<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
- --- of 1934
For the period ended March 31, 1997
OR
- --- Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
Commission file number 0-21379
CUBIST PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3192085
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24 Emily Street
Cambridge, Massachusetts 02139
(Address of principal executive offices)
(617) 576-1999
(Registrant's telephone number, including area code)
None
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
As of May 1, 1997, there were 9,556,395 shares outstanding of the
Company's common stock, $0.001 per value per share.
<PAGE>
CUBIST PHARMACEUTICALS, INC.
INDEX
ITEM PAGE
NUMBER NUMBER
------ ------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets as of March 31, 1997
and December 31, 1996............................. 3
Condensed Statements of Operations for the three
months ended March 31, 1997 and 1996.............. 4
Condensed Statements of Cash Flows for the three
months ended March 31, 1997 and 1996.............. 5
Notes to the Unaudited Condensed Financial
Statements........................................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................... 10
Signature.............................................. 11
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CUBIST PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................... $ 3,892,300 $ 19,329,353
Short-term investments......................................... 10,635,801 --
Accounts receivable............................................ 505,267 505,267
Prepaid expenses and other current assets...................... 426,322 286,642
------------- -------------
Total current assets........................................... 15,459,690 20,121,262
Property and equipment......................................... 5,216,912 4,898,538
Less: Accumulated depreciation and amortization................ (1,956,114) (1,741,152)
------------- -------------
Property and equipment, net.................................... 3,260,798 3,157,386
Long-term investments.......................................... 2,565,297 --
Other assets................................................... 183,799 173,799
------------- -------------
Total assets................................................ $ 21,469,584 $ 23,452,447
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................... $ 533,152 $ 741,409
Accrued expenses............................................... 395,973 484,732
Deferred revenue............................................... 42,300 126,900
Current portion of long-term debt.............................. 193,760 188,062
Current portion of capital lease obligations................... 549,865 559,767
------------- -------------
Total current liabilities................................... 1,715,050 2,100,870
Long-term debt, net of current portion......................... 240,604 291,683
Long-term capital lease obligation, net of current portion..... 804,868 761,284
------------- -------------
Total liabilities........................................... 2,760,522 3,153,837
------------- -------------
Commitments
Stockholders' Equity:
Common Stock--$.001 par value; authorized: 25,000,000 shares,
1997 and 1996; issued: 9,554,759 shares, 1997 and 9,544,373
shares, 1996................................................. 9,555 9,544
Additional paid-in capital..................................... 36,021,423 36,019,608
Accumulated deficit............................................ (17,321,916) (15,730,542)
------------- -------------
Total stockholders' equity.................................. 18,709,062 20,298,610
------------- -------------
Total liabilities and stockholders' equity.................. $ 21,469,584 $ 23,452,447
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
financial statements.
3
<PAGE>
CUBIST PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
<S> <C> <C>
1997 1996
------------- -------------
Sponsored research revenues..................................... $ 834,600 $ 53,667
Operating expenses:
Research and development........................................ 2,011,273 1,523,259
General and administrative...................................... 645,469 376,665
------------- -------------
Total operating expenses..................................... 2,656,742 1,899,924
Interest income................................................. 286,779 25,044
Interest expense................................................ (56,011) (52,014)
------------- -------------
Net loss........................................................ ($ 1,591,374) ($ 1,873,227)
------------- -------------
------------- -------------
Net loss per common share....................................... ($ 0.17) ($ 1.02)
------------- -------------
------------- -------------
Weighted average number of common shares........................ 9,547,771 1,832,534
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
financial statements.
4
<PAGE>
CUBIST PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Cash Flows from operating activities:
Net loss........................................................ $ (1,591,374) $ (1,873,227)
Adjustments to reconcile net loss to net cash provided by/ (used
in) operating activities:
Depreciation and amortization................................... 225,943 152,932
Changes in assets and liabilities:
Accounts receivable............................................. -- 988,000
Prepaid expenses and other current assets.................... (164,043) 11,926
Other assets................................................. (10,000) (5,000)
Accounts payable and accrued expenses........................ (297,015) 99,921
Deferred revenue............................................. (84,600) --
------------- -------------
Total adjustments........................................... (329,715) 1,247,779
------------- -------------
Net cash provided by/(used in) operating activities............. (1,921,089) (625,448)
Cash flows from investing activities:
Purchase of fixed assets........................................ (311,611) (112,532)
Leasehold improvements.......................................... (6,763) --
Purchase of short-term investments.............................. (10,635,801) --
Redemption of short-term investments............................ -- 1,006,569
Purchase of long-term investments............................... (2,540,934) --
------------- -------------
Net cash provided by/(used in) investing activities............. (13,495,109) 894,037
Cash flows from financing activities:
Issuance of stock............................................... (9,156) 2,151
Repayments of debt.............................................. (45,381) (40,274)
Proceeds from capital lease financing........................... 185,665 26,687
Principal payments of capital lease obligations................. (151,983) (114,651)
------------- -------------
Net cash provided by/(used in) financing activities............. (20,855) (126,087)
------------- -------------
Net increase (decrease) in cash and cash equivalents............ (15,437,053) 142,502
Cash and cash equivalents, beginning of period.................. 19,329,353 2,049,555
------------- -------------
Cash and cash equivalents, end of period........................ $ 3,892,300 $ 2,192,057
------------- -------------
------------- -------------
Supplemental disclosures of cash flow information:
Cash paid during the year for interest........................ $ 56,011 $ 52,014
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
financial statements.
5
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 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.
NOTE B. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements reflect all
adjustments, consisting of normal recurring adjustments, which are necessary,
in the opinion of management, for a fair presentation of the results of the
interim periods presented. Interim results are not necessarily indicative of
results for a full year. These unaudited condensed financial statements do
not include all information and footnote disclosures required by generally
accepted accounting principles and therefore should be read in conjunction
with the Company's audited financial statements and related footnotes for the
year ended December 31, 1996 which are included in the Company's Annual
Report on Form 10-K. Such Annual Report on Form 10-K was filed by the Company
with the Securities and Exchange Commission (the "Commission") on March 31,
1997.
