>
-25-
(v) pay or declare any dividend or make any distribution of
money or other property on account of any capital stock
of the Company, or accord any other payment, benefit or
preference to any share of capital stock of the Company
other than dividends payable in shares of Common Stock;
or
(vi) purchase, redeem or otherwise retire any share of
capital stock of the Company (other than in accordance
with the terms of any stock restriction agreement,
shareholders agreement or right of first refusal
agreement to which the Company is a party and that has
been approved by a majority of those members of the
Board designated by the Series A Holder and/or the
Series B Holders pursuant to Section 2 hereof); or
(vii) amend, modify or terminate any stock option plan, stock
option agreement or any agreement restricting the
transfer of shares of capital stock of the Company to
which the Company is a party; or
(viii) merge or consolidate or enter into any other business
combination with any person or entity; or sell, lease
(as lessor) or otherwise dispose of all or
substantially all of the consolidated assets of the
Company; liquidate, dissolve, recapitalize or
reorganize in any form of transaction or sell, lease
(as lessor) or otherwise dispose of assets representing
more than 10% of the Company's total consolidated
assets in any twelve month period (other than sales or
other dispositions of inventory in the ordinary course
of business); or purchase or otherwise acquire all or
substantially all of the assets of another person,
either through the purchase of stock or of assets.
<PAGE>
-26-
(l) Changes to Series A Preferred Stock. So long as any of the
------- -- ------ - --------- -----
Series A Shares are outstanding, the Company shall not, without the
affirmative vote or written consent of the Series A Required Holders:
(i) alter or change the powers, preferences or rights of any
class or series of capital stock of the Company, or the
qualifications, limitations or restrictions thereof, if any
such alteration or change would adversely affect the rights
of the holders of Series A Preferred Stock (it being
understood and agreed that any amendment, alteration or
change to the terms of the Series A Preferred Stock that
may be required in order to provide for the creation or
designation of a series of preferred stock of the Company
ranking junior to, or
pari passu with, the Series A Preferred Stock as to
----------
dividends and upon liquidation of the Company shall not be
deemed to constitute an amendment, alteration or change
that adversely affects the rights of the holders of Series
A Preferred Stock); or
(ii) authorize, issue or agree to issue any additional shares of
Series A Preferred Stock (other than Excluded Securities),
or authorize, issue, or agree to issue any security (other
than Excluded Securities) convertible into or exercisable
for any shares of Series A Preferred Stock (other than
Excluded Securities) or increase the number of authorized
shares of Series A Preferred Stock; or
(iii)purchase, redeem or otherwise retire any Preferred Shares
or Conversion Shares owned by any of the Institutional
Investors.
(m) Changes to Series B Preferred Stock. So long as any of the
------- -- ------ - --------- -----
Series B Shares are outstanding, the Company
<PAGE>
-27-
shall not, without the affirmative vote or written consent of the
Series B Required Holders:
(i) alter or change the powers, preferences or rights of
any class or series of capital stock of the Company, or
the qualifications, limitations or restrictions
thereof, if any such alteration or change would
adversely affect the rights of the holders of Series B
Preferred Stock (it being understood and agreed that
any amendment, alteration or change to the terms of the
Series B Preferred Stock that may be required in order
to provide for the creation or designation of a series
of preferred stock of the Company ranking junior to, or
pari passu with, the Series B Preferred Stock as to
----------
dividends and upon liquidation of the Company shall not
be deemed to constitute an amendment, alteration or
change that adversely affects the rights of the holders
of Series B Preferred Stock); or
(ii) authorize, issue or agree to issue any additional
shares of Series B Preferred Stock (other than Excluded
Securities), or authorize, issue, or agree to issue any
security (other than Excluded Securities) convertible
into or exercisable for any shares of Series B
Preferred Stock (other than Excluded Securities) or
increase the number of authorized shares of Series B
Preferred Stock; or
(iii) purchase, redeem or otherwise retire any Preferred
Shares or Conversion Shares owned by any of the
Institutional Investors.
