<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1996
REGISTRATION NO. 333-6795
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
PRE-EFFECTIVE
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
CUBIST PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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 426(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 426(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
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(3)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value................. 2,300,000 $12.00 $27,600,000 $9,517
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Includes up to 300,000 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.
(3) Previously paid in connection with the initial filing of the Registration
Statement.
--------------
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 Outside Front Cover Page of Prospectus;
Price......................... 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 September 17, 1996
PROSPECTUS
2,000,000 SHARES
LOGO
CUBIST PHARMACEUTICALS, INC.
COMMON STOCK
-------------
All of the 2,000,000 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 $10.00 and $12.00 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 300,000 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............................ 2,000,000 shares
Common Stock Outstanding after this Offering.... 8,373,023 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>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- ----------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Sponsored research revenues.... $ -- $ -- $ 1,271 $ 100 $ 2,047
Total operating expenses....... 1,716 4,758 6,673 3,414 4,056
Net interest income (expense).. 28 (55) 6 (10) (64)
-------- -------- -------- ------- -------
Net loss....................... $(1,688) $(4,813) $(5,396) $(3,324) $(2,073)
======== ======== ======== ======= =======
Pro forma net loss per
share(2)...................... $ (0.91) $ (0.32)
======== =======
Pro forma weighted average
shares used in computing
pro forma net loss per
share(2)...................... 5,898 6,449
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments............... $ 4,732 $ 24,592
Working capital...................................... 5,023 24,883
Total assets......................................... 10,355 30,215
Long-term debt and capital lease obligations, less
current portion..................................... 1,206 1,206
Accumulated deficit.................................. (14,005) (14,005)
Total stockholders' equity........................... 6,790 26,650
</TABLE>
- -------
(1) Based on the number of shares outstanding as of June 30, 1996. Excludes (i)
an aggregate of 520,660 shares of Common Stock issuable pursuant to stock
options outstanding as of June 30, 1996, at a weighted average exercise
price per share of $1.37, (ii) 86,619 shares of Common Stock issuable
pursuant to warrants outstanding as of June 30, 1996, at a weighted average
exercise price per share of $4.04, and (iii) Common Stock that may be
issued after the closing of this Offering to Bristol-Myers Squibb pursuant
to certain antidilution rights of Bristol-Myers Squibb.
(2) Computed on the basis described in Note B of the Notes to Financial
Statements.
(3) As adjusted to reflect the sale of 2,000,000 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 $11.00 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) excludes Common Stock that may be issued after the
closing of this Offering to Bristol-Myers Squibb pursuant to certain
antidilution rights of Bristol-Myers Squibb, (v) reflects the amendment and
restatement of the Company's Amended and Restated 1993 Stock Option Plan
effective upon the closing of this Offering, (vi) reflects the amendment and
restatement of the Company's Amended and Restated By-Laws effective upon the
closing of this Offering and (vii) 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 commercializing
resulting drugs. As a result, the Company's receipt of revenues (whether in
the form of
6
<PAGE>
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 mid-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 $14.0 million through June 30, 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. Although Dr. Rocklage has entered into an
employment agreement with the Company, the terms of the employment agreement
provide that Dr. Rocklage may terminate his employment with the Company at any
time upon thirty days' written notice. None of the Company's other executive
officers or key employees has entered into an employment agreement with the
Company. 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
10
<PAGE>
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.
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.
11
<PAGE>
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, 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 71% 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 8,373,023 shares of Common Stock
outstanding. The 2,000,000 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 6,373,023 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,
directors, employees and other stockholders, who together hold 6,373,023 shares
of Common Stock, and options to purchase an additional 520,660 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, 3,825,164 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."
12
<PAGE>
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 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 $7.82 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 $19,860,000
($22,929,000 if the Underwriters' over-allotment option is exercised in full),
based on an assumed initial public offering price of $11.00 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 mid-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 June 30, 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
2,000,000 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>
JUNE 30, 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.... $ 1,206 $ 1,206 $ 1,206
Stockholders' equity:
Preferred Stock, par value $.001
per share; 43,000,000 shares
authorized and 37,568,085 shares
issued and outstanding, actual;
5,000,000 shares authorized and
no shares issued and outstanding,
pro forma and pro forma as
adjusted......................... 38 -- --
Common Stock, par value $.001 per
share; 52,000,000 shares
authorized and 1,006,154 shares
issued and outstanding, actual;
25,000,000 shares authorized, pro
forma and pro forma as adjusted;
6,373,023 issued and outstanding,
pro forma and 8,373,023 shares
issued and outstanding, pro forma
as adjusted(3)................... 1 6 8
Additional paid-in capital........ 20,756 20,789 40,647
Accumulated deficit............... (14,005) (14,005) (14,005)
-------- -------- --------
Total stockholders' equity....... 6,790 6,790 26,650
-------- -------- --------
Total capitalization............. $ 7,996 $ 7,996 $ 27,856
======== ======== ========
</TABLE>
- --------
(1) Presented on a pro forma basis to give effect to (i) 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
(ii) the amendment of the Company's Restated Certificate of Incorporation
prior to the date of this Prospectus.
(2) Adjusted to reflect the sale of 2,000,000 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 $11.00 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 520,660 shares of Common Stock issuable
pursuant to stock options outstanding as of June 30, 1996, at a weighted
average exercise price per share of $1.37, (ii) 86,619 shares of Common
Stock issuable pursuant to warrants outstanding as of June 30, 1996, at a
weighted average exercise price per share of $4.04, and (iii) Common Stock
that may be issued after the closing of this Offering to Bristol-Myers
Squibb pursuant to certain antidilution rights of Bristol-Myers Squibb.
15
<PAGE>
DILUTION
As of June 30, 1996, the Company had a net tangible book value of $6,790,000,
or $1.07 per share. Net tangible book value per share is determined by dividing
the net tangible book value (tangible assets less liabilities) of the Company
by 6,373,023 shares of Common Stock outstanding at such date, after giving
effect to 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. 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 net tangible book value per share of Common Stock
immediately after the completion of this Offering. Without taking into account
any changes in net tangible book value after June 30, 1996 other than as
described above and to give effect to the sale by the Company of the 2,000,000
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 June 30, 1996 would have been $3.18 per share. This represents an
immediate increase in the pro forma net tangible book value of $2.11 per share
to existing investors and an immediate dilution in net tangible book value of
$7.82 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............. $11.00
Pro forma net tangible book value per share as of June 30,
1996....................................................... $1.07
Increase per share attributable to this Offering............ 2.11
-----
Pro forma net tangible book value per share after this
Offering................................................... 3.18
------
Dilution per share to new investors......................... $ 7.82
======
</TABLE>
The following table summarizes as of June 30, 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........... 6,373,023 76.1% $21,083,536 48.9% $ 3.31
New investors................... 2,000,000 23.9 22,000,000 51.1 11.00
--------- ----- ----------- -----
Total....................... 8,373,023 100.0% $43,083,536 100.0%
========= ===== =========== =====
</TABLE>
The foregoing table assumes no exercise of outstanding options or warrants to
purchase Common Stock after June 30, 1996, and excludes Common Stock that may
be issued after the closing of this Offering to Bristol-Myers Squibb pursuant
to certain antidilution rights of Bristol-Myers Squibb. At June 30, 1996, there
were outstanding options granted under the Amended and Restated 1993 Stock
Option Plan (the "Plan"), exercisable for an aggregate of 520,660 shares of
Common Stock at a weighted average exercise price of $1.37 per share. In
addition, at June 30, 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 and the issuance of Common Stock to
Bristol-Myers Squibb after the closing of this Offering 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 June 30, 1996 and for
the six months ended June 30, 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 six months ended June 30, 1996 are not
necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION SIX MONTHS
(MAY 1, 1992) YEARS ENDED DECEMBER 31, ENDED JUNE 30,
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 $ 100 $ 2,047
Operating expenses......
Research and
development........... 32 1,169 3,309 4,965 2,595 3,183
General and
administrative........ 6 547 1,449 1,708 819 873
---- -------- -------- -------- ------- -------
Total operating
expenses.............. 38 1,716 4,758 6,673 3,414 4,056
---- -------- -------- -------- ------- -------
Interest income......... 3 45 113 239 90 43
Interest expense........ -- (17) (168) (233) (100) (107)
---- -------- -------- -------- ------- -------
Net loss............... $(35) $ (1,688) $ (4,813) $ (5,396) $(3,324) $(2,073)
==== ======== ======== ======== ======= =======
Pro forma net loss per
share(1)............... $ (0.91) $ (0.32)
======== =======
Pro forma weighted
average common and
common equivalent
shares outstanding(1).. 5,898 6,449
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1993 1994 1995 1996
------- ------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
investments.................... $ 4,457 $ 1,221 $ 3,056 $ 4,732
Working capital................. 3,937 (92) 3,215 5,023
Total assets.................... 7,241 4,250 7,048 10,355
Long-term debt and capital lease
obligations, less current
portion........................ 1,164 2,032 1,257 1,206
Accumulated deficit............. (1,723) (6,536) (11,932) (14,005)
Total stockholders' equity...... 5,488 823 4,895 6,790
</TABLE>
- --------
(1) Computed on the basis described in Note B of the Notes to the Financial
Statements.
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 $23.0 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
Six Months Ended June 30, 1996 and 1995
Revenues. Total revenues in the six months ended June 30, 1996, were
$2,046,653 compared to $100,000 in the six months ended June 30, 1995. The
Company received $16,666 relating to Bristol-Myers Squibb research funding,
$1,915,000 relating to Merck license fees and research funding, $37,000
relating to Pfizer research funding, and $77,987 relating to revenues from
SBIR grants. In the six months ended June 30, 1995, the Company recognized
$100,000 relating to revenues from SBIR grants.
Research and Development Expenses. Total research and development expenses
were $3,182,609 in the six months ended June 30, 1996 compared to $2,594,884
in the six months ended June 30, 1995, an increase of $587,725 or 22.6%. 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 $873,586 in the six months ended June 30, 1996 compared to $818,977 in
the six months ended June 30, 1995, an increase of $54,609 or 6.7%. The
increase is primarily due to increased legal expenses related to the three
collaborations in the six months ended June 30, 1996 as compared to the six
months ended June 30, 1995.
Interest Income and Expense. Interest income was $43,232 in the six months
ended June 30, 1996, compared to $90,312 in the six months ended June 30,
1995, a decrease of $47,080 or 52.1%. The decrease is primarily due to a
decrease in the average cash balance in the six months ended June 30, 1996, as
compared to the six months ended June 30, 1995. Interest expense was $106,903
in the six months ended June 30, 1996 compared to $100,806 in the six months
ended June 30, 1995, an increase of $6,097 or 6.0%.
18
<PAGE>
Net Loss. The net loss was $2,073,213 during the six months ended June 30,
1996 and $3,324,355 during the six months ended June 30, 1995, a decrease of
$1,251,142 or 37.6% primarily as a result of the revenues and other 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.
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.
19
<PAGE>
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 June 30, 1996 was $4,732,273
compared to $3,056,124 at December 31, 1995. The Company raised approximately
$8,468,000 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.