NET LOSS PER COMMON SHARE
The net loss per common share is computed based upon the weighted average
number of common shares and common equivalent shares (using the treasury
stock method) outstanding after certain adjustments described below. Common
equivalent shares are not included in the per share calculations where the
effect of their inclusion would be anti-dilutive, except that, in accordance
with Securities and Exchange Commission Staff Accounting Bulletin No. 83, all
common and common equivalent shares issued during the twelve-month period
prior to the filing of the initial public offering, even when anti-dilutive,
have been included in the calculation as if they were outstanding for all
periods, using the treasury stock method and the initial public offering
price of $6.00 per share.
Effective December 31, 1997, the Company will adopt Statement of
Financial Accounting Standards No. 128 (SFAS 128) "Earnings per Share", which
will require the disclosure of Basic Earnings per Common Share and Diluted
Basic Earnings per Common Share for all periods presented. Early application
of SFAS 128 is not allowed, but pro forma disclosure is allowed. The Company
does not expect this to have a material impact on the earnings per share
computation.
NOTE C. SUBSEQUENT EVENT
COLLABORATIVE AGREEMENT
In May 1997, the company entered into a collaborative research agreement
with Novalon Pharmaceutical Corporation. Under the terms of the agreement,
the Company will purchase a minority equity stake in Novalon for $1,000,000.
In addition, the Company will make research support payments and pay
royalties on sales of products developed using the Novalon technology.
Novalon has also granted Cubist an exclusive six month option to acquire all
the outstanding assets of Novalon in an equity-based transaction.
6
<PAGE>
CUBIST PHARMACEUTICALS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except for the historical information contained herein, this quarterly
report on Form 10-Q may contain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including, but not limited to, (i)
statements about the adequacy of the Company's cash, cash equivalents, other
capital resources, interest income and future revenues due under the
Company's collaborative agreements to fund its operating expenses and capital
requirements as currently planned through mid-1998 and (ii) certain
statements identified or qualified by words such as "likely", "will",
"suggests", "may", "would", "could", "should", "expects", "anticipates",
"estimates", "plans", "projects", "believes", or similar expressions (and
variants of such words or expressions). Investors are cautioned that
forward-looking statements are inherently uncertain. Actual performance and
results of operations may differ materially from those projected or suggested
in the forward-looking statements due to certain risks and uncertainties,
including, but not limited to, the risks and uncertainties described or
discussed in the section "Risk Factors" in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996. The forward-looking
statements contained herein represent the Company's judgment as of the date
of this quarterly report on Form 10-Q, and the Company cautions readers not
to place undue reliance on such statements.
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. 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 collaborative agreements
based specifically on its aminoacyl-tRNA synthetase program with
Bristol-Myers Squibb, Merck and Pfizer. Under the collaborative agreements,
the Company is entitled to receive research support payments, technology
licensing fees and, if certain drug development milestones are achieved,
milestone payments. In addition, the Company will be entitled to receive
royalties on worldwide sales of any drug developed and commercialized from
these collaborations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
REVENUES. Total revenues in the three months ended March 31, 1997 were
$835,000 compared to $54,000 in the three months ended March 31, 1996, an
increase of $781,000 or 1,446.3%. The revenue recognized in the three months
ended March 31, 1997 consisted of research support funding from the
Bristol-Myers Squibb and Merck collaborations. In the three months ended
March 31, 1996, total revenues consisted entirely of SBIR Phase I grant
funding.
7
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development
expenses in the three months ended March 31, 1997 were $2,011,000 compared to
$1,523,000 in the three months ended March 31, 1996, an increase of $488,000
or 32.0%. The increase was largely due to increased costs related to
additional personnel and purchases of laboratory research supplies that are
required by such additional personnel.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
in the three months ended March 31, 1997 were $645,000 compared to $377,000
in the three months ended March 31, 1996, an increase of $268,000 or 71.1%.
The increase was largely due to: increased costs related to expenses for
additional personnel and recruiting; expenses for directors and officers
insurance which did not exist prior to the Company's initial public offering;
and increased legal expenses.
INTEREST INCOME AND EXPENSE. Interest income in the three months ended
March 31, 1997 was $287,000 compared to $25,000 in three months ended, March
31, 1996, an increase of $262,000 or 1,048.0%. The increase in interest
income was due primarily to a higher average cash, cash equivalent and
investment balance during the three months ended March 31, 1997 as compared
to the three months ended March 31, 1996. Interest expense in the three
months ended March 31, 1997 was $56,000 as compared to $52,000 during the
three months ended March 31, 1996.
NET LOSS. The net loss during the three months ended March 31, 1997 was
$1,591,000 compared to $1,873,000 during the three months ended March 31,
1996, a decrease of $282,000 or 15.1%. The decrease was primarily due to the
increased revenues associated with the Bristol-Myers Squibb, and Merck
collaborations, which were offset only in part by additional expenses
incurred to support the advancement of the Company's internal research
programs.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations through the sale
of equity securities, equipment financing, sponsored research revenues,
license revenues and interest earned on invested capital. The Company's total
cash, cash equivalent and investments balance at March 31, 1997 was
$17,093,000 compared to $19,329,000 at December 31, 1996. For the three
months ended March 31, 1997, the Company received $835,000 in sponsored
research payments.
Through March 31, 1997, the Company's collaborative partners have
provided the Company with $3.8 million of research support payments and $4.0
million in an equity investment. There can be no assurance that the Company
will receive any additional funding from any of the Company's collaborative
partners.