(n) Changes to Series C Preferred Stock. So long as any of the
--------------------------------------
Series C Shares are outstanding, the Company shall not, without the
affirmative vote or written consent of the Series C Required Holders:
<PAGE>
-28-
(i) alter or change the powers, preferences or rights of
any class or series of capital stock of the Company, or
the qualifications, limitations or restrictions
thereof, if any such alteration or change would
adversely affect the rights of the holders of Series C
Preferred Stock (it being understood and agreed that
any amendment, alteration or change to the terms of the
Series C Preferred Stock that may be required in order
to provide for the creation or designation of a series
of preferred stock of the Company ranking junior to, or
pari passu with, the Series C Preferred Stock as to
----------
dividends and upon liquidation of the Company shall not
be deemed to constitute an amendment, alteration or
change that adversely affects the rights of the holders
of Series C Preferred Stock); or
(ii) authorize, issue or agree to issue any additional
shares of Series C Preferred Stock (other than Excluded
Securities), or authorize, issue, or agree to issue any
security (other than Excluded Securities) convertible
into or exercisable for any shares of Series C
Preferred Stock (other than Excluded Securities) or
increase the number of authorized shares of Series C
Preferred Stock; or
(iii) purchase, redeem or otherwise retire any Preferred
Shares or Conversion Shares owned by any of the
Institutional Investors.
(o) Changes to Series D Preferred Stock. So long as any of the
-----------------------------------
Series D Shares are outstanding, the Company shall not, without the
affirmative vote or written consent of the Series D Required Holders:
(i) alter or change the powers, preferences or rights of
any class or series of capital stock of the Company, or
the qualifications,
<PAGE>
-29-
limitations or restrictions thereof, if any such
alteration or change would adversely affect the rights
of the holders of Series D Preferred Stock (it being
understood and agreed that any amendment, alteration or
change to the terms of the Series D Preferred Stock
that may be required in order to provide for the
creation or designation of a series of preferred stock
of the Company ranking junior to, or pari passu with,
----------
the Series D Preferred Stock as to dividends
and upon liquidation of the Company shall not be deemed
to constitute an amendment, alteration or change that
adversely affects the rights of the holders of Series D
Preferred Stock); or
(ii) authorize, issue or agree to issue any additional
shares of Series D Preferred Stock (other than Excluded
Securities), or authorize, issue, or agree to issue any
security (other than Excluded Securities) convertible
into or exercisable for any shares of Series D
Preferred Stock (other than Excluded Securities) or
increase the number of authorized shares of Series D
Preferred Stock; or
(iii) purchase, redeem or otherwise retire any Preferred
Shares or Conversion Shares owned by any of the
Institutional Investors.
5.2. Termination. Except with respect to Section 5.1(h), the rights of
-----------
each Investor under Section 5.1 hereof shall terminate on the date that such
Investor shall cease to own Preferred Shares. The covenants of the Company
under Section 5.1 hereof (other than Section 5.1(h) hereof), and the rights of
all Investors under Section 5.1 hereof (other than Section 5.1(h) hereof), shall
in any event terminate upon the closing of the Company's initial public
offering.
<PAGE>
-30-
5.3 Waiver. The Company's compliance with any of the covenants set forth
------
in Section 5.1 hereof (other than subsections (l), (m), (n) or (o) thereof) may
be waived by the Required Holders.
5.4. Transferability. No Investor may transfer any of its rights under
---------------
Section 5.1, except to a person to whom such Investor shall have transferred
shares of capital stock of the Company representing at least twenty-five percent
(25%) of the total voting power of the shares of capital stock of the Company
held by such Investor immediately prior to such transfer.