The Company has entered into Collaborative Agreements 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 drugs resulting from
these collaborations. Through July 1996, the Company's collaborative partners
have provided the Company with $3.8 million of research support payments and a
technology licensing fee and $4.0 million in equity investments. There can be
no assurance that the Company will receive any additional funding from the
Collaborative Agreements. See "Risk Factors--Dependence on Collaborative
Partners and Others" and "Business--Collaborative Agreements."
As of June 30, 1996, the Company had invested $4,171,086 in property and
equipment, primarily in facility renovations and laboratory equipment under
capital leases. The present value of obligations under capital leases at June
30, 1996 was $1,266,596. 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 expenses
and capital requirements as currently planned through mid-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. The Company's
actual cash requirements may vary materially from those now planned and will
depend upon numerous factors. There can be no assurance that the net proceeds
of this Offering, together with the Company's existing capital resources,
interest income and revenue from the Collaborative Agreements, will be
sufficient to fund the Company's operating expenses and capital requirements
during such period. 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. See "Use of Proceeds" and "Risk
Factors--Additional Financing Requirements; Uncertainty of Available Funding."
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.
20
<PAGE>
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.
21
<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
22
<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 July 1996, the Company's
collaborative partners have provided the Company with $3.8 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).
23
<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.
24
<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.
25
<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).
26
<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
Enterococcus 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.
27
<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,
28
<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 diligently protect its
cloned targets, assays, organic synthetic processes, lead compounds, screening
technology and certain other technology. Cubist has eight pending U.S. patent
applications. In addition, Cubist has licensed three issued U.S. patents and
three pending U.S. applications covering inventions made by Dr. Paul R.
Schimmel and Dr. Julius Rebek, Jr., the two scientific founders of the
Company.
29
<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.
30
<PAGE>
INHIBITION OF AMINOACYL - TRNA SYNTHETASE
(ART)
PROTEIN INHIBITION OF PROTEIN
SYNTHESIS SYNTHESIS
Binding of an amino Binding of an inhibitor to
acid to the 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 formation
protein synthesis 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
31
<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
32
<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.
GLUTAMATE
GLUTAMINE
[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.
33
<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.
34
<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.
35
<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 July 1996, the Company's collaborative partners
have provided the Company with $3.8 million of research support payments and a
technology licensing fee and $4.0 million in equity investments.
36
<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.
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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 diligently protect
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 two
of these applications covering an isolated recombinant nucleic acid encoding
mycobacterial seryl-tRNA synthetase and processes of making mycobacterial
seryl-tRNA synthetases. Cubist has 8 pending U.S. patent applications. In
addition, Cubist has licensed three U.S. patents and three U.S. patent
applications.
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
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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 a new drug application
("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
investigational new drug application ("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
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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 FDA's current Good
Manufacturing Practice regulations ("cGMP").
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.
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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 recordkeeping, 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
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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 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.
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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.
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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 September 16, 1996, the Company had 53 full-time employees, 45 of whom
were engaged in research and development and eight of whom were engaged in
management, administration and finance. Doctorates are held by 24 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
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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.
45
<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. .................. 43 Director of Pharmacology
Susan K. Whoriskey, Ph.D. ................. 37 Director of Molecular Biology
John K. Clarke(2)(5)....................... 43 Chairman of the Board of Directors
Paul R. Schimmel, Ph.D.(5)................. 56 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)................... 68 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.
46
<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.
47
<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 diagnostic
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, except that in May and June of 1996, the Company has granted to each
non-employee director a nonstatutory stock option exercisable for 7,142 shares
at an exercise price of $1.96 and $5.95, respectively. See "Certain
Transactions."
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 officer or employee of the Company will
be granted
48
<PAGE>
automatically a stock option exercisable for 7,000 shares of Common Stock at
fair market value, and each time that he or she is serving as a director on
the business day immediately following an annual meeting of stockholders, such
director will be automatically granted on such business day a stock option
exercisable for 700 shares of Common Stock at fair market value. See "Amended
and Restated 1993 Stock Option Plan."
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.
49
<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.
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 time that a Non-
Employee Director is serving as a director on the business day immediately
following an annual meeting of stockholders, he or she will be automatically
granted on such business day a stock option exercisable for 700 shares of
Common Stock at fair market value, 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 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
50
<PAGE>
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 3,000,000 shares, and the maximum number of shares that may be subject to
stock options granted to any person (including Non-Employee Directors) under
the Plan in a given year is 500,000 shares.
Incentive Stock Options granted under the Plan are not transferable except
by will or the laws of descent and distribution, and may be exercised during
the life of the optionee only by the optionee. Nonstatutory stock options
granted under the Plan are not transferable except by will or the laws of
descent and distribution and except that nonstatutory stock options may be
transferred if and to the extent authorized by the Compensation Committee.
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 July, 1996, the members of the Compensation Committee are
Mr. Clarke, Mr. Conrades and Ms. Feeney, none of whom is an employee of the
Company.
51
<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 May 1996, the Company granted to certain of its officers stock options
under the Plan exercisable for an aggregate of 126,507 shares of Common Stock
at an exercise price of $1.96 per share, and the Company granted to certain of
its directors stock options exercisable for an aggregate of 42,857 shares of
Common Stock at an exercise price of $1.96 per share.
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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. In addition, the Company may issue Common
Stock after the closing of this Offering to Bristol-Myers Squibb pursuant to
certain antidilution rights of Bristol-Myers Squibb.
In June 1996, the Company granted George Conrades, a director of the Company,
a stock option exercisable for 7,142 shares of Common Stock at an exercise
price of $5.95 per share.
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 those
members of the Company's Board of Directors that are not parties, directly or
indirectly through affiliates, to such transactions and (ii) be on terms no
less favorable to the Company than could be obtained from unrelated third
parties.
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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 sale of 2,816,902 shares of Series D Convertible Preferred Stock
(convertible into 404,414 shares of Common Stock) to Bristol-Myers Squibb on
June 1996 and 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(2).............................. 1,643,499 25.77% 19.62%
221 Nassau Street
Princeton, NJ 08542
Entities affiliated with
Interwest Management Partners(3)................ 789,213 12.37 9.42
300 Sandhill Road
Building 3, Suite 255
Menlo Park, CA 94025-7112
Entities affiliated with
Burr, Egan, Deleage & Co.(4).................... 786,356 12.33 9.39
One Post Office Square, Suite 3800
Boston, MA 02109
Entities affiliated with
Weiss, Peck & Greer, L.L.C.(5).................. 667,308 10.46 7.96
555 California Street, Suite 4760
San Francisco, CA 94104
Entities affiliated with
H&Q Capital Management(6)....................... 428,571 6.72 5.12
50 Rowes Wharf
Boston, MA 02110
Bristol-Myers Squibb Company(7)................. 402,414 6.31 4.80
P.O. Box 4000
Princeton, NJ 08543
Entities affiliated with
Advent International Corporation(8)............. 357,142 5.60 4.26
101 Federal Street
Boston, MA 02110
Scott M. Rocklage(9)............................ 240,302 3.77 2.87
Francis P. Tally................................ 92,857 1.46 1.11
Nancy Gray(10).................................. 12,142 * *
John K. Clarke(11).............................. 1,643,499 25.77 19.62
Paul R. Schimmel(12)............................ 302,856 4.74 3.61
Julius Rebek, Jr.(13)........................... 241,000 3.77 2.88
Ellen M. Feeney(14)............................. 667,308 10.46 7.96
Terrance G. McGuire(15)......................... 778,178 12.20 9.29
Barry Bloom(16)................................. 8,928 * *
George Conrades................................. * * *
All current executive officers and directors as
a group (12 persons)(17)........................ 3,988,944 62.54 47.61
</TABLE>
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- --------
* 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) DSV Management is the general partner of DSV and as such shares voting and
investment power with respect to the shares owned by DSV. DSV Management
may be deemed to beneficially own all of the shares owned by DSV although
DSV Management disclaims beneficial ownership except to the extent of its
proportionate partnership interest in DSV. Mr. Clarke is a general partner
of DSV Management.
(3) Consists of 783,986 shares held by Interwest and 5,227 shares held by
Interwest Investors V. Interwest Management Partners V is the general
partner of Interwest and as such Interwest Management Partners V shares
voting and investment power with respect to the shares owned by Interwest.
Interwest Management Partners V may be deemed to beneficially own all of
the shares owned by Interwest although it disclaims beneficial ownership
except to the extent of its proportionate direct partnership interests in
Interwest. Mr. Arnold Oronsky, a consultant to the Company, is a general
partner of Interwest Management Partners V. Mr. Oronsky may be deemed to
beneficially own all of the shares owned by Interwest Investors V although
he disclaims beneficial ownership except to the extent of his
proportionate partnership interest in Interwest Investors V.
(4) Consists of 778,178 shares held by Alta and 8,178 shares held by Customs
House Partners. Alta V Management Partners, L.P. is the general partner of
Alta and as such shares voting and investment power with respect to the
shares owned by Alta. Alta V Management Partners, L.P. may be deemed to
beneficially own all of the shares owned by Alta although Alta V
Management Partners, L.P. disclaims beneficial ownership except to the
extent of its proportionate partnership interest in Alta. Mr. McGuire is a
general partner of Alta V Management Partners, L.P. Eileen McCarthy is a
general partner of Customs House Partners and as such shares voting and
investment power with respect to the shares owned by Customs House
Partners. Ms. McCarthy may be deemed to beneficially own all of the shares
owned by Customs House Partners although Ms. McCarthy disclaims beneficial
ownership except to the extent of her proportionate partnership interest
in Customs House Partners.
(5) Consists of 354,741 shares held by WPG Enterprise, 256,380 shares held by
WPG Venture and 56,187 shares held by WPG Overseas (the "WPG Group"). WPG
Venture Partners II, L.P. is the general partner of WPG Enterprise and WPG
Venture and is the investment adviser of WPG Overseas. In such capacities,
WPG Venture Partners II, L.P. shares voting and investment control with
respect to the shares owned by the WPG Group. WPG Venture Partners II,
L.P. may be deemed to beneficially own all of the shares owned by the WPG
Group although WPG Venture Partners II, L.P. disclaims beneficial
ownership except to the extent of its proportionate partnership interest
in each of the partnerships in the WPG Group. Ms. Feeney is a general
partner of WPG Venture Partners II, L.P.
(6) Consists of 238,095 shares held by H&Q Healthcare Investors and 190,476
shares held by H&Q Life Sciences Investors. H&Q Capital Management, Inc.
is the general partner of H&Q Healthcare Investors and H&Q Life Sciences
Investors and as such H&Q Capital Management, Inc. shares voting and
investment power with respect to the shares owned by H&Q Healthcare
Investors and H&Q Life Sciences Investors. H&Q Capital Management, Inc.
may be deemed to beneficially own all of the shares owned by H&Q
Healthcare Investors and H&Q Life Sciences Investors although H&Q Capital
Management, Inc. disclaims beneficial ownership except to the extent of
its proportionate partnership interest in each of H&Q Healthcare Investors
and H&Q Life Sciences Investors.