As of March 31, 1997, the Company had invested an aggregate of $5,217,000
(of which $318,000 was invested during the three months then ended) in
property and equipment, primarily in facility renovations and laboratory
equipment under capital leases. The obligations under capital leases at March
31, 1997 were $1,355,000. Minimum annual principal payments due under capital
leases total $770,000 in 1997. Principal payments decline each year
thereafter until expiration in 2001. The Company made principal payments
under its capital lease obligations of $152,000 in the three months ended on
March 31, 1997. The Company expects its capital expenditures in 1997 to be
approximately $1,000,000 consisting of laboratory and other equipment
purchases.
The Company believes that its existing cash, cash equivalents, other capital
resources, interest income and future revenues which may become due under the
Bristol-Myers Squibb, Merck and Pfizer collaborative agreements, will be
sufficient to fund its operating expenses and capital requirements as currently
planned through mid-1998.
8
<PAGE>
EARNINGS PER SHARE
Effective December 31, 1997, the Company will adopt Statement of
Financial Accounting Standards 128 (SFAS 128) "Earnings per Share", which
will require the disclosure of Basic Earnings per Common Share and Diluted
Basic Earnings per Common Share for all periods presented. Early application
of SFAS 128 is not allowed, but pro forma disclosure is allowed. The Company
does not expect this to have a material impact on the earnings per share
computation.
9
<PAGE>
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1--Acquisition Option Agreement, dated May 5, 1997, by and
among Novalon Pharmaceutical Corporation, certain stockholders
of Novalon Pharmaceutical Corporation, and the Applicant
10.2--Series B Convertible Preferred Stock Purchase Agreement, dated
May 5, 1997, by and between Novalon Pharmaceutical Corporation
and the Applicant
11--Statement of Computation of Earnings Per Share
27--Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
March 31, 1997.
10
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CUBIST PHARMACEUTICALS, INC.
May 14, 1997 By: /s/ Thomas A. Shea
-------------------------------
Thomas A. Shea
Director of Finance
& Administration and Treasurer
(Authorized Officer and Principal
Finance and Accounting Officer)
11
<PAGE>
Confidential Treatment
ACQUISITION OPTION AGREEMENT
THIS ACQUISITION OPTION AGREEMENT, dated this 5th day
of May, 1997, is entered into by and among NOVALON
PHARMACEUTICAL CORPORATION, a Delaware corporation (the
"Corporation"), each of the persons whose signature appears
in the signature pages of this Agreement under the caption
"Novalon Stockholders" (collectively, the "Novalon
Stockholders" and each individually a "Novalon
Stockholder"), and CUBIST PHARMACEUTICALS, INC., a Delaware
corporation ("Cubist").
WHEREAS, pursuant to the terms of that certain Series B
Convertible Preferred Stock Purchase Agreement, dated of
even date herewith (the "Series B Stock Purchase
Agreement"), between the Corporation and Cubist, the
Corporation has agreed to issue and sell to Cubist, and
Cubist has agreed to purchase from the Corporation, ********
shares of the Series B Convertible Preferred Stock, $.001
par value per share, of the Corporation, upon the terms and
subject to the conditions set forth therein; and
WHEREAS, it is a condition precedent to the
consummation by Cubist of all of its obligations under the
Series B Stock Purchase Agreement that the Corporation and
the Novalon Stockholders enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual
covenants and agreements herein contained, the parties
hereto, intending to be legally bound, hereby agree as
follows.
SECTION 1. DEFINITIONS. The following terms as used
herein shall have the meanings set forth below in this
Section 1 or shall have the meanings ascribed thereto
elsewhere as referred to below in this Section 1:
"Acquisition Closing" shall have the
meaning ascribed to such term in Section 2.4
hereof.
"Acquisition Closing Date" shall mean
the date of the Acquisition Closing.
"Affiliate" shall mean, with regard to
any Person, any other Person or entity that
directly or indirectly controls, or is
controlled by, or is under common control
with, such Person.
"Agreement" and "this Agreement" shall
mean this Acquisition Option Agreement, as
amended from time to time.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
<PAGE>
"Average Trading Price Per Share" shall
mean the average of the closing sale prices
per share of Cubist Common Stock on the
Nasdaq Stock Market, as reported in the Wall
Street Journal, ***************************
*********************************************
****************************************.
"Code" shall mean the Internal Revenue
Code of 1986, as amended.
"Collaboration" shall have the meaning
ascribed to such term in the Series B Stock
Purchase Agreement.
"Corresponding Novalon Stock Option"
shall mean, with respect to any Substitute
Stock Option, the Novalon Stock Option in
substitution of which such Substitute Stock
Option was granted pursuant to, and in
accordance with, the provisions of Section
2.5 hereof.
"Cubist Common Stock" shall mean the
common stock, $.001 par value per share, of
Cubist.
"Encumbrances" shall mean any claims,
liens, pledges, options, charges, security
interests, mortgages, conditional sales
agreements, contingent sales agreements, any
title retention agreements, leases,
encumbrances or other rights of third
parties, whether voluntarily incurred or
arising by operation of law, including,
without limitation, any agreement to give any
of the foregoing in the future.
"Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
"Novalon Common Stock" shall mean the
common stock, $.001 par value per share, of
the Corporation.
"Novalon Outstanding Stock" shall mean
all shares of any and all classes or series
of capital stock of the Corporation that are
outstanding immediately prior to the
Acquisition Closing; provided, however, that
the term "Novalon Outstanding Stock" shall
not include any shares of any class or series
of capital stock of the Corporation that are
owned by Cubist.
"Novalon Stock Option" shall have the
meaning ascribed to such term in Section 2.5
hereof.
"Person" shall mean an individual,
partnership, corporation, association,
limited liability company, trust, joint
venture, unincorporated
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
2
<PAGE>
organization, and any government, governmental
department or agency or political subdivision thereof.
"Securities Act" shall mean the
Securities Act of 1933, as amended.