6. TRANSFERABILITY OF RIGHTS. Notwithstanding anything in this Agreement
-------------------------
to the contrary, none of the rights of any Shareholder under this Agreement,
including, without limitation, the registration rights of the Investors under
Section 4 hereof, shall be transferred or assigned to any person unless (i) such
person becomes the registered holder, in the books of the Company, of such
Shareholder's Preferred Shares and/or shares of Common Stock, (ii) if such
person is a transferee of an Investor, such person agrees to become a party to,
and bound by all of the terms and conditions of, this Agreement by duly
executing and delivering to the Company an Instrument of Adherence in the form
attached as Exhibit B hereto, (iii) if such person is a transferee of a Founder
----------
or a Founder Transferee, such person agrees to become a party to, and bound by
all of the terms and conditions of, this Agreement by duly executing and
delivery to the Company an Instrument of Adherence in the form attached as
Exhibit C hereto, and (iv) the Company countersigns the applicable Instrument of
- ---------
Adherence. The Company shall be obligated to countersign any such applicable
Instrument of Adherence unless the transfer to any such person of any such
Preferred Shares and/or shares of Common Stock does not comply with the terms of
this Agreement or would result in the acquisition by such person of rights
hereunder in contravention of the express terms of this Agreement.
7. ENTIRE AGREEMENT. This Agreement constitutes and contains the entire
----------------
agreement and understanding of the parties with respect to the subject matter
hereof, it amends, restates and supersedes the Prior Shareholders' Rights
Agreement in its entirety, and it also supersedes any and all prior
negotiations, correspondence, agreements or understandings with respect to the
subject matter hereof including, without limitation, the Shareholders' Rights
Agreement, dated August 30, 1993, by and among the Company, the Founders and the
Initial Investor Parties, as amended.
8. MISCELLANEOUS.
-------------
<PAGE>
-31-
(a) This Agreement may not be amended, modified or terminated, and no
rights or provisions may be waived, except (i) in the case of any of the
provisions of Section 5 hereof, in compliance with the provisions of Section 5.3
hereof, (ii) in the case of any of the provisions of Section 3 hereof, in
compliance with the provisions of Section 3.3 hereof and (iii) in all other
instances, with the written consent of the Majority Holders and the Company;
provided, however, that, except with respect to any waiver pursuant to Section
- -------- -------
3.3 or Section 5.3 hereof, this Agreement shall not be amended, modified or
terminated, nor shall any rights or provisions under this Agreement be waived,
in any manner adversely affecting any Shareholder, without the prior written
consent of such Shareholder.
(b) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware, and shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successors or assigns, provided that the terms and conditions
--------
of Sections 4.11, 5.4 and 6 hereof are satisfied. This Agreement shall also be
binding upon and inure to the benefit of any transferee of any of the Shares,
provided that the terms and conditions of Sections 4.11, 5.4 and 6 hereof are
- --------
satisfied. Notwithstanding anything in this Agreement to the contrary, if at
any time any Shareholder shall cease to own any Shares, all of such
Shareholder's rights under this Agreement shall immediately terminate.
(c) Any notices to be given pursuant to this Agreement shall be in
writing and shall be given by certified or registered mail, return receipt
request. Notices shall be deemed given when personally delivered or when mailed
to the addresses of the respective parties as set forth on Exhibit A hereto, or
------- -
to such changed address of which any party may notify the others pursuant
hereto, except that a notice of change of address shall be deemed given when
received.
(d) The parties acknowledge and agree that in the event of any breach
of this Agreement, remedies at law will be inadequate, and each of the parties
hereto shall be entitled to specific performance of the obligations of the other
parties hereto and to such appropriate injunctive relief as may be granted by a
court of competent jurisdiction.
(e) Each certificate evidencing any of the Shares shall bear a legend
substantially as follows:
"The shares represented by this certificate are subject to a
Shareholders' Rights Agreement dated as of June 25, 1996
<PAGE>
-32-
among the Company, the holder of this certificate and certain other
holders of the Company's capital stock."