(7) Consists of the purchase in June 1996 of 2,816,902 shares of Series D
Convertible Preferred Stock and excludes Common Stock that may be issued
after the closing of this Offering to Bristol-Myers Squibb pursuant to
certain antidilution rights of Bristol-Myers Squibb.
(8) Consists of 295,238 shares held by Rovent II Limited Partnership, 59,523
shares held by Advent Performance Materials Limited Partnership and 2,381
shares held by Advent International Investors II Limited Partnership.
Advent International Corporation is the indirect general partner of each
of Rovent II Limited Partnership, Advent Performance Materials Limited
Partnership and Advent International Investors II Limited Partnership and
as such shares voting and investment power with respect to all of such
shares. Advent International Corporation may be deemed to beneficially own
all of such shares although it disclaims beneficial ownership except to
the extent of its indirect proportionate partnership interest in Rovent II
Limited Partnership, Advent Performance Materials Limited Partnership and
Advent International Investors II Limited Partnership.
(9) 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.
(10) Dr. Gray resigned from the Company in February 1996.
(11) Consists of shares held by DSV. Mr. Clarke, Chairman of the Board of
Directors of the Company, is a general partner of DSV
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<PAGE>
Management, the general partner of DSV. Mr. Clarke shares voting and
investment power 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.
(12) 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.
(13) 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.
(14) Consists of shares held by the WPG Group. 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 and 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.
(15) Consists of shares held by Alta. Mr. McGuire, a director of the Company,
is a general partner of Alta V Management Partners, L.P., 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.
(16) 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.
(17) Includes 52,763 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.
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<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
8,373,023 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 June 30, 1996, there were 6,373,023 shares of Common Stock outstanding
held by 84 stockholders (after giving effect to the 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, but without giving
effect to Common Stock that may be issued after the closing of this Offering
to Bristol-Myers Squibb pursuant to certain antidilution rights of Bristol-
Myers Squibb).
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 June 30, 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
57
<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.
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<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 a
stockholders meeting must be delivered not less than 50 days prior to such
stockholders meeting, provided that in the event that less than 55 days'
notice or prior public disclosure of the date of the meeting is given or made
to stockholders, a notice of nominations or other business to be brought
before such stockholders meeting must be delivered within seven days following
the day on which such notice of the date of the stockholders meeting was given
or such public disclosure was made. 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 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.
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<PAGE>
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
8,373,023 shares of Common Stock. Of these shares, the 2,000,000 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 6,373,023 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 6,373,023
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 177,139 Restricted
Shares held by non-affiliates will be eligible for sale in the public market
without restriction pursuant to Rule 144(k) and approximately 3,120,475
Restricted Shares held by affiliates and approximately 68,068 Restricted
Shares held by non-affiliates will be so eligible subject to compliance with
the volume limitations of Rule 144 described below. The remaining 2,547,809
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 459,482 shares of Common Stock currently outstanding, and an
aggregate of 520,660 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 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.
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<PAGE>
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."
61
<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.......................................................... 2,000,000
=========
</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 300,000
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 6,373,023 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
62
<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
63
<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. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
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.
64
<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 and June 30, 1996
(unaudited) and June 30, 1996 Pro forma Stockholders' Equity
(unaudited).............................................................. F-3
Statements of Operations for the years ended December 31, 1993, 1994 and
1995 and for the (unaudited) six month periods ended June 30, 1995 and
1996..................................................................... F-4
Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and for the (unaudited) six month periods ended June 30, 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) six month period ended
June 30, 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
September 17, 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.
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,
-------------------------
PRO FORMA
STOCKHOLDERS'
JUNE 30, EQUITY
1994 1995 1996 JUNE 30, 1996
----------- ------------ ------------ -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents.......... $ 1,220,983 $ 2,049,555 $ 4,732,273
Short-term investments
..................... -- 1,006,569 --
Accounts receivable... -- 988,000 1,915,000
Prepaid expenses and
other current
assets............... 82,709 66,996 734,086
----------- ------------ ------------
Total current assets.. 1,303,692 4,111,120 7,381,359
Property and equipment.. 3,282,436 3,834,953 4,171,086
Less: Accumulated
depreciation and
amortization......... (486,246) (1,056,802) (1,368,476)
----------- ------------ ------------
Property and
equipment, net....... 2,796,190 2,778,151 2,802,610
Other assets............ 150,181 158,571 171,260
----------- ------------ ------------
Total assets........ $ 4,250,063 $ 7,047,842 $ 10,355,229
=========== ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable...... $ 375,270 $ 124,856 $ 413,266
Accrued expenses...... 647,353 189,663 768,614
Deferred revenue...... -- -- 550,000
Current portion of
long-term debt....... 96,997 168,565 177,164
Current portion of
capital lease
obligations.......... 276,062 413,223 449,646
----------- ------------ ------------
Total current
liabilities........ 1,395,682 896,307 2,358,690
Long-term debt, net of
current portion........ 346,943 479,745 389,378
Long-term capital lease
obligation, net of
current portion........ 684,587 777,017 816,950
Venture capital bridge
loan payable........... 1,000,000 -- --
----------- ------------ ------------
Total liabilities... 3,427,212 2,153,069 3,565,018
----------- ------------ ------------
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
34,751,183 shares;
issued June 1996
37,568,085 shares; and
no shares issued pro
forma.................. 19,733 34,751 37,568 $ --
Common Stock--$.001 par
value; authorized
52,000,000 shares;
issued 1994 910,027
shares; issued 1995
1,016,662 shares;
issued June 30, 1996
1,006,154 shares and
6,373,023 shares pro
forma.................. 910 1,017 1,006 6,373
Additional paid-in
capital................ 7,338,075 16,790,878 20,756,723 20,788,924
Accumulated deficit..... (6,535,867) (11,931,873) (14,005,086) (14,005,086)
----------- ------------ ------------ ------------
Total stockholders'
equity............. 822,851 4,894,773 6,790,211 $ 6,790,211
----------- ------------ ------------ ============
Total liabilities
and stockholders'
equity............. $ 4,250,063 $ 7,047,842 $ 10,355,229
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
CUBIST PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Sponsored research
revenues............... $ -- $ -- $ 1,271,333 $ 100,000 $ 2,046,653
Operating expenses:
Research and
development.......... 1,169,168 3,309,161 4,964,876 2,594,884 3,182,609
General and
administrative....... 546,843 1,448,928 1,708,513 818,977 873,586
----------- ----------- ----------- ----------- -----------
Total operating
expenses........... 1,716,011 4,758,089 6,673,389 3,413,861 4,056,195
Interest income......... 45,028 113,338 239,030 90,312 43,232
Interest expense........ (16,911) (168,284) (232,980) (100,806) (106,903)
----------- ----------- ----------- ----------- -----------
Net loss.............. $(1,687,894) $(4,813,035) $(5,396,006) $(3,324,355) $(2,073,213)
=========== =========== =========== =========== ===========
Pro forma net loss per
share (Note B)......... $ (0.91) $ (0.32)
=========== ===========
Pro forma weighted
average shares used in
computing pro forma net
loss per share (Note
B)..................... 5,897,640 6,449,282
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
CUBIST PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------- ------------------------
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) $(3,324,355) $(2,073,213)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 130,269 355,977 570,556 265,914 311,674
Changes in assets and
liabilities:
Accounts receivable.. -- -- (988,000) -- (927,000)
Prepaid expenses and
other current
assets.............. (69,669) (12,688) 15,713 (32,279) (667,090)
Other assets......... (58,112) -- (8,390) -- --
Accounts payable and
accrued expenses.... 294,930 716,018 (708,104) (655,757) 867,360
Deferred revenue..... -- -- -- -- 550,000
----------- ----------- ----------- ----------- -----------
Total adjustments... 297,418 1,059,307 (1,118,225) (422,122) 134,944
----------- ----------- ----------- ----------- -----------
Net cash used in
operating activities... (1,390,476) (3,753,728) (6,514,231) (3,746,477) (1,938,269)
Cash flows from
investing activities:
Purchase of equipment.. (86,612) (150,726) -- (193,875) (276,742)
Leasehold
improvements.......... (1,183,692) (688,329) (99,325) (88,335) (4,361)
Purchase of short-term
investments........... (2,612,158) -- (3,942,610) (3,379,296) --
Redemption of short-
term investments...... -- 2,612,158 2,936,041 443,254 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) (3,218,252) 725,466
Cash flows from
financing activities:
Issuance of stock...... 6,709,690 148,314 8,467,928 8,008,850 3,968,651
Proceeds from venture
capital bridge loan... -- 1,000,000 -- -- --
Proceeds from long-term
debt.................. 543,393 -- 345,500 345,500 --
Repayments of long-term
debt.................. (13,373) (86,080) (141,130) (64,229) (81,767)
Proceeds from capital
lease financing....... -- -- 94,671 286,522 229,216
Principal payments of
capital lease
obligations........... -- (212,428) (318,272) (178,754) (207,889)
Deposits relating to
capital lease
obligations........... (42,760) (5,001) -- (10,090) (12,690)
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities... 7,196,950 844,805 8,448,697 8,387,799 3,895,521
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............ 1,412,078 (623,886) 828,572 1,423,070 2,682,718
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 $ 2,644,053 $ 4,732,273
=========== =========== =========== =========== ===========
Supplemental disclosures
of cash flow
information:
Cash paid during the
year for interest..... $ 16,911 $ 168,284 $ 232,980 $ 100,806 $ 106,903
Capital lease
obligations entered
into.................. $ 916,926 $ 256,151 $ 547,862 $ 336,712 $ 284,245
</TABLE>
Supplemental disclosure of non-cash transaction: Settlement of venture capital
bridge loan--Note G.
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 SIX MONTHS
ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
# OF SHARES # OF SHARES # OF SHARES # OF SHARES # OF SHARES $ $
PREFERRED A PREFERRED B PREFERRED C PREFERRED D COMMON PREFERRED COMMON
----------- ----------- ----------- ----------- ----------- --------- ------
<S> <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 $19,270 $ 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 $19,733 $ 910
========= ========== ========== ===== ======= ======= ======
<CAPTION>
$
ADDITIONAL PAID-IN CAPITAL
------------------------------------
$ $
ISSUANCE OF NOTES DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES RECEIVABLE COMPENSATION DEFICIT EQUITY
----------- ----------- ------------ ------------ -------------
<S> <C> <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 SIX MONTHS
ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
# OF SHARES # OF SHARES # OF SHARES # OF SHARES # OF SHARES $ $
PREFERRED A PREFERRED B PREFERRED C PREFERRED D COMMON PREFERRED COMMON
----------- ----------- ----------- ----------- ----------- --------- ------
<S> <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 $34,751 $1,017
========= ========== ========== ========= ========= ======= ======
Series D
Preferred Stock
par .001 at
$1.42 share..... 2,816,902 $ 2,817
Series D
Preferred Stock
Offering
Expenses........
Exercise of
Common Stock
Options......... 19,042 19
Repurchase of
Common Stock.... (29,550) (30)
Amortization of
Deferred
Compensation....
Net Loss........