"Subsidiaries" shall mean, collectively,
all corporations, partnerships, limited
liability companies or other Persons with
respect to which the Corporation shall own,
directly or indirectly, more that fifty
percent (50%) of the issued and outstanding
equity interests of such corporations,
partnerships, limited liability companies or
other Persons.
"Substitute Stock Option" shall have the
meaning ascribed to such term in Section 2.5
hereof.
"UNC" shall mean The University of North
Carolina at Chapel Hill.
SECTION 2. ACQUISITION OPTION.
2.1. Option to Acquire Stock.
(a) Subject to and upon the terms and conditions
set forth in this Section 2, Cubist shall have the option
(but not the obligation) to acquire all of the Novalon
Outstanding Stock (the "Acquisition Option"). The
Acquisition Option may only be exercised by Cubist during
the period commencing on the date hereof and ending on
************* (the "Acquisition Option Period"). Cubist
shall exercise the Acquisition Option by giving written
notice of exercise to the Corporation (the "Exercise
Notice"), which Exercise Notice shall specify the proposed
structure of the transaction pursuant to which Cubist shall
acquire all of the Novalon Outstanding Stock and the
proposed date by which such transaction will be consummated.
The Corporation shall send to each Novalon Stockholder a
copy of the Exercise Notice promptly after receipt thereof
by the Corporation.
(b) In the event that Cubist shall not have
exercised the Acquisition Option on or prior to
**************** and that Cubist shall not have terminated
this Agreement pursuant to Section 12(a) hereof, then
************************************************************
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************************************************************
************************************************************
************************************************************
************************************************************
************************************************************
************************************************************
************************************************************
************************************************************
************************************************************
************************************************************
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
3
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************************************************************
************************************************************
************************************************************
************************************************************
************************************************************
************************************************************
************************************************
2.2. Structure of the Transaction; Acquisition
Agreement. Upon exercise by Cubist of the Acquisition
Option pursuant to, and in accordance with, the provisions
of Section 2.1 above, the acquisition by Cubist of all of
the Novalon Outstanding Stock (the "Acquisition") shall be
effected pursuant to a transaction structured as a merger, a
reverse or forward triangular merger, an asset acquisition,
a stock acquisition or otherwise, as may be selected and
requested by Cubist and specified in the Exercise Notice to
be delivered to the Corporation and the Novalon Stockholders
pursuant to Section 2.1 hereof. The Corporation hereby
acknowledges and agrees that the structure of any such
transaction may require that its separate corporate
existence terminate, such as, for example, in the case of a
merger or a reverse triangular merger. Each Novalon
Stockholder hereby acknowledges and agrees that, in the
event that the structure of any such transaction is a stock
acquisition, he will sell or cause to be sold to Cubist all
of the shares of capital stock of the Corporation owned by
such Novalon Stockholder on the Acquisition Closing Date.
The Corporation and the Novalon Stockholders hereby
acknowledge and agree that, in the event that Cubist
exercises the Acquisition Option, the Corporation and the
Novalon Stockholders will be required to enter into an
acquisition agreement with Cubist and/or its Subsidiaries or
Affiliates pursuant to which the Acquisition will be
consummated, and that the terms and conditions of any such
acquisition agreement shall include and/or be consistent
with all of the terms set forth in this Agreement and shall
include such other reasonable terms and provisions
(including representations and warranties, covenants,
indemnification provisions and conditions to closing) as are
customary for similar transactions (any such acquisition
agreement being hereinafter referred to as the "Definitive
Acquisition Agreement"). Upon the execution and delivery of
the Definitive Acquisition Agreement, this Agreement shall
be deemed to have been terminated and superseded by the
Definitive Acquisition Agreement. The failure of the
parties to mutually agree upon and enter into the Definitive
Acquisition Agreement shall in no way relieve the
Corporation and the Novalon Stockholders from their
respective obligations hereunder to consummate the
Acquisition upon and subject to the terms and provisions of
this Agreement. The failure or refusal of any party hereto
to enter into the Definitive Acquisition Agreement having
reasonable and customary terms and conditions shall be a
material breach of such party's obligations under this
Agreement.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
4
<PAGE>
2.3. Consideration; Escrow; Adjustments.
(a) The aggregate purchase price payable by
Cubist for the Novalon Outstanding Stock shall be
************* (the "Purchase Price"), subject to adjustment
pursuant to Section 2.3(b) hereof (the Purchase Price, as so
adjusted, being referred to herein as the "Adjusted Purchase
Price"). At the Acquisition Closing, Cubist shall make
payment of such aggregate purchase price by issuing to the
Novalon Stockholders, as a group, that number of shares of
Cubist Common Stock (the "Consideration Shares") as shall be
equal to the quotient obtained by dividing (i) the Adjusted
Purchase Price by (ii) the Average Trading Price Per Share.
Cubist shall not be required to issue any fractional share,
but, in lieu thereof, Cubist shall make a cash payment equal
to the product obtained by multiplying (x) such fractional
share by (y) the Average Trading Price Per Share. The
Consideration Shares and any cash payment made in lieu of
any fractional share shall be allocated among the Novalon
Stockholders ratably in proportion to the respective number
of shares of Novalon Common Stock owned by the Novalon
Stockholders immediately prior to the Acquisition Closing.
(b) The Purchase Price shall be reduced by the
aggregate amount of any liabilities incurred by the
Corporation after December 31, 1996 that are outside the
ordinary course of business of the Corporation.
(c) Notwithstanding anything in Section 2.3(a) to
the contrary, Cubist shall be entitled to hold-back up to
ten percent (10%) of the Consideration Shares in escrow
until the third anniversary of the Acquisition Closing.
Cubist shall be entitled to proceed against any of the
Consideration Shares held in escrow in the event that Cubist
shall have any claim for indemnification against the Novalon
Stockholders.