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-33-
(f) This Agreement may be executed in a number of counterparts, an of which
together shall for all purposes constitute one Agreement, binding on all
the parties hereto notwithstanding that all such parties have not signed
the same counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
CUBIST PHARMACEUTICALS, INC.
By:
--------------------------------
Scott M. Rocklage, President
INITIAL INVESTOR PARTIES
------------------------
DSV PARTNERS IV
By: DSV Management, General Partner
By:
-----------------------------
John K. Clarke,
General Partner
ALTA V LIMITED PARTNERSHIP
By: Alta V Management Partners, L.P.,
General Partner
By:
-----------------------------
Name: Terrance McGuire
Title: General Partner
CUSTOMS HOUSE PARTNERS
By:
--------------------------------
Name:
Title:
<PAGE>
-34-
WPG ENTERPRISE FUND, L.P.
By: WPG Venture Partners II, L.P.,
General Partner
By:
-----------------------------
Name: Ellen M. Feeney
Title: General Partner
WEISS, PECK & GREER VENTURE ASSOCIATES II, L.P.
By: WPG Venture Partners II, L.P.,
General Partner
By:
----------------------------
Name: Ellen M. Feeney
Title: General Partner
WEISS, PECK & GREER VENTURE ASSOCIATES II (OVERSEAS),
L.P.
By:
------------------------------
Name:
Title:
INTERWEST PARTNERS V
By: Interwest Management Partners V,
General Partner
By:
----------------------------
Arnold Oronsky, General Partner
<PAGE>
-35-
INTERWEST INVESTORS V
By:
-------------------------------
Arnold Oronsky, Attorney-In-Fact
H&Q HEALTHCARE INVESTORS
By:
-------------------------------
Name:
Title:
H&Q LIFE SCIENCES INVESTORS
By:
-------------------------------
Name:
Title:
ROVENT II LIMITED PARTNERSHIP
By: Advent International Limited Partnership,
General Partner
By: Advent International Corporation
By:
---------------------------
Jason S. Fisherman,
Senior Investment Manager
<PAGE>
-36-
ADVENT PERFORMANCE MATERIALS
LIMITED PARTNERSHIP
By: Advent International Limited Partnership,
General Partner
By: Advent International Corporation,
General Partner
By:
---------------------------
Jason S. Fisherman,
Senior Investment Manager
ADVENT INTERNATIONAL INVESTORS II
LIMITED PARTNERSHIP
By: Advent International Corporation,
General Partner
By:
-----------------------------
Jason S. Fisherman,
Senior Investment Manager
AMIRA, INC.
By:
--------------------------------
Name:
Title:
COMDISCO, INC.
By:
--------------------------------
Name:
Title:
<PAGE>
-37-
LIFE SCIENCE ENTREPRENEUR FUND
By:
--------------------------------
Brian Cunningham, General Partner
-----------------------------------
David E. Brook
-----------------------------------
Justin P. Morreale
-----------------------------------
Lan Bo Chen
-----------------------------------
Kyriacos C. Nicolaou
-----------------------------------
Annette M. Bianchi
-----------------------------------
Scott M. Rocklage
-----------------------------------
David L. Engel
-----------------------------------
Paul R. Schimmel
-----------------------------------
Julius Rebek, Jr.
<PAGE>
-38-
THE JULIUS REBEK, JR. RETIREMENT PLAN
By:
--------------------------------
Julius Rebek, Jr., Trustee
-----------------------------------
Mitra Tadayoni-Rebek
FOUNDERS
--------
-----------------------------------
Paul R. Schimmel
-----------------------------------
Julius Rebek, Jr.