--------- ---------- ---------- --------- --------- ------- ------
6/30/96 Balance
(unaudited)..... 5,000,000 14,733,370 15,017,813 2,816,902 1,006,154 $37,568 $1,006
========= ========== ========== ========= ========= ======= ======
<CAPTION>
$
ADDITIONAL PAID-IN CAPITAL
-------------------------------------
$ $
ISSUANCE OF NOTES DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES RECEIVABLE COMPENSATION DEFICIT EQUITY
------------ ----------- ------------ ------------- ------------- ---
<S> <C> <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
============ =========== ============ ============= ============= ===
Series D
Preferred Stock
par .001 at
$1.42 share..... 3,997,183 4,000,000
Series D
Preferred Stock
Offering
Expenses........ (38,410) (38,410)
Exercise of
Common Stock
Options......... 7,580 7,599
Repurchase of
Common Stock.... (9,798) (9,828)
Amortization of
Deferred
Compensation.... 9,290 9,290
Net Loss........ (2,073,213) (2,073,213)
------------ ----------- ------------ ------------- ------------- ---
6/30/96 Balance
(unaudited)..... $20,960,765 $(178,901) $(25,141) $(14,005,086) $6,790,211
============ =========== ============ ============= ============= ===
</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 SIX MONTHS ENDED JUNE 30, 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.
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.
Pro Forma Stockholders' Equity (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 stockholders' equity has been
prepared assuming the conversion of all the Preferred Stock into Common Stock
on June 30, 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
F-8
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
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 $11.00 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>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------- ------------------------
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) $(3,324,355) $(2,073,213)
Net loss per common
share.................. (1.79) (4.40) (3.73) (2.34) (1.41)
Weighted average number
of common and common
equivalent shares
outstanding............ 942,306 1,093,181 1,446,914 1,420,923 1,471,562
</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.
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.
F-9
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
Interim Financial Statements
The balance sheet as of June 30, 1996, the statement of operations and cash
flows for the six months ended June 30, 1996 and 1995 and the statement of
changes in stockholder's equity for the six months ended June 30, 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 six
months ended June 30, 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 SIX MONTHS ENDED JUNE 30, 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. During 1995, the Company included in sponsored research
revenues $500,000 for the technology licensing fee and $488,000 for certain
research and development revenues in accordance with the agreement. 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
In February 1995, the Company sold an aggregate of 9,428,644 shares of its
Series C Convertible Preferred Stock at a purchase price of $0.60 per share to
a group of existing investors. The purchase price of the Series C Convertible
Preferred Stock was paid in part by the conversion and cancellation of
$1,000,000 of Convertible Demand Promissory Notes which had been issued in
December 1994 to certain existing investors.
Upon consummation of the reverse stock split of Common Stock described in
footnote M, the Company's Convertible Preferred Stock will be 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. The Company's Preferred Stock
will automatically convert into Common Stock at a rate of 1 common share to 7
preferred shares upon the
F-11
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
first public offering where proceeds exceed $15,000,000 and the per share
price exceeds $10.92. 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.
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 principal amount of these notes at December 31, 1995 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. During 1995, $23,615 of principal and
accrued interest under the promissory notes was forgiven and it its expected
that additional amounts will be forgiven in 1996 and 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.
F-12
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
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 under 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............................................... 384,715 $.42-$5.95
Exercised............................................. 15,627 $ .35-$.42
Cancelled............................................. 7,485 $ .35-$.42
------- ----------
Outstanding at June 30, 1996 (unaudited)................ 520,660 $.07-$5.95
======= ==========
</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.
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.
F-13
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
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.
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.
F-14
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
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. On June 11,
1996, the Company granted 4,285 incentive stock options to certain employees
of the Company at a purchase price of $5.95 per share, and the Company granted
10,714 nonstatutory stock options to a director and a consultant of the
Company at a purchase price of $5.95 per share. In addition, in June 1996, the
Company increased the options available for grant under the Amended and
Restated 1993 Stock Option Plan to 1,500,000 shares.
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. REVERSE STOCK SPLIT
The Company anticipates that in September 1996 it will effect a 1-for-7
reverse stock split of the Common Stock. 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................................................................. 22
Management............................................................... 46
Certain Transactions..................................................... 52
Principal Stockholders................................................... 54
Description of Capital Stock............................................. 57
Shares Eligible for Future Sale.......................................... 60
Underwriting............................................................. 62
Legal Matters............................................................ 63
Experts.................................................................. 63
Additional Information................................................... 63
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 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 459,513 shares of its Common Stock, at
prices ranging from $0.007 to $0.42 per share, with an aggregate offering
price of approximately $150,601 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 827,337 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. In addition, the Company may issue Common Stock after the
closing of this Offering to Bristol-Myers Squibb pursuant to certain
antidilution rights of Bristol-Myers Squibb.
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>
- --------
* Previously filed.
+ 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., DULY CAUSED THIS PRE-EFFECTIVE
AMENDMENT NO. 2 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CAMBRIDGE, COMMONWEALTH OF MASSACHUSETTS, ON THIS
17TH DAY OF SEPTEMBER, 1996.
Cubist Pharmaceuticals, Inc.
/s/ Scott M. Rocklage
By: _________________________________
SCOTT M. ROCKLAGE
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS PRE-
EFFECTIVE AMENDMENT NO. 2 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
- ------------------------------------- Executive Officer September 17,
SCOTT M. ROCKLAGE and Director 1996
(Principal
Executive Officer)
* Treasurer (Principal
- ------------------------------------- Financial and September 17,
THOMAS A. SHEA Accounting Officer) 1996
* Chairman of the
- ------------------------------------- Board of Directors September 17,
JOHN K. CLARKE 1996
II-6
<PAGE>
SIGNATURE TITLE DATE
* Director
- ------------------------------------- September 17,
BARRY BLOOM 1996
* Director
- ------------------------------------- September 17,
GEORGE CONRADES 1996
* Director
- ------------------------------------- September 17,
ELLEN M. FEENEY 1996
* Director
- ------------------------------------- September 17,
TERRANCE G. MCGUIRE 1996
* Director
- ------------------------------------- September 17,
JULIUS REBEK, JR 1996
* Director
- ------------------------------------- September 17,
PAUL R. SCHIMMEL 1996
/s/ Scott M. Rocklage
*By: ________________________________
SCOTT M. ROCKLAGE,
ATTORNEY-IN-FACT
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>
- --------
*Previously filed.
+Confidential Treatment requested as to certain portions.
<PAGE>
Exhibit 3.1
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 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:
52,000,000 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");
<PAGE>
-2-
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").
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
<PAGE>
-3-
series of Parity Preferred Stock, the Parity Preferred Stock Conversion Rate
applicable to such series of Parity Preferred Stock.
"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.
"Proportional Adjustment" shall mean a proportional or other equitable
------------ ----------
adjustment made to the Original Issuance Price Per Share of each series of
<PAGE>
-4-
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 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.
<PAGE>
-5-
"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.
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
<PAGE>
-6-
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.
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,
<PAGE>
-7-
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.
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".
<PAGE>
-8-
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 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
<PAGE>
-9-
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
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 prior to the record date fixed for the
determination of the holders of Common Stock entitled to such
<PAGE>
-10-
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 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
<PAGE>
-11-
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 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.
<PAGE>
-12-
(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)
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,
<PAGE>
-13-
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 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
<PAGE>
-14-
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 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;
<PAGE>
-15-
(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 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:
<PAGE>
-16-
(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;
(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
<PAGE>
-17-
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 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
<PAGE>
-18-
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) 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 requisitions 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.
<PAGE>
-19-
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. Except as otherwise specifically provided in this Restated
Certificate of Incorporation, the Corporation reserves the right at any time,
and from time to time, to amend, alter, change or repeal any provision contained
in this Restated Certificate of Incorporation, and to add or insert other
provisions authorized at such time by the laws of the State of Delaware, in the
manner now or hereafter prescribed by law; and all rights, preferences and
privileges of whatsoever nature conferred upon stockholders, directors or any
other persons whomsoever by and pursuant to this Restated Certificate of
Incorporation, in its present form or as hereafter amended, are granted subject
to the rights reserved in this Article Seventh.
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 June, 1996.
CUBIST PHARMACEUTICALS, INC.
By
----------------------
Scott M. Rocklage,
President
ATTEST:
- --------------------------
Justin P. Morreale,
Secretary
<PAGE>
EXHIBIT 3.2
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 stock certificate of the Corporation that represents
shares of Common Stock and that is outstanding 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 stock 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 stock certificates
representing shares of Common Stock issued prior to the Effective Time 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.
(c) Effective from and after the IPO Closing, any vacancies or new
directorships in the Board of Directors, including unfilled vacancies or
new directorships resulting from the removal of directors with cause or
form 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; provided, however, that
the foregoing provisions set forth in this paragraph (c) shall be subject
to any contrary provisions of the Delaware General Corporation Law and/or
the rights of the holders of any series of Preferred Stock with respect to
the filling of vacancies or new directorships in the Board of Directors.
(d) Directors need not be stockholders of the Corporation.
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>
EXHIBIT 3.3
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 30,000,000, 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>
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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.
(c) Except as the Delaware General Corporation Law may otherwise
require, and subject to the rights of the holders of any series of
Preferred Stock with respect the filing of vacancies or new directorships
in the Board of Directors, any vacancies or new directorships in the Board
of Directors, including unfilled vacancies or new directorships resulting
from the removal of directors with cause or form 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.
(d) Directors need not be stockholders of the Corporation.
<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>
EXHIBIT 3.4
AMENDED AND RESTATED
--------------------
BY-LAWS OF
----------
CUBIST PHARMACEUTICALS, INC.
----------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C> <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
2.9. Inspectors...................................................5
2.10. Stockholders' List..........................................6
2.11. 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...............................6
3.4. Resignation..................................................7
3.5. Removal......................................................7
3.6. Place of Meetings and Books..................................8
3.7. Executive Committee..........................................8
3.8. Other Committees.............................................8
3.9. Powers Denied to Committees..................................8
3.10. Substitute Committee Member.................................9
3.11. Compensation of Directors...................................9
3.12. Regular Meetings............................................9
3.13. Special Meetings............................................9
3.14. Quorum......................................................10
3.15. Telephonic Participation in Meetings........................10
3.16. Action by Consent...........................................10
Article IV. - Officers....................................................10
4.1. Selection; Statutory Officers................................10
</TABLE>
<PAGE>
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<TABLE>
<S> <C> <C>
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....................................................11
4.8. Vice-Presidents..............................................12
4.9. Treasurer....................................................12
4.10. Secretary...................................................12
4.11. Assistant Secretary.........................................13
4.12. Assistant Treasurer.........................................13
4.13. Subordinate Officers........................................13
4.14. Removal.....................................................13
4.15. Vacancies...................................................13
Article V. - Stock........................................................14
5.1. Stock........................................................14
5.2. Fractional Share Interests...................................14
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.......................16
Article VI. - Miscellaneous Management Provisions.........................16
6.1. Checks, Drafts and Notes.....................................16
6.2. Notices......................................................16
6.3. Conflict of Interest.........................................17
6.4. Voting of Securities owned by this Corporation...............17
6.5. Inspection of Books..........................................18
Article VII. - Indemnification............................................18
7.1. Right to Indemnification.....................................18
7.2. Right of Indemnitee to Bring Suit............................19
7.3. Non-Exclusivity of Rights....................................20
7.4. Insurance....................................................20
7.5. Indemnification of Employees and Agents of the Corporation...20
Article VIII. - Amendments................................................21
8.1. Amendments...................................................21
</TABLE>
<PAGE>
AMENDED AND RESTATED
--------------------
BY-LAWS OF
----------
CUBIST PHARMACEUTICALS, INC.