(d) Notwithstanding anything in Section 2.3(a) to
the contrary, Cubist shall be entitled (but not required) to
pay up to twenty percent (20%) of the Purchase Price in
cash, in which case the number of Consideration Shares shall
be ratably adjusted based on the Average Trading Price Per
Share.
2.4. Closing. If, but only if, the Acquisition Option
is exercised by Cubist pursuant to, and in accordance with,
the provisions of Section 2.1 above, the closing of the
Acquisition (the "Acquisition Closing") shall be held at the
offices of Bingham, Dana & Gould LLP, 150 Federal Street,
Boston, Massachusetts, on such date as may be mutually
agreed upon by Cubist and the Corporation; provided,
however, that, if Cubist and the Corporation are unable to
agree upon such date, then such date shall be designated by
Cubist, but Cubist may not designate a date earlier than the
thirtieth day following the date that the Exercise Notice is
given. Cubist and the Corporation, or, in the absence of
agreement as to the Acquisition Closing Date, Cubist alone,
shall give written notice to the Novalon Stockholders of the
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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Acquisition Closing Date. At the Acquisition Closing, the
parties shall take such actions as may be required in order
to consummate the Acquisition.
2.5. Stock Options. At the Acquisition Closing, if
any, each stock option of the Corporation that is
outstanding immediately prior thereto (each a "Novalon Stock
Option" and collectively, the "Novalon Stock Options") shall
be canceled, and Cubist shall grant to the holder thereof a
stock option under Cubist's Amended and Restated 1993 Stock
Option Plan (each such stock option granted by Cubist being
referred to herein as a "Substitute Stock Option" and,
collectively with all other stock options granted by Cubist
pursuant to this Section 2.5, the "Substitute Stock
Options") in substitution for such holder's canceled Novalon
Stock Option; provided, however, that in no event shall
Cubist be obligated to grant a Substitute Stock Option
pursuant to this Section 2.5 with respect to any Novalon
Stock Option that was not outstanding as of March 21, 1997.
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the intention of the parties that the Substitute Stock
Options be treated as non-qualified stock options for income
tax purposes. At the Acquisition Closing, Cubist shall
enter into a non-qualified stock option agreement with each
individual to whom Cubist must grant a Substitute Stock
Option pursuant to this Section 2.5, which non-qualified
stock option agreement shall evidence the terms of the
Substitute Stock Option to which it pertains and shall
otherwise be substantially in the form of Cubist's standard
form of non-qualified stock option agreement.
2.6. Common Stock Deemed Outstanding. For purposes of
Section 2.5 hereof, the number of shares of Novalon Common
Stock deemed outstanding immediately prior to the
Acquisition Closing shall be equal to (i) the number of
shares of Novalon Common Stock that are actually issued and
outstanding immediately prior to the Acquisition Closing,
plus (ii) the number of shares of Novalon Common Stock
issuable immediately prior to the Acquisition Closing upon
exercise, exchange or conversion of any security or
instrument exercisable or exchangeable for, or convertible
into, shares of Novalon Common Stock immediately prior to
the Acquisition Closing. Without limiting the generality of
the foregoing
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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provisions of this Section 2.6, the shares of Common Stock issuable
immediately prior to the Acquisition Closing upon conversion of any Preferred
Stock then issued and outstanding shall be included, for purposes of Section
2.5 above, among the number of shares of Novalon Common Stock deemed
outstanding immediately prior to the Acquisition Closing.
2.7. Accounting Treatment. The parties intend that the
Acquisition shall be treated as a pooling of interests for
accounting purposes.
2.8. Tax Treatment. The parties intend that the
Acquisition shall be treated as a reorganization for
purposes of Section 368 of the Code.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE
CORPORATION AND THE NOVALON STOCKHOLDERS. The Corporation
and the Novalon Stockholders hereby jointly and severally
represent and warrant to Cubist that the representations and
warranties made by the Corporation in the Series B Stock
Purchase Agreement are true and correct, all to the same
extent as if such representations and warranties were set
forth in full herein.
SECTION 4. SPECIAL REPRESENTATIONS AND WARRANTIES OF
THE NOVALON STOCKHOLDERS. The Novalon Stockholders hereby
represent and warrant to Cubist as follows:
4.1. Due Authorization, Etc.
(a) Each Novalon Stockholder that is not a
natural person has obtained all necessary authorizations and
approvals from its Board of Directors and shareholders, or
Board of Trustees or other governing body, required for the
execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by each of
the Novalon Stockholders and constitutes the legal, valid
and binding obligation of each of the Novalon Stockholders
enforceable against each of the Novalon Stockholders in
accordance with its terms.
(b) The execution, delivery and performance of
this Agreement by each Novalon Stockholder and his, her, or
its participation in the consummation of the transactions
contemplated hereby are within such Novalon Stockholder's
full legal right, power and authority and do not contravene,
permit the termination of or constitute a default (or an
event which, with or without the giving of notice or the
passage of time, or both, will constitute a default) under
(i) the corporate charter and By-Laws, or other constituent
instruments, of any Novalon Stockholder that is not a
natural person, or (ii) any agreement or other instrument
binding upon such Novalon Stockholder, and will not result
in the creation or imposition of any lien, charge or
encumbrance in favor of any third party upon any of such
Novalon
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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Stockholder's assets or properties. The execution,
delivery and performance by the Novalon Stockholders of this
Agreement do not violate any provision of applicable law or
regulations or any judgment, injunction, award, decree or
order to which any such Novalon Stockholder is subject.
(c) None of the Novalon Stockholders has any
present plan or intention to sell or otherwise transfer the
shares of Cubist Common Stock to be received in connection
with the Acquisition.
4.2. Title to Stock. Schedule 4.2 hereto sets forth
the number of shares of Novalon Common Stock owned by each
Novalon Stockholder on the date hereof. Each Novalon
Stockholder owns of record and beneficially, and on the
Acquisition Closing Date will own of record and
beneficially, all right, title and interest in and to the
shares of Novalon Common Stock set forth opposite such
Novalon Stockholder's name on Schedule 4.2 hereto, free and
clear of all Encumbrances.