INITIAL FOUNDER TRANSFEREES
---------------------------
-----------------------------------
Mitra Tadayoni-Rebek
THE JULIUS REBEK, JR. FAMILY TRUST
By:
--------------------------------
Rick Pierchalski, Trustee
By:
--------------------------------
Paul Rebek, Trustee
<PAGE>
-39-
SERIES D INVESTOR
-----------------
BRISTOL-MYERS SQUIBB COMPANY
By:
--------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
---------
Name and Address
----------------
DSV Partners IV
221 Nassau Street
Princeton, NJ 08542
Attention: John K. Clarke
Alta V Limited Partnership
c/o Burr Egan Deleage & Company
1 Post Office Square
Suite 3800
Boston, NY 02109
Attention: Terry McGuire
Customs House Partners
c/o Burr Egan Deleage & Company
1 Post Office Square
Suite 3800
Boston, NY 02109
Attention: Terry McGuire
WPG Enterprise Fund, L.P.
c/o Weiss, Peck & Greer
555 California Street
Suite 4760
San Francisco, CA 94104
Attention: Ellen Fenney
Weiss, Peck & Greer Venture
Associates II, L.P.
c/o Weiss, Peck & Greer
555 California Street
Suite 4760
San Francisco, CA 94104
Attention: Ellen Feeney
<PAGE>
-2-
Weiss, Peck & Greer Venture
Associates II (Overseas), L.P.
c/o BankAmerica Trust & Banking
Corp. (Cayman) Ltd.
Fort Street
George Town, Grand Cayman
Cayman Island, British West Indies
Attention: Brent Thomas
Interwest Partners V
c/o Interwest Partners
3000 Sandhill Road
Building 3
Suite 255
Menlo Park, CA 94025-7112
Attention: Arnold Oronsky
Interwest Investors V
c/o Interwest Partners
3000 Sandhill Road
Building 3
Suite 255
Menlo Park, CA 94025-7112
Attention: Arnold Oronsky
H&Q Life Sciences Investors
c/o Hambrech & Quist Capital Management, Inc.
50 Rowes Wharf
Boston, MA 02110
Attention: Alan G. Carr
Rovent II Limited Partnership
101 Federal Street
Boston, MA 02110
Attention: Jason S. Fisherman
Advent Performance Materials Limited Partnership
101 Federal Street
Boston, MA 02110
Attention: Jason S. Fisherman
<PAGE>
-3-
Advent International Investors II Limited Partnership
101 Federal Street
Boston, MA 02110
Attention: Jason S. Fisherman
Amira, Inc.
75 Rogers Street
Cambridge, MA 02138
Attention: Walter Herlihy
Comdisco, Inc.
6111 North River Road
Rosemont, IL 60018
Attn: Jill C. Hanses
Life Science Entrepreneur Fund
c/o Cooley, Godward, Castro Huddleson & Tatum
5 Palo Alto Square, 4th Floor
Palo Alto, CA 94306-2155
Attention: Brian Cunningham
David E. Brook
Hamilton, Brook, Smith & Reynolds, P.C.
Two Militia Drive
Lexington, MA 02173
Justin P. Morreale, Esq.
416 Lewis Wharf
Boston, MA 02110
Lan Bo Chen
Dana Farber Cancer Institute
44 Binney Street
Room M480
Boston, MA 02115
Kyriacos C. Nicolaou
The Scripps Research Institute
Department of Chemistry
10666 North Torrey Pines Road
La Jolla, CA 92037
<PAGE>
-4-
Annette Bianchi
1535 Seneca Lane
San Mateo, CA 94402
Scott M. Rocklage
c/o Cubist Pharmaceuticals, Inc.
24 Emily Street
Cambridge, MA 02139
Paul R. Schimmel
Department of Biology
Massachusetts Institute of Technology
77 Massachusetts Avenue
Room 68-230
Cambridge, MA 02139
Julius Rebek, Jr.
Department of Chemistry
Massachusetts Institute of Technology
77 Massachusetts Avenue
Room 18-207
Cambridge, MA 02139
The Julius Rebek, Jr. Retirement Plan
c/o Julius Rebek, Jr.