----------------------------
ARTICLE I. - 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 though December 31.
ARTICLE II. - 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 of the Corporation ("Preferred Stock") with
<PAGE>
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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 50 days prior to
the meeting; provided, however, that in the event that less than 55 days' notice
-------- -------
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of
<PAGE>
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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 50 days prior to the meeting; provided,
--------
however, that in the event that less than 55 days' notice or prior public
- -------
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to
<PAGE>
-4-
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 may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
<PAGE>
-5-
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
2.9. 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 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
<PAGE>
-6-
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.
2.10. STOCKHOLDERS' LIST. Acomplete 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.
2.11. 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 III. - 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. Adirector need not be a stockholder, a
---------------------------
citizen of the United States, or a resident of the State of Delaware.
3.3. 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, 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
<PAGE>
-7-
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, and subject to the rights of
the holders of any series of Preferred Stock with respect to the filling of
vacancies or new directorships in the Board of Directors, 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 from 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.
3.4. 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.
3.5. 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.
3.6. PLACE OF MEETINGS AND BOOKS. The Board of Directors may hold their
---------------------------
meetings and keep the books of the Corporation outside the
<PAGE>
-8-
State of Delaware, at such places as they may from time to time determine.
3.7. 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.
3.8. 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.
3.9. 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 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
<PAGE>
-9-
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.
3.10. 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.
3.11. 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.
3.12. 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.
3.13. 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 called by the Secretary in like
manner and on like notice, on the written request of two or more directors.
<PAGE>
-10-
3.14. 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.
3.15. 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.
3.16. 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.
4.3. ADDITIONAL OFFICERS. The Board of Directors may appoint such other
-------------------
officers and agents as it shall deem necessary, who shall hold
<PAGE>
-11-
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 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
<PAGE>
-12-
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 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
<PAGE>
-13-
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. Anewly 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.
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
<PAGE>
-14-
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 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
<PAGE>
-15-
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.
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.
<PAGE>
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5.6. DIVIDENDS.
---------
(a) 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.
(b) 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.
-------
(a) 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 also be given by telegram, telecopy or
orally, by telephone or in person.
<PAGE>
-17-
(b) 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 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
<PAGE>
-18-
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 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"),
<PAGE>
-19-
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
<PAGE>
-20-
indemnification of the Indemnitee is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct set forth in the 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 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
<PAGE>
-21-
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>
<TABLE>
<CAPTION>
Exhibit 4.1
CUBIST Pharmaceuticals
<S> <C>
COMMON STOCK SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFICATE IS TRANSFERABLE INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP 229678 10 7
IN BOSTON OR IN NEW YORK CITY
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON CAPITAL STOCK, $.001 PAR VALUE, OF
CUBIST PHARMACEUTICALS, INC.
transferable only on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of
this Certificate and the shares represented hereby are issued under and subject to the laws of the State of Delaware and to the
Certificate of Incorporation and By-laws of the Corporation, all as amended from time to time. This certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by the facsimile signatures of its duly authorized
officers and a facsimile of its corporate seal to be hereunto affixed.
Dated:
/s/ Thomas A. Shea /s/ Scott M. Rocklage
Treasurer President and Chief Executive Officer
</TABLE>
<PAGE>
CUBIST PHARMACEUTICALS, INC.
The Corporation has more than one class of stock authorized to be issued.
The Corporation will furnish without charge to each stockholder upon written
request, a copy of the full text of the preferences, voting powers,
qualifications and special and relative rights of the shares of each class of
stock (and any series thereof) authorized to be issued by the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT........Custodian........
TEN ENT - as tenants by the (Cust) (Minor)
entireties
JT TEN - as joint tenants with Under Uniform Gifts to Minors
right of survivorship Act...............................
and not as tenants in
common
Additional abbreviations may also be used though not in the above list.
For value received,______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________
|________________________________________|
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated, ____________________________
(Signature) _____________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature Guaranteed:______________________________________________________
ALL GUARANTEES MUST BE MADE BY A FINANCIAL INSTITUTION
(SUCH AS A BANK OR BROKER) WHICH IS A PARTICIPANT IN
SECURITIES TRANSFER AGENTS MEDALLION PROGRAM ("STAMP").
THE NEW YORK STOCK EXCHANGE, INC. MEDALLION SIGNATURE
PROGRAM ("MSP") OR THE STOCK EXCHANGES MEDALLION PROGRAM
("SEMP") AND MUST NOT BE DATED. GUARANTEES BY A NOTARY
PUBLIC ARE NOT ACCEPTED.
<PAGE>
BINGHAM, DANA & GOULD LLP
150 FEDERAL STREET EXHIBIT 5.1
BOSTON, MASSACHUSETTS 02110-1726
TEL: 617-951-8000
FAX: 617-951-8736
September 16, 1996
Cubist Pharmaceuticals, Inc.
24 Emily Street
Cambridge, MA 02139
Dear Ladies and Gentlemen:
We have acted as counsel for Cubist Pharmaceuticals, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of 2,000,000 shares and an
additional 300,000 shares which may be offered by the Company in order to cover
over-allotments, if any, of Common Stock, par value $.001 per share (the
"Shares"), pursuant to a Registration Statement on Form S-1 (as amended, the
"Registration Statement"), initially filed with the Securities Exchange
Commission on June 25, 1996.
We have reviewed the corporate proceedings of the Company with respect to
the authorization of the issuance of the Shares. We have also examined and
relied upon originals or copies, certified or otherwise identified or
authenticated to our satisfaction, of such corporate records, instruments,
agreements or other documents of the Company, and certificates of officers of
the Company as to certain factual matters, and have made such investigation of
law and have discussed with officers and representatives of the Company such
questions of fact, as we have deemed necessary or appropriate as a basis for the
opinions hereinafter expressed. In our examination, we have assumed the
genuineness of all signatures, the conformity to the originals of all documents
reviewed by us as copies, the authenticity and completeness of all original
documents reviewed by us in original or copy form and the legal competence of
each individual executing any document.
We have also assumed that an Underwriting Agreement substantially in the
form of Exhibit 1.1 to the Registration Statement by and among the Company and
the underwriters named therein (the "Underwriting Agreement"), will have been
duly executed and delivered pursuant to the authorizing votes of the Board of
Directors of the Company and that the Shares will be sold and transferred only
upon the payment therefor as
<PAGE>
provided in the Underwriting Agreement. We have further assumed that the
registration requirements of the Act and all applicable requirements of state
laws regulating the sale of securities will have been duly satisfied.
This opinion is limited solely to the Delaware General Corporation Law as
applied by courts located in Delaware.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized, and when delivered and paid for in accordance
with the provisions of the Underwriting Agreement, will be validly issued, fully
paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Registration Statement.
Very truly yours,
/s/ Bingham, Dana & Gould LLP
BINGHAM, DANA & GOULD LLP
<PAGE>
EXHIBIT 10.1
Confidential Treatment
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) *******************************************
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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.
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
---------------------------------------
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
------------------------------------- -------------------------
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<PAGE>
Confidential Treatment
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.
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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.
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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;
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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>
EXHIBIT 10.2
Confidential Treatment
. 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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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>
EXHIBIT 10.6
CUBIST PHARMACEUTICALS, INC.
AMENDED AND RESTATED 1993 STOCK OPTION PLAN
(adopted by the Board of Directors on June 11, 1996, but
effective only upon the later of (i) the ratification
and approval thereof by the stockholders of the
Company and (ii) the closing of the Company's
initial public offering)
This Amended and Restated 1993 Stock Option Plan hereby further amends and
restates the Company's current Amended and Restated 1993 Stock Option Plan, as
heretofore amended, to read in its entirety as follows:
1. Definitions. As used in this Amended and Restated 1993 Stock Option
-----------
Plan of Cubist Pharmaceuticals, Inc., the following terms shall have the
following meanings:
1.1. Awarded Grant Date means the date as of which an Awarded Option is
------- ----- ----
granted, as determined under Section 7.1.
1.2. Awarded Option means Options granted pursuant to Section 7 hereof.
------- ------
1.3. Board means the Company's Board of Directors.
-----
1.4 Change in Corporate Control means (1) the time of approval by the
------ -- --------- -------
shareholders of the Company of (A) any consolidation or merger of the Company in
which the Company is not the continuing or surviving corporation or pursuant to
which Shares would be converted into cash, securities or other property, other
than a merger in which the holders of Stock immediately prior to the merger will
have the same proportionate ownership of common stock of the surviving
corporation immediately after the merger as before the merger, (B) any sale,
lease, exchange, or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the Company, or (C)
adoption of any plan or proposal for the liquidation or dissolution of the
Company, or (2) the date on which any "person" (as defined in Section 13(d) of
the Exchange Act), other than the Company or a Subsidiary or employee benefit
plan or trust maintained by the Company or any of its Subsidiaries shall become
(together with its "affiliates" and "associates," as defined in Rule 12b-2 under
the Exchange Act) the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of more than 25% of the Stock outstanding
at the time, without the prior approval of the Board of Directors of the
Company.
1.5. Code means the federal Internal Revenue Code of 1986, as amended.
----
<PAGE>
-2-
1.6. Committee means a committee comprised of two or more Outside
---------
Directors, appointed by the Board of Directors, responsible for the
administration of the Plan, as provided in Section 5; provided, that the Board
--------
of Directors itself may at any time, in its sole discretion, exercise any or all
functions and authority of the Committee.
1.7. Company means Cubist Pharmaceuticals, Inc., a Delaware corporation.
-------
1.8. Exchange Act means the Securities Exchange Act of 1934, as amended.
------------
1.9. Eligible Director means a director of one or more of the Company and
-----------------
its Subsidiaries who is not also an employee or officer of one or more of the
Company and its Subsidiaries.
1.10. Fair Market Value means on any date (i) if the Stock is traded on a
---- ------ -----
stock exchange or on the Nasdaq National Market, the closing price on the date
in question or, if no trades were reported on such date, the closing price on
the most recent trading day preceding such date on which a trade occurred, and
(ii) if the Stock is not traded on a stock exchange or on the Nasdaq National
Market, the value of a Share on such date as determined by the Committee.
1.11. Formula Grant means the grant of a Formula Option.
-------------
1.12. Formula Grant Date shall have the meaning specified in Section 8.1
------------------
hereof.
1.13. Formula Options means Options granted pursuant to Section 8 hereof.
---------------
1.14 Holder means, with respect to any Option, (i) the Optionee to whom
------
such Option shall have been granted under the Plan, or (ii) any transferee of
such Option to whom such Option shall have been transferred in accordance with
the provisions of Section 14.