4.3. Ownership of Cubist Capital Stock. As of the
date hereof, none of the Corporation, the Novalon
Stockholders or their respective affiliates or associates
(as such terms are defined under the Exchange Act), (i)
beneficially own, directly or indirectly, or (ii) are
parties to any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of,
in each case, shares of capital stock of Cubist other than
as a result of this transaction.
4.4. Securities Act Matters.
(a) If and to the extent that the Acquisition is
consummated, each Novalon Stockholder will be acquiring the
shares of Cubist Common Stock to be issued to such
Stockholder pursuant to the Acquisition for such
Stockholder's account for investment and not with a view to
the distribution thereof. Each Novalon Stockholder
acknowledges that the Consideration Shares to be acquired by
such Novalon Stockholder in connection with the Acquisition
will not be registered under the Securities Act and,
therefore, such Consideration Shares must be held, and the
economic risk of the investment must be borne, indefinitely
unless and until such Consideration Shares are subsequently
registered under the Securities Act or an exemption from
such registration is available.
(b) Such Stockholder has received copies of
Cubist's Annual Report to Stockholders for 1997 and Cubist's
Annual Report on Form 10-K for its fiscal year ended
December 31, 1996 (the "SEC Material"). Cubist has made
available to each Novalon Stockholder or such
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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Novalon Stockholder's purchaser representative, if any, the opportunity to
ask questions of, and receive answers from, Cubist or persons acting on its
behalf concerning the terms and conditions of the Acquisition and to obtain
any additional information that such Novalon Stockholder or such Novalon
Stockholder's purchaser representative may deem necessary to verify the
accuracy of the information contained in the SEC Material.
(c) Each Novalon Stockholder is an "accredited
investor" as defined in Rule 501 promulgated under the
Securities Act or meets the requirements of Section 4.4(d)
below.
(d) As indicated in Schedule 4.4 hereto, each
Novalon Stockholder either (i) has such knowledge and
experience in financial and business matters so that such
Stockholder is capable of evaluating the merits and risks of
an investment in Cubist, or (ii) has relied upon the advice
of such Novalon Stockholder's purchaser representative,
named in Schedule 4.4 hereto, with regard to the
considerations involved in making such investment, and such
purchaser representative and such Novalon Stockholder
together have such knowledge and experience in financial and
business matters so that such purchaser representative and
Novalon Stockholder are capable of evaluating the merits and
risks of such investment.
(e) At the Acquisition Closing, each Novalon
Stockholder shall enter into a Registration Rights
Agreement with Cubist, in form and substance reasonably
satisfactory to such Novalon Stockholder and Cubist,
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Novalon Stockholder hereby agrees that such Registration
Rights Agreement shall also provide that such Novalon
Stockholder shall not be entitled to exercise his, her or
its rights thereunder to the extent that any such exercise
would disqualify the Acquisition as a "pooling of interests"
for accounting purposes.
SECTION 5. CONDUCT OF BUSINESS PRIOR TO ACQUISITION
CLOSING DATE. The Corporation covenants and agrees that
(and the Stockholders covenant and agree that they will
cause the Corporation to), from and after the date of this
Agreement and until the earlier of (i) the Acquisition
Closing Date or (ii) the expiration date of the Acquisition
Option Period, except as otherwise specifically consented to
or approved by Cubist in writing:
5.1. Full Access. The Corporation shall afford to
Cubist and its authorized representatives full access during
normal business hours to all properties, books, records,
contracts and documents of the Corporation and its
Subsidiaries and a full opportunity to make such
investigations as Cubist or any of its authorized
representatives shall desire to make of the Corporation and
its Subsidiaries, and
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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the Corporation shall furnish or cause to be furnished to Cubist and its
authorized representatives all such information with respect to the affairs
and businesses of Corporation and its Subsidiaries as Cubist may reasonably
request.
5.2. Carry on in Regular Course. The Corporation and
its Subsidiaries shall maintain their owned and leased
properties in good operating condition and repair,
reasonable wear and tear excepted, and to make all necessary
renewals, additions and replacements thereto. The
Corporation and its Subsidiaries shall carry on their
business diligently and substantially in the same manner as
heretofore and not make or institute any unusual or novel
methods of manufacture, purchase, sale, lease, management,
accounting or operation. The Corporation and its
Subsidiaries shall preserve all of their accounting and
business records, corporate records, trade secrets and
proprietary information for the benefit of Cubist.
5.3. No Dividends, Issuances, Repurchases, Etc. The
Corporation shall not declare or pay any dividends (whether
in cash, shares of stock, property or otherwise) on, or make
any other distribution (whether in cash, shares of stock,
property or otherwise) in respect of, any shares of its
capital stock, or authorize, sell, issue, purchase, redeem
or acquire for value any shares of its capital stock or any
options, warrants or rights to acquire any shares of its
capital stock.
5.4. No Increases. Neither the Corporation nor any of
its Subsidiaries shall increase the compensation payable or
to become payable to officers, employees or consultants, or
increase any bonus, insurance, pension or other benefit
plan, payment or arrangement made to, for or with any such
officers, employees or consultants.
5.5 Loans; Investments; Prepayments; Contingent
Liabilities. Neither the Corporation nor any of its
Subsidiaries shall borrow money from, or lend money to, any
Person. Neither the Corporation nor any of its Subsidiaries
shall make any investment in any Person. Neither the
Corporation nor any of its Subsidiaries shall guarantee,
indemnify or otherwise become contingently liable in any
way, or act as a surety with respect to, any debt, liability
or obligation of any Person.
5.6 Prepayments; Forgiveness of Debt. Neither the
Corporation nor any of its Subsidiaries shall (i) prepay any
of its debt obligations or otherwise accelerate payment of
any of its debt obligations or (ii) forgive any debt or
obligation owed to the Corporation or such Subsidiary.