Department of Chemistry
Massachusetts Institute of Technology
77 Massachusetts Avenue
Room 18-207
Cambridge, MA 02139
Mitra Tadayoni-Rebek
100 Memorial Drive
Apartment 5-3A
Cambridge, MA 02142
David L. Engel, Esq.
45 Juniper Road
Belmont, MA 02178
<PAGE>
EXHIBIT B
---------
CUBIST PHARMACEUTICALS, INC.
Instrument of Adherence
-----------------------
Reference is hereby made to that certain Amended and Restated Shareholders'
Rights Agreement, dated as of June 25, 1996, among Cubist Pharmaceuticals, Inc.,
a Delaware corporation (the "Company"), the Founders, the Initial Founder
Transferees, the Initial Investor Parties, the Series D Investor, the Additional
Investor Parties and the Additional Founder Transferees, as amended and in
effect from time to time (the "Amended and Restated Shareholders' Rights
Agreement"). Capitalized terms used herein without definition shall have the
respective meanings ascribed thereto in the Amended and Restated Shareholders'
Rights Agreement.
The undersigned, in order to become the owner or holder of ______ shares of
[preferred][common] stock, par value $0.01 per share, of the Company, hereby
agrees that, from and after the date hereof, the undersigned has become a party
to the Amended and Restated Shareholders' Rights Agreement in the capacity of an
Additional Investor Party, and is entitled to all of the benefits under, and is
subject to all of the obligations, restrictions and limitations set forth in,
the Amended and Restated Shareholders' Rights Agreement that are applicable to
Additional Investor Parties. This Instrument of Adherence shall take effect and
shall become a part of the Amended and Restated Shareholders' Rights Agreement
immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
Signature:
---------------
Accepted:
CUBIST PHARMACEUTICALS, INC.
By:
-----------------
Date:
----------
<PAGE>
EXHIBIT C
---------
CUBIST PHARMACEUTICALS, INC.
Instrument of Adherence
---------- -- ---------
Reference is hereby made to that certain Amended and Restated Shareholders'
Rights Agreement, dated as of June 25, 1996, among Cubist Pharmaceuticals, Inc.,
a Delaware corporation (the "Company"), the Founders, the Initial Founder
Transferees, the Initial Investor Parties, the Series D Investor, the Additional
Investor Parties and the Additional Founder Transferees, as amended and in
effect from time to time (the "Amended and Restated Shareholders' Rights
Agreement"). Capitalized terms used herein without definition shall have the
respective meanings ascribed thereto in the Amended and Restated Shareholders'
Rights Agreement.
The undersigned, in order to become the owner or holder of ______ shares of
Common Stock, par value $0.001 per share, of the Company hereby agrees that,
from and after the date hereof, the undersigned has become a party to the
Amended and Restated Shareholders' Rights Agreement in the capacity of an
Additional Founder Transferee, and is entitled to all of the benefits under, and
is subject to all of the obligations, restrictions and limitations set forth in,
the Amended and Restated Shareholders' Rights Agreement that are applicable to
Additional Founder Transferees. This Instrument of Adherence shall take effect
and shall become a part of the Amended and Restated Shareholders' Rights
Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of the
Commonwealth of Massachusetts.
Signature:
----------------
Accepted:
CUBIST PHARMACEUTICALS, INC.
By:
------------------
Date:
------------
<PAGE>
EXHIBIT 11
CUBIST PHARMACEUTICALS, INC.