1.15. Incentive Option means an Awarded Option which by its terms is to be
--------- ------
treated as an "incentive stock option" within the meaning of Section 422 of the
Code.
1.16. Nonstatutory Option means any Option that is not an Incentive
------------ ------
Option.
1.17. Option means an Awarded Option or Formula Option granted under the
------
Plan to purchase Shares.
<PAGE>
-3-
1.18. Option Agreement means an agreement between the Company and an
------ ---------
Optionee, setting forth the terms and conditions of an Option.
1.19. Option Price means the price paid by an Optionee for a Share upon
------ -----
exercise of an Option.
1.20. Optionee means a person eligible to receive an Option, as provided
--------
in Section 6, to whom an Option shall have been granted under the Plan.
1.21. Outside Director shall mean a member of the Board who is not an
------- --------
officer, employee or consultant of the Company or any Subsidiary.
1.22. Plan means this Amended and Restated 1993 Stock Option Plan of the
----
Company, as amended from time to time.
1.23. Retirement means, with respect to any Optionee that is an employee
----------
or director of the Company, the voluntary retirement of such Optionee as an
employee and/or director, as the case may be, of the Company at any time after
age 65 or such earlier age as the Committee shall determine.
1.24. Securities Act means the Securities Act of 1933, as amended.
---------- ---
1.25. Shares means shares of Stock.
------
1.26. Stock means common stock, $.001 par value per share, of the Company.
-----
1.27. Subsidiary means any corporation which qualifies as a subsidiary of
----------
the Company under the definition of "subsidiary corporation" in Section 424(f)
of the Code.
1.28. Ten Percent Owner means a person who owns, or is deemed within the
--- ------- -----
meaning of Section 422(b)(6) of the Code to own, stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company (or
its parent or Subsidiaries). Whether a person is a Ten Percent Owner shall be
determined with respect to each Incentive Option based on the facts existing
immediately prior to the applicable grant date thereof.
1.29. Vesting Year for any portion of any Incentive Option means the
------- ----
calendar year in which that portion of the Incentive Option first becomes
exercisable.
2. Purpose. This Plan is intended to encourage ownership of Stock by
-------
officers, employees and directors of and consultants to the Company and its
<PAGE>
-4-
Subsidiaries and to provide additional incentives for them to promote the
success of the Company's business. The Plan is intended to be an incentive
stock option plan within the meaning of Section 422 of the Code but not all
Options granted hereunder are required to be Incentive Options.
3. Term of the Plan. Options may be granted hereunder at any time in
---- -- --- ----
the period commencing upon the effectiveness of the Plan pursuant to Section 21
and ending on May 6, 2003.
4. Stock Subject to the Plan. Subject to the provisions of Section
----- ------- -- --- ----
15 of the Plan, at no time shall the number of Shares then outstanding which are
attributable to the exercise of Options granted under the Plan, plus the number
----
of Shares then issuable upon exercise of outstanding Options granted under the
Plan exceed 1,500,000 Shares, which aggregate number of Shares, automatically
and without further action, shall increase, on January 1, 1998, and each January
1 thereafter during the term of the Plan, by an additional number of Shares
equal to fifteen percent (15%) of the difference between (i) the total number of
Shares and Stock equivalents (other than Options) issued and outstanding as of
the close of business on December 31 of the immediately preceding year and (ii)
the total number of Shares and Stock equivalents (other than Options) issued and
outstanding as of the close of business on December 31 of the year prior to such
immediately preceding year. Notwithstanding the foregoing, no more than an
aggregate of 3,000,000 Shares (subject to adjustment pursuant to the provisions
of Section 15 hereof) may be issued pursuant to the exercise of Incentive Stock
Options granted under the Plan. Shares to be issued upon the exercise of
Options granted under the Plan may be either authorized but unissued Shares or
Shares held by the Company in its treasury. If any Option expires or terminates
for any reason without having been exercised in full, the Shares not purchased
thereunder shall again be available for Options thereafter to be granted.
5. Administration. The Plan shall be administered by the Committee.
--------------
Subject to the provisions of the Plan, the Committee shall have complete
authority, in its discretion, to make or to select the manner of making the
following determinations with respect to each Awarded Option to be granted by
the Company: (a) the officer, employee or consultant to receive such Awarded
Option; (b) whether the Awarded Option (if granted to an employee) will be an
Incentive Option or Nonstatutory Option; (c) the time of granting the Awarded
Option; (d) the number of Shares subject to the Awarded Option; (e) the Option
Price; (f) the option period; (g) the exercise date or dates or, if the Awarded
Option is immediately exercisable in full on its grant date, the vesting
schedule, if any, applicable to the Shares issuable upon the exercise of the
Awarded Option; (h) the effect of termination of employment, consulting or
association with the Company on the subsequent exercisability of the Awarded
Option; and (i) if the Awarded Option is a Nonstatutory Option, whether such
Nonstatutory
<PAGE>
-5-
Option may be transferred by the Holder to a third party. Subject to the
provisions of the Plan, the Committee shall have complete authority, in its
discretion, to determine whether any Formula Option may be transferred by the
Holder to a third party. In making such determinations, the Committee may take
into account the nature of the services rendered by the respective officers,
employees and consultants, their present and potential contributions to the
success of the Company and its Subsidiaries, and such other factors as the
Committee in its discretion shall deem relevant. Subject to the provisions of
the Plan, the Committee shall also have complete authority to interpret the
Plan, to prescribe, amend and rescind rules and regulations relating to it, to
determine the terms and provisions of the respective Option Agreements (which
need not be identical), and to make all other determinations necessary or
advisable for the administration of the Plan. The Committee's determinations on
the matters referred to in this Section 5 shall be conclusive.
6. Eligibility. An Awarded Option may be granted only to an employee
-----------
or officer of or consultant to one or more of the Company and its Subsidiaries,
provided that Incentive Options may be granted only to an employee (including an
- --------
officer that is an employee) of the Company or one or more of its Subsidiaries.
Each Eligible Director shall receive Formula Options pursuant to Section 8
hereof. Eligible Directors may not be granted Awarded Options in their
capacities as directors of the Company, but those Eligible Directors that are
also consultants to the Company may be granted Awarded Options in their
capacities as consultants. Subject to adjustment pursuant to Section 15 hereof,
no person in any year may be granted Options with respect to more than 500,000
Shares.
7. Awarded Options.
------- -------
7.1. Time of Granting Awarded Options. The granting of an Awarded Option
---- -- -------- ------- -------
shall take place at the time specified by the Committee. Only if expressly so
provided by the Committee, shall the Awarded Grant Date be the date on which an
Option Agreement shall have been duly executed and delivered by the Company and
the Optionee.
7.2. Option Price. The Option Price under each Awarded Option shall be
------ -----
determined by the Committee but, in the case of any Incentive Option, shall be
not less than 100% of the Fair Market Value of Stock on the Awarded Grant Date,
or not less than 110% of the Fair Market Value of Stock on the Awarded Grant
Date if the Optionee is a Ten Percent Owner. The Option Price under each
Nonstatutory Option shall not be so limited solely by reason of this Section
7.2.
7.3. Awarded Option Period. No Incentive Option may be exercised later
------- ------ ------
than the tenth (10th) anniversary of the Awarded Grant Date but in any case not
later than the fifth (5th) anniversary of the Awarded Grant Date if the
<PAGE>
-6-
Optionee is a Ten Percent Owner. The option period under each Nonstatutory
Option shall not be so limited solely by reason of this Section 7.3.
7.4. Vesting. An Awarded Option may become exercisable in such
-------
installments, cumulative or non-cumulative, as the Committee may determine. In
the case of an Awarded Option not otherwise immediately exercisable in full, the
Committee may accelerate the exercisability of such Awarded Option in whole or
in part at any time, provided the acceleration of the exercisability of any
---------
Incentive Option would not cause the Awarded Option to fail to comply with the
provisions of Section 422 of the Code.
7.5. Limit on Incentive Option Characterization. No Incentive Option shall
----- -- --------- ------ ----------------
be considered an Incentive Option to the extent pursuant to its terms it would
permit the Optionee to purchase for the first time in any Vesting Year under
that Incentive Option more than the number of Shares calculated by dividing the
current limit by the Option Price. The current limit for any Optionee for any
Vesting Year shall be $100,000 minus the aggregate Fair Market Value (determined
as of the respective Awarded Grant Dates) of the number of Shares available for
purchase for the first time in the Vesting Year under each other Incentive
Option granted to the Optionee under the Plan and each other incentive stock
option granted to the Optionee after December 31, 1986 under any other incentive
stock option plan of the Company (and any parent corporation and Subsidiaries).
Any Shares subject to an Incentive Option in excess of the foregoing limitation
shall be treated as if granted under a Nonstatutory Option with otherwise
identical terms.
8. Formula Options.
------- -------
8.1. Directors Elected For First Time. Subject to the Plan's effectiveness
--------- ------- --- ----- ----
as set forth in Section 21, each Eligible Director who is elected to the Board,
and was never before a member of the Board, and who is elected to the Board
during the term of the Plan (whether elected at an annual or special
stockholders' meeting or by action of the Board or written consent of
stockholders without a meeting), shall be granted, on the date of such meeting
or other appointment (as used in or with reference to this Section 8.1, a
"Formula Grant Date"), a Nonstatutory Option to purchase 7,000 Shares. Grants
------- ----- ----
of Formula Options under this Section 8.1 occur automatically without any action
being required of the Optionee, the Committee, the Board of Directors, the
Company or any other person, entity or body.
8.2. Annual Formula Grants. Subject to the Plan's effectiveness as set
------ ------- ------
forth in Section 21, on the date of each annual meeting of stockholders of the
Company commencing with the 1997 Annual Meeting of Stockholders of the Company,
each Eligible Director who continues to be a director of the Company on the
business day immediately following such annual meeting of stockholders
<PAGE>
-7-
shall be granted a Nonstatutory Option on such business day (also referred to as
a Formula Grant Date"), to purchase 700 Shares. Grants of Formula Options under
------- ----- ----
this Section 8.2 occur automatically without any action being required of the
Optionee, the Committee, the Board of Directors, the Company or any other
person, entity or body.
8.3. Certain Terms of Formula Options. Each Formula Option granted to an
------- ----- -- ------- -------
Optionee under this Section 8 shall have an exercise price equal to 100% of the
Fair Market Value of the Stock on the applicable Formula Grant Date. No Formula
Option granted pursuant to this Section 8 is intended to qualify as an incentive
stock option within the meaning of Section 422 of the Code. The Formula Grants
shall be evidenced by Option Agreements containing provisions that are in all
respects consistent with this Section 8. All of such Option Agreements shall
contain identical terms and conditions, except as otherwise required or
permitted by this Section 8.
8.4. Option Period. The option period for any Formula Option granted
------ ------
pursuant to this Section 8 shall be ten years from the date of grant.