5.7 Expenditures. Neither the Corporation nor any of
its Subsidiaries shall accrue, expend or commit, in any
single transaction or series of related transactions, any
amount in excess of $50,000 without the prior written
consent of Cubist.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
10
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5.8 No Unauthorized Subsidiaries. Neither the
Corporation nor any of its Subsidiaries shall not acquire,
own or otherwise have or control any equity interest in any
corporation, partnership, limited liability company or any
other Person, without the prior written consent of Cubist.
5.9. Contracts, Commitments and Related Matters.
Neither Corporation nor any of its Subsidiaries shall enter
into any contract or commitment or engage in any transaction
not in the usual and ordinary course of business and
consistent with their normal business practices.
5.10. Sale, Exchange, Lease or License of Assets.
Neither Corporation nor any of its Subsidiaries shall sell,
exchange, license, lease or otherwise dispose of any asset
or properties without the prior written consent of Cubist.
Without limiting the generality of the foregoing, neither
the Corporation nor any of its Subsidiaries shall license
any of its intellectual property to any Person without the
prior written consent of Cubist.
5.11. Acquisitions of Assets. Except with the prior
written consent of Cubist, neither the Corporation nor any
of its Subsidiaries shall purchase, license, lease or
otherwise acquire any asset or properties, except for
acquisitions of inventory, supplies, tools, spare parts,
research equipment and supplies, laboratory equipment and
supplies and biological materials, in each case in the
ordinary course of business consistent with past practices.
Without limiting the generality of the foregoing, neither
the Corporation nor any of its Subsidiaries shall license
any of intellectual property from any Person without the
prior written consent of Cubist.
5.12. Preservation of Organization. The Corporation
shall use its best efforts to preserve the business
organization of Corporation and its Subsidiaries intact, to
keep available to Cubist the present officers and employees
of Corporation and its Subsidiaries and to preserve for
Cubist the present relationships with suppliers and
customers and others having business relations with the
Corporation or any of its Subsidiaries. The Corporation
shall not amend its Certificate of Incorporation or By-Laws,
except with the prior written consent of Cubist. Neither
the Corporation nor any of its Subsidiaries shall merge or
consolidate with any other Person, or acquire any stock or
securities of any other Person.
5.13. No Default. Neither the Corporation nor any of
its Subsidiaries shall do any act or omit to do any act, or
permit any act or omission to act, which will cause a
material breach of any contract, commitment or obligation of
the Corporation or any of its Subsidiaries.
5.14. Compliance with Laws. The Corporation and its
Subsidiaries shall duly comply in all material respects with
all laws, regulations and orders applicable with respect to
their business.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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5.15. Title to Assets. The Corporation shall continue
to have good and valid record and marketable title to all of
its assets, free and clear of all Encumbrances.
5.16. Advice of Change. The Corporation shall
promptly advise Cubist in writing of any material adverse
change in the business, condition, operations, prospects or
assets of the Corporation and its Subsidiaries.
5.17. Consents of Third Parties. The Corporation
shall employ its best efforts to secure, before the
Acquisition Closing Date, the consent, in form and substance
satisfactory to Cubist and Cubist's counsel, to the
consummation of the transactions contemplated by this
Agreement by each party to any contract, commitment or
obligation of the Corporation or any of its Subsidiaries,
under which such transactions would constitute a default,
would accelerate, modify or vest obligations of the
Corporation or any of its Subsidiaries or would permit
cancellation of any such contract.
5.18. Transactions with Affiliates. Neither
Corporation nor any of its Subsidiaries will enter into any
transaction with any Affiliate.
SECTION 6. COVENANTS OF THE PARTIES.
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* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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6.2. Novalon's Director of Business Development.
During the Acquisition Option Period, Cubist and the
Corporation shall consider and discuss whether to extend an
offer of employment to Clay Thorp, the Corporation's current
Director of Business Development. The parties hereby
acknowledge that the foregoing provisions of this Section
6.2 do not obligate Cubist to employ, or offer employment
to, Clay Thorp.
6.3. Location of Corporation's Operations. During the
Acquisition Option Period, Cubist and the Corporation shall
consider and discuss the advantages and disadvantages to
Cubist of keeping the businesses and operations of the
Corporation in the Chapel Hill, North Carolina area. If,
after such discussions, Cubist determines, in its sole
discretion, that it is in Cubist's best interests to
relocate the businesses and operations of the Corporation to
another location, Cubist shall be free to effect such
relocation at any time after the Acquisition Closing Date
upon providing adequate notice thereof.
6.4. Transfer of Stock; Title to Stock. During the
period commencing on the date hereof and ending on the
earlier of (x) the expiration date of the Acquisition Option
Period or (y) Acquisition Closing Date, each Novalon
Stockholder hereby covenants that:
(i) such Novalon Stockholder shall not sell,
convey, transfer, assign, pledge, encumber or otherwise
dispose of any shares of capital stock of the Corporation or
any interest therein; and
(ii) such Novalon Stockholder shall continue to
have good and valid record and marketable title to all of
the shares of capital stock of the Corporation owned by such
Novalon Stockholder on the date hereof, and all of such
shares shall continue to be free and clear of all
Encumbrances.
6.5. Pooling and Tax-Free Reorganization Treatment.
None of the Corporation, the Novalon Stockholders or Cubist
shall intentionally take or cause to be taken any action,
whether before or after the Acquisition Closing, which would
disqualify the Acquisition as a "pooling of interests" for
accounting purposes or as a "reorganization" within the
meaning of Section 368 of the Code.