COMPUTATION OF INCOME PER SHARE
AS OF DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------- -----------
<S> <C> <C>
Beginning Balance 1/1/93.............................. 444,899 1,159,184
Issuance of Common Stock.............................. 36,751 36,751
Issuance of Cheap Stock............................... 828,059 828,059
Issuance of Preferred Stock........................... 0 686,971
----------- -----------
Weighted Average Shares at 12/31/93................. 1,309,709 2,710,965
Net Loss............................................ $(1,687,894) $(1,687,894)
Net Loss per Share.................................. $(1.29) $(0.62)
=========== ===========
Beginning Balance 1/1/94.............................. 546,864 3,299,721
Issuance of Common Stock.............................. 85,661 85,661
Issuance of Cheap Stock............................... 828,059 828,059
Issuance of Preferred Stock........................... 0 43,260
----------- -----------
Weighted Average Shares at 12/31/94................. 1,460,584 4,256,701
Net Loss............................................ $(4,813,035) $(4,813,035)
Net Loss per Share.................................. $(3.30) $(1.13)
=========== ===========
Beginning Balance 1/1/95.............................. 910,030 3,729,083
Issuance of Common Stock.............................. 76,228 76,228
Issuance of Cheap Stock............................... 828,059 828,059
Issuance of Preferred Stock........................... 0 1,631,673
----------- -----------
Weighted Average Shares at 12/31/95................. 1,814,317 6,265,043
Net Loss............................................ $(5,396,006) $(5,396,006)
Net Loss per Share.................................. $(2.97) $(0.86)
=========== ===========
Beginning Balance 1/1/96.............................. 1,016,666 5,981,120
Issuance of Common Stock.............................. (12,191) (12,191)
Issuance of Cheap Stock............................... 828,059 828,059
Issuance of Preferred Stock........................... 0 0
----------- -----------
Weighted Average Shares at 3/31/96.................. 1,832,534 6,796,988
Net Loss............................................ $(1,873,227) $(1,873,227)
Net Loss per Share.................................. $(1.02) $(0.28)
=========== ===========
</TABLE>
<PAGE>
EXHIBIT 23.2
This is the form of the consent which will be issued upon effectiveness of
the stock split described in Note M to the financial statements.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 25, 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated January 12, 1996, except as to the information in Notes L and
M for which the date is , 1996, on our audits of the financial statements
of Cubist Pharmaceuticals, Inc. We also consent to the references to our firm
under the captions "Selected Financial Data" and "Experts."
Boston, Massachusetts
July , 1996
<PAGE>
EXHIBIT 23.3
HAMILTON, BROOK, SMITH & REYNOLDS, P.C. LETTERHEAD
CONSENT OF SPECIAL COUNSEL FOR CUBIST PHARMACEUTICALS, INC.
We hereby consent to the reference to our name, and to the statements with
respect to us, in Cubist Pharmaceuticals, Inc.'s Registration Statement on
Form S-1 and the Prospectus relating thereto under the caption "Experts."
Hamilton, Brook, Smith & Reynolds,
P.C.
/s/ David E. Brook
By: _________________________________
DAVID E. BROOK
Dated: June 25, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CUBIST FORM
S-1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 MAR-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 2,049,555 2,192,057
<SECURITIES> 1,006,569 0
<RECEIVABLES> 988,000 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 66,996 55,070
<PP&E> 3,834,953 3,947,485
<DEPRECIATION> 1,056,802 1,209,734
<TOTAL-ASSETS> 7,047,842 5,148,449
<CURRENT-LIABILITIES> 896,307 1,021,400
<BONDS> 1,838,550 1,710,312
0 0
34,751 34,751
<COMMON> 1,017 1,011
<OTHER-SE> 4,859,005 2,987,935
<TOTAL-LIABILITY-AND-EQUITY> 7,047,842 5,148,449
<SALES> 0 0
<TOTAL-REVENUES> 1,271,333 53,667
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 6,673,389 1,899,924
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (6,050) 26,970
<INCOME-PRETAX> (5,396,006) (1,873,227)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,396,006) (1,873,227)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,396,006) (1,873,227)
<EPS-PRIMARY> (.86)<F1> (.28)<F1>
<EPS-DILUTED> 0 0
<FN>
<F1>Computed on a pro forma basis as described in Note B of the Notes to the
Financial Statements.
</FN>
</TABLE>