8.5. Exercisability. Each Formula Option granted to an Eligible Director
--------------
pursuant to Section 8.1 hereof (a "Section 8.1 Formula Option") shall become
exercisable in twelve (12) equal installments, with the first installment
becoming exercisable on the last day of the first full fiscal quarter following
the Formula Grant Date applicable to such Section 8.1 Formula Option and an
additional installment becoming exercisable on the last day of each of the
eleven successive fiscal quarters following such first fiscal quarter; provided,
--------
however, that if the Optionee with respect to such Section 8.1 Formula Option
- -------
shall cease to be a director of the Company and each of its Subsidiaries, then,
notwithstanding anything in this Section 8.5 to the contrary and subject to
Sections 8.6 and 13 hereof, such Section 8.1 Formula Option shall thereafter be
exercisable only with respect to those of such installments for which such
Section 8.1 Formula Option is exercisable, pursuant to this Section 8.5, at the
time of such cessation. Each Formula Option granted to an Eligible Director
pursuant to Section 8.2 hereof (a "Section 8.2 Formula Option") shall become
exercisable in four (4) equal installments, with the first installment becoming
exercisable on the last day of the first full fiscal quarter following the
Formula Grant Date applicable to such Section 8.2 Formula Option and an
additional installment becoming exercisable on the last day of each of the three
successive fiscal quarters following such first fiscal quarter; provided,
--------
however, that if the Optionee with respect to such Section 8.2 Formula Option
- -------
shall cease to be a director of the Company and each of its Subsidiaries, then,
notwithstanding anything in this Section 8.5 to the contrary and subject to
Sections 8.6 and 13 hereof, such Section 8.2 Formula Option shall thereafter be
exercisable only with respect to those of such installments for which such
Section 8.2 Formula Option is exercisable, pursuant to this Section 8.5, at the
time of such cessation.
<PAGE>
-8-
8.6. Certain Modifications of Formula Options. Notwithstanding anything in
----------------------------------------
this Section 8 or any applicable Option Agreement to the contrary, the Board or
any committee of two or more Outside Directors that are disinterested in the
matter may (i) accelerate the exercisability of any Formula Option in whole or
in part at any time or (ii) determine and alter at any time the effect that the
termination of any Optionee's position as a director of the Company shall have
on the exercisability of any Formula Option held by a Holder.
9. Exercise of Option.
-------- -- ------
(a) An Option may be exercised only by giving written notice, in the
manner provided in Section 20 hereof, specifying the number of Shares as to
which the Option is being exercised, accompanied (except as otherwise provided
in paragraph (b) of this Section 9) by full payment for such Shares in the form
of a check or bank draft payable to the order of the Company or other Shares
with a current Fair Market Value equal to the Option Price of the Shares to be
purchased. Receipt by the Company of such notice and payment shall constitute
the exercise of the Option or a part thereof. Subject to the provisions of the
Plan (including, without limitation, Sections 10, 11 and 12) or any applicable
Option Agreement, within 30 days after receipt of such notice and payment, the
Company shall deliver or cause to be delivered to the Holder a certificate or
certificates for the number of Shares then being purchased by the Holder. Such
Shares shall be fully paid and nonassessable. If such Shares are not at that
time effectively registered under the Securities Act, the Holder shall include
with such notice a letter, in form and substance satisfactory to the Company,
confirming that such Shares are being purchased for the Holder's own account for
investment and not with a view to distribution.
(b) In lieu of payment by check, bank draft or other Shares
accompanying the written notice of exercise as described in paragraph (a) of
this Section 9, a Holder may, unless prohibited by applicable law, elect to
effect payment by including with the written notice referred to in paragraph (a)
of this Section 9 irrevocable instructions to deliver for sale to a registered
securities broker acceptable to the Company that number of Shares subject to the
Option being exercised sufficient, after brokerage commissions, to cover the
aggregate exercise price of such Option and, if the Holder further elects, the
withholding obligations of the Optionee and/or such Holder pursuant to Section
12 with respect to such exercise, together with irrevocable instructions to such
broker to sell such Shares and to remit directly to the Company such aggregate
exercise price and, if the Holder has so elected, the amount of such withholding
obligation. The Company shall not be required to deliver to such securities
broker any stock certificate for such Shares until it has received from the
broker
<PAGE>
-9-
such exercise price and, if the Holder has so elected, the amount of such
withholding obligation.
(c) The right of the Holder to exercise an Option pursuant to any
provision of this Section 9, and the obligation of the Company to issue Shares
upon any exercise of an Option pursuant to this Section 9, is subject to
compliance with all of the other provisions of the Plan (including, without
limitation, Sections 10, 11 and 12) or any applicable Option Agreement.
10. Restrictions on Issue of Shares.
------------ -- ----- -- ------
(a) Notwithstanding any other provision of the Plan, if, at any time,
in the reasonable opinion of the Company the issuance of Shares covered by the
exercise of any Option may constitute a violation of law, then the Company may
delay such issuance and the delivery of a certificate for such Shares until (i)
approval shall have been obtained from such governmental agencies, other than
the Securities and Exchange Commission, as may be required under any applicable
law, rule, or regulation; and (ii) in the case where such issuance would
constitute a violation of a law administered by or a regulation of the
Securities and Exchange Commission, one of the following conditions shall have
been satisfied:
(1) the Shares with respect to which such Option has been exercised are at
the time of the issue of such Shares effectively registered under the Securities
Act; or
(2) a no-action letter in form and substance reasonably satisfactory to
the Company with respect to the issuance of such Shares shall have been obtained
by the Company from the Securities and Exchange Commission.
The Company shall make all reasonable efforts to bring about the occurrence of
said events.
(b) Each certificate representing Shares issued upon the exercise of
an Option will bear restrictive legends which may refer to this Plan.
11. Purchase for Investment; Subsequent Registration.
-------- --- ---------- ---------- ------------
(a) Without limiting the generality of Section 10 hereof, if the
Shares to be issued upon exercise of an Option granted under the Plan have not
been effectively registered under the Securities Act, the Company shall be under
no obligation to issue any Shares covered by any Option unless the person who
exercises such Option, in whole or in part, shall give a written representation
to the Company which is satisfactory in form and substance to its counsel and
upon which the Company may reasonably rely, that he or she is acquiring the
Shares
<PAGE>
-10-
issued pursuant to such exercise of the Option as an investment and not
with a view to, or for sale in connection with, the distribution of any such
Shares.
(b) Each Share issued pursuant to the exercise of an Option granted
pursuant to this Plan may bear a reference to the investment representation made
in accordance with this Section 11 and to the fact that no registration
statement has been filed with the Securities and Exchange Commission in respect
to said Stock.
(c) If the Company shall deem it necessary or desirable to register
under the Securities Act or other applicable statutes any Shares with respect to
which an Option shall have been granted, or to qualify any such Shares for
exemption from the Securities Act or other applicable statutes, then the Company
shall take such action at its own expense. The Company may require from each
Option holder, or each holder of Shares acquired pursuant to the Plan, such
information in writing for use in any registration statement, prospectus,
preliminary prospectus or offering circular as is reasonably necessary for such
purpose and may require reasonable indemnity to the Company and its officers and
directors from such holder against all losses, claims, damage and liabilities
arising from such use of the information so furnished and caused by any untrue
statement of any material fact therein or caused by the omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made.
12. Withholding; Notice of Disposition of Stock Prior to Expiration of
----------- ------ -- ----------- -- ----- ----- -- ---------- --
Specified Holding Period.
- --------- ------- ------
(a) Whenever Shares are to be issued in satisfaction of an Option
granted hereunder, the Company shall have the right to require the Optionee
and/or any subsequent Holder to remit to the Company an amount sufficient to
satisfy federal, state, local, employment or other tax withholding requirements
if and to the extent required by law (whether so required to secure for the
Company an otherwise available tax deduction or otherwise) prior to the delivery
of any certificate or certificates for such Shares.
(b) The Company may require as a condition to the issuance of Shares
covered by any Incentive Option that the party exercising such Option give a
written representation to the Company which is satisfactory in form and
substance to its counsel and upon which the Company may reasonably rely, that he
or she will report to the Company any disposition of such Shares prior to the
expiration of the holding periods specified by Section 422(a)(1) of the Code.
If and to the extent that the realization of income in such a disposition
imposes upon the Company federal, state, local or other withholding tax
requirements, or any such withholding is required to secure for the Company an
otherwise
<PAGE>
-11-
available tax deduction, the Company shall have the right to require that the
recipient remit to the Company an amount sufficient to satisfy those
requirements; and the Company may require as a condition to the issuance of
Shares covered by an Incentive Option that the party exercising such Incentive
Option give a satisfactory written representation promising to make such a
remittance.
(c) The Committee may, at or after grant, permit an Optionee and/or
subsequent Holder to satisfy any tax withholding requirements pertaining to the
exercise of an Option by delivery to the Company of Shares (including, without
limitation, Shares retained from the Option exercise that is creating the tax
obligation) having a value equal to the amount to be withheld. The value of
Shares to be so delivered shall be based on the Committee's determination of the
Fair Market Value of a Share on the date the amount of tax to be withheld is to
be determined.
13. Termination of Association with the Company. If an Optionee ceases to
----------- -- ----------- ---- --- -------
be an employee, director or consultant of the Company and its Subsidiaries for
any reason other than Retirement or death of such Optionee, any Option held by
such Optionee and/or any subsequent Holder may be exercised by such Optionee
and/or such subsequent Holder at any time within 90 days after the termination
of such relationship, but only to the extent exercisable at termination and in
no event after the applicable option period. If an Optionee enters Retirement
or dies, any Option held by such Optionee and/or any subsequent Holder may be
exercised by such Optionee, such subsequent Holder and/or the executor or
administrator of such Optionee or such subsequent Holder at any time within the
shorter of the applicable option period or 12 months after the date of the
Optionee's Retirement or death, but only to the extent exercisable at the time
of such Optionee's Retirement or death. Options which are not exercisable at
the time of termination of such relationship between the Company and the
Optionee or which are so exercisable but are not exercised within the time
periods described above shall terminate. Notwithstanding the foregoing, in the
event that (i) the applicable Option Agreement with respect to an Option shall
contain specific provisions governing the effect that any such termination shall
have on the exercisability of such Option or (ii) the Board, the Committe or any
other committee of the Board composed of Outside Directors that are
disinterested on the matter, as appropriate, shall at any time adopt specific
provisions governing the effect that any such termination shall have on the
exercisability of such Option, then such provisions shall, to the extent that
they are inconsistent with the provisions of this Section 13, control and be
deemed to supersede the provisions of this Section 13. For purposes of this
Section 13, military or sick leave shall not be deemed a termination of
employment, provided that it does not exceed the longer of 90 days or the period
--------
during which the absent Optionee's reemployment rights, if any, are guaranteed
by statute or by contract.
<PAGE>
-12-
14. Transferability of Options. Incentive Options shall not be
--------------- -- -------
transferable, otherwise than by will or the laws of descent and distribution,
and may be exercised during the life of the Optionee only by the Optionee.
Nonstatutory Options shall not be transferable; provided, however, that
-------- -------
Nonstatutory Options shall be transferable by will or the laws of descent and
distribution; and provided, further, that Nonstatutory Options may be
-------- -------
transferred to a third party if and to the extent authorized and permitted by
the Compensation Committee. In granting its authorization and permission to any
proposed transfer of a Nonstatutory Option to a third party, the Compensation
Committee may impose conditions or requirements that must be satisfied by the
transferor or the third party transferee prior to or in connection with such
transfer, including, without limitation, any conditions or requirements that may
be necessary or desirable, in the sole and absolute discretion of the Committee,
to ensure that such proposed transfer complies with applicable securities laws
or to prevent the Company, such transferor or such third party transferee from
violating or otherwise not be in compliance with applicable securities laws as a
result of such transfer. For purposes of this Section 14, the term Nonstatutory
Option shall include an Option that was an Incentive Option at the time of
grant, but that has been subsequently been disqualified or otherwise lost its
status as an Incentive Option. The restrictions on transferability set forth in
this Section 14 shall in no way preclude any Holder from effecting "cashless"
exercises of an Option pursuant to, and in accordance with, Section 9(b) hereof.
15. Adjustment of Number of Option Shares. In the event of any stock
---------- -- ------ -- ------ ------
dividend payable in Stock or any split-up or contraction in the number of Shares
prior to the exercise in full of an Option, the number of Shares subject to the
Option and the price to be paid for each Share subject to the Option shall be
proportionately adjusted. In the event of any reclassification or change of
outstanding Stock or in case of any consolidation or merger of the Company with
or into another company or in case of any sale or conveyance to another company
or entity of the property of the Company as a whole or substantially as a whole,
shares of stock or other securities equivalent in kind and value to those shares
a Holder would have received if he or she had held the full number of Shares
subject to the Option immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance and had continued to hold those shares
(together with all other shares, stock and securities thereafter issued in
respect thereof) to the time of the exercise of the Option shall thereupon be
subject to the Option. Upon dissolution or liquidation of the Company, the
Option shall terminate, but the Holder (if at the time the Optionee is in the
employ or retained as a consultant or serving as a director of the Company or
any of its Subsidiaries) shall have the right, immediately prior to such
dissolution or liquidation, to exercise the Option to the extent not theretofore
exercised. No fraction of a share shall be purchasable or deliverable upon
exercise, but in the event that any adjustment hereunder of the number of
<PAGE>
-13-
Shares covered by the Option shall cause such number to include a fraction of a
Share, such number of Shares shall be adjusted to the nearest smaller whole
number of shares. In the event of changes in the outstanding Stock by reason of
any stock dividend, split-up, contraction, reclassification, or change of
outstanding Shares of the nature contemplated by this Section 15, the number of
Shares available for the purpose of the Plan as stated in Section 4 hereof shall
be correspondingly adjusted.
16. Change in Corporate Control. Upon a Change in Corporate Control, each
------ -- --------- -------
outstanding Option shall immediately become fully exercisable.
17. Reservation of Stock. The Company shall at all times during the term
----------- -- ----
of the Plan and, without duplication, of any outstanding Options reserve or
otherwise keep available such number of Shares as will be sufficient to satisfy
the requirements of the Plan (if not then terminated) and such outstanding
Options and shall pay all fees and expenses necessarily incurred by the Company
in connection therewith.
18. Limitation of Rights in Stock; No Special Employment or Other Rights.
---------- -- ------ -- ----- -- ------- ---------- -- ----- ------
A Holder shall not be deemed for any purpose to be a stockholder of the Company
with respect to any of the Shares covered by an Option, except to the extent
that the Option shall have been exercised with respect thereto and, in addition,
a certificate shall have been issued therefor and delivered to the Holder or his
agent. Any Stock issued pursuant to the Option shall be subject to all
restrictions upon the transfer thereof which may be now or hereafter imposed by
the Certificate of Incorporation, and the By-laws of the Company, if any.
Nothing contained in the Plan or in any Option shall confer upon any Optionee
any right with respect to the continuation of his or her employment with, or
retention as a consultant, director or advisor to, the Company (or any
Subsidiary), or interfere in any way with the right of the Company (or any
Subsidiary), subject to the terms of any separate employment or consulting
agreement or provision of law or corporate articles or by-laws to the contrary,
at any time to terminate such employment, consulting, directorship or advisory
relationship or to increase or decrease the compensation of the Optionee from
the rate in existence at the time of the grant of an Option.
19. Termination and Amendment of the Plan. The Board may at any time
----------- --- --------- -- --- ----
terminate the Plan or make such modifications of the Plan as it shall deem
advisable. No termination or amendment of the Plan may, without the consent of
the Holder of any Option, adversely affect the rights of such Holder under such
Option.
20. Notices and Other Communications. All notices and other
------- --- ----- --------------
communications required or permitted under the Plan shall be effective if in
writing and if delivered or sent by certified or registered mail, return receipt
<PAGE>
-14-
requested (a) if to the Holder, at his or her residence address last filed with
the Company, and (b) if to the Company, at 24 Emily Street, Cambridge,
Massachusetts 02139, Attention: President or to such other persons or addresses
as the Holder or the Company may specify by a written notice to the other from
time to time. Copies of all notices sent to any Holder that is not the Optionee
shall also be sent to the Optionee in the manner set forth in this Section 20.
21. Effectiveness. This Amended and Restated 1993 Stock Option Plan was
-------------
approved by the Board of Directors on June 11, 1996, but shall not become
effective until and unless the later of (i) the ratification and approval of
this Amended and Restated 1993 Stock Option Plan by the stockholders of the
Company and (ii) the consummation of the Company's proposed initial public
offering. Prior to the effectiveness of this Amended and Restated 1993 Stock
Option Plan, the Company's existing Amended and Restated 1993 Stock Option Plan,
as amended from time to time prior to the effectiveness of this Amended and
Restated 1993 Stock Option Plan, shall remain in full force and effect.
<PAGE>
EXHIBIT 10.7
Confidential Treatment
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.
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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;
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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>
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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) ************************************************************
------------------------------------------------
********************************************************************************
********************************************************************
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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.
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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. ***********************************
****************************************************
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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.
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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>
EXHIBIT 10.8
Confidential Treatment
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.
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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.
--------------
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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.
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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. *********************************************************
******************************************************
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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.
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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.
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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, ********************************************
---------------
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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) ****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<PAGE>
-16-
iii) During the PRIMARY RESEARCH PROGRAM, the RESEARCH
COMMITTEE of***************************************
***************************************************
***************************************************
***************************************************
***************************************************
***************************************************
***************************************************
***************************************************
***************************************************
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<PAGE>
-17-
********************************************************
********************************************************
********************************************************
********************************************************
********************************************************
********************************************************
********************************************************
********************************************************
********************************************************
********************************************************
(c) SECONDARY SCREENING PROGRAM
i) ************************************************
********************************* CUBIST will begin
a
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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.
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<PAGE>
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2.1.3 Party Responsible for the Medicinal Chemistry And Drug
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Discovery Program.
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2.1.4 Drug Development Program.
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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;
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(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.
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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
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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)
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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
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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
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********** 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
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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
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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
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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>
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<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:
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<TABLE>
<CAPTION>
Annual Net Sales (in millions) ("Tiers") Percentage Of Net Sales
---------------------------------------- -----------------------
<S> <C>
********************* ***********************
********************* ***********************
********************* ***********************
</TABLE>
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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
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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. ********************************
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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
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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>
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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
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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
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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
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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
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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>
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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
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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>
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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
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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. *************************************
---------------
*****************************************************
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<PAGE>
-51-
*******************************************************
*******************************************************
*******************************************************
*******************************************************
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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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 ************************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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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>
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(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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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 *********************************************************
************************************************************
************************************************************
**********************************************************
*********************************************************
******************************************************
************************************************************
********************************************************
**********************************************************
****************
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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>
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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>
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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>
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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>
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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>
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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>
EXHIBIT 10.9
Confidential Treatment
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): *********************************************************************
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***
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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.
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***********************************************
"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.
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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).
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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 ***).
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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.
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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>
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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.
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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.
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
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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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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:
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<PAGE>
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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.
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<PAGE>
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<PAGE>
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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,
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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>
EXHIBIT 10.10
Confidential Treatment
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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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.
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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.
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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 *************************.
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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>
EXHIBIT 10.12
Confidential Treatment
[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.
*Confidential treatment requested:
material has been omitted and filed separately with the Commission
<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>
EXHIBIT 11
CUBIST PHARMACEUTICALS, INC.
COMPUTATION OF INCOME PER SHARE
AS OF DECEMBER 31, 1993, 1994 AND 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------- -----------
<S> <C> <C>
Beginning Balance 1/1/93.............................. 444,899
Issuance of Common Stock.............................. 36,751
Issuance of Cheap Stock............................... 460,656
Issuance of Preferred Stock........................... 0
-----------
Weighted Average Shares at 12/31/93................. 942,306
Net Loss............................................ $(1,687,894)
Net Loss per Share.................................. $(1.79)
===========
Beginning Balance 1/1/94.............................. 546,864
Issuance of Common Stock.............................. 85,661
Issuance of Cheap Stock............................... 460,656
Issuance of Preferred Stock........................... 0
-----------
Weighted Average Shares at 12/31/94................. 1,093,181
Net Loss............................................ $(4,813,035)
Net Loss per Share.................................. $(4.40)
===========
Beginning Balance 1/1/95.............................. 910,030 3,729,083
Issuance of Common Stock.............................. 76,228 76,228
Issuance of Cheap Stock............................... 460,656 460,656
Issuance of Preferred Stock........................... 0 1,631,673
----------- -----------
Weighted Average Shares at 12/31/95................. 1,446,914 5,897,640
Net Loss............................................ $(5,396,006) $(5,396,006)
Net Loss per Share.................................. $(3.73) $(0.91)
=========== ===========
Beginning Balance 1/1/96.............................. 1,016,666 5,981,120
Issuance of Common Stock.............................. (5,760) (5,760)
Issuance of Cheap Stock............................... 460,656 460,656
Issuance of Preferred Stock........................... 0 13,266
----------- -----------
Weighted Average Shares at 6/30/96.................. 1,471,562 6,449,282
Net Loss............................................ $(2,073,213) $(2,073,213)
Net Loss per Share.................................. $(1.41) $(0.32)
=========== ===========
</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
September 17, 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
, 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: September 17, 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 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 JUN-30-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 2,049,555 4,732,273
<SECURITIES> 1,006,569 0
<RECEIVABLES> 988,000 1,915,000
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 66,996 734,086
<PP&E> 3,834,953 4,171,086
<DEPRECIATION> 1,056,802 1,368,476
<TOTAL-ASSETS> 7,047,842 10,355,229
<CURRENT-LIABILITIES> 896,307 2,358,690
<BONDS> 1,838,550 1,833,138
0 0
34,751 37,568
<COMMON> 1,017 1,006
<OTHER-SE> 4,859,005 6,751,637
<TOTAL-LIABILITY-AND-EQUITY> 7,047,842 10,355,229
<SALES> 0 0
<TOTAL-REVENUES> 1,271,333 2,046,653
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 6,673,389 4,056,195
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (6,050) 63,671
<INCOME-PRETAX> (5,396,006) (2,073,213)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,396,006) (2,073,213)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,396,006) (2,073,213)
<EPS-PRIMARY> (.91)<F1> (.32)<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>