6.6. No Solicitation. Unless and until the expiration
of the Acquisition Option Period, none of the Corporation,
its officers, directors, employees, representatives and
agents, including, but not limited to, investment bankers,
attorneys and accountants, or the Novalon Stockholders shall
(and the Novalon Stockholders will not permit the
Corporation to) directly or indirectly encourage, solicit,
initiate or participate in any discussions or negotiations
with, or provide any information to, any corporation,
partnership, person or other entity or group (other than
Cubist and its affiliates or representatives) concerning any
offer or proposal for
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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any merger, tender offer, sale of substantial assets, sale of shares of
capital stock or debt securities or similar transaction involving the
Corporation (an "Acquisition Proposal"). The Corporation will immediately
communicate to Cubist the terms of any proposal, discussion, negotiation or
inquiry relating to an Acquisition Proposal and the identity of the party
making such proposal or inquiry which it may receive in respect of any such
transaction.
6.7. Public Announcements. Neither the Corporation
nor Cubist will distribute any news release or other public
information disclosure with respect to this Agreement or any
of the transactions contemplated hereby without the prior
consent of the other; provided, however, any such prior
consent shall not be required with respect to the
distribution of any such news release or other public
information disclosure to the extent such distribution is
required to satisfy either the Corporation's or Cubist's
obligations under applicable securities laws or is otherwise
required by law.
6.8. Standstill. If the Acquisition Closing occurs,
each Novalon Stockholder hereby covenants and agrees that,
so long as such Novalon Stockholder or any of its affiliates
(as such term is defined in the Exchange Act) owns of record
or beneficially (as such term is defined in the Exchange
Act) any of the Consideration Shares, neither such Novalon
Stockholder nor its affiliates shall, directly or
indirectly, unless authorized in writing by Cubist, in any
manner:
(i) acquire, offer or propose to acquire, solicit
an offer to sell or agree to acquire, directly or
indirectly, alone or in concert with others, by purchase or
otherwise, any direct or indirect beneficial interest in any
voting securities or direct or indirect rights, warrants or
options to acquire, or securities convertible into or
exchangeable for, any voting securities of Cubist;
(ii) make, or in any way participate in, directly
or indirectly, alone or in concert with others, any
"solicitation" of "proxies" to vote (as such terms are used
in the proxy rules of the Securities and Exchange Commission
promulgated pursuant to Section 14 of the Exchange Act) or
seek to advise or influence in any manner whatsoever any
person or entity with respect to the voting of any voting
securities of Cubist;
(iii) form, join or in any way participate in a
"group" within the meaning of Section 13(d)(3) of the
Exchange Act with respect to any voting securities of
Cubist;
(iv) acquire, offer to acquire or agree to
acquire, directly or indirectly, alone or in concert with
others, by purchase, exchange or otherwise, (A) any of the
assets, tangible or intangible, of Cubist or any of its
affiliates or (B) direct or indirect rights, warrants or
options to acquire any assets of Cubist or any of its
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
14
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affiliates, except for such assets as are then being offered for sale by
Cubist, or any of its affiliates;
(v) arrange, or in any way participate, directly
or indirectly, in any financing for the purchase of any
voting securities or securities convertible or exchangeable
into or exercisable for any voting securities or assets of
Cubist or any of its affiliates;
(vi) otherwise act, alone or in concert with
others, to seek to propose to Cubist or any of its
stockholders any merger, business combination,
restructuring, recapitalization or other transaction to or
with Cubist or otherwise see, alone or in concert with
others, to control, change or influence the management,
board of directors, or policies of Cubist or nominate any
person as a director who is not nominated by the then
incumbent directors, or propose any matter to be voted upon
by the stockholders of Cubist; or
(vii) take any action that might result in Cubist
having to make a public announcement regarding any of the
matters referred to in clauses (i) through (vi) of this
Section 6.8, or announce an intention to do, or enter into
any agreement or understanding or discussions with others to
do, any of the actions restricted or prohibited under such
clauses (i) through (vi).
6.9. Non-Competition. If the Acquisition Closing
occurs, each Novalon Stockholder hereby covenants and agrees
that, during the period commencing on the Acquisition
Closing Date and ending on the fifth anniversary of the
Acquisition Closing Date, such Novalon Stockholder shall
not, directly or indirectly:
(i) for its own account or as an employee,
officer, director, partner, joint venturer, shareholder,
investor, consultant or otherwise (except as an investor in
a corporation whose stock is publicly traded and in which
such Novalon Stockholder holds less than 2% of the
outstanding voting shares), engage in any business relating
to the research, discovery, development, sale, licensing,
marketing or other commercialization of (i) any of the
biological targets which Cubist is researching, developing,
otherwise actively pursuing, selling, marketing or otherwise
commercializing at the time of the Acquisition Closing (the
"Cubist Biological Targets") or (ii) anti-bacterial and/or
anti-fungal drugs whose principal mechanism of action is the
inhibition of any Cubist Biological Target;
(ii) solicit the employment of any employee of
Cubist, the Corporation or any of their respective
Subsidiaries; or
(iii) interfere with any business relationship
between Cubist, the Corporation or any other of their
respective Subsidiaries, on the one hand, with any
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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Person (including, without limitation, any licensor, licensee, collaborator,
corporate partner, supplier or customer), on the other hand.
At the Acquisition Closing, Cubist shall deliver to the
Corporation and Dana M. Fowlkes a list of the Cubist
Biological Targets and Dr. Fowlkes shall, promptly
thereafter, send a copy of such list to each of the other
Novalon Stockholders.
SECTION 7. CONDITIONS PRECEDENT TO CUBIST'S
OBLIGATIONS. Notwithstanding Cubist's exercise of the
Acquisition Option pursuant to, and in accordance with, the
provisions of Section 2.1 hereof, Cubist shall be obligated
to consummate the Acquisition only if each of the following
conditions is satisfied at or prior to the Acquisition
Closing Date, unless any such condition is waived in writing
by Cubist:
7.1. Accuracy of Representations and Warranties by the
Corporation and the Novalon Stockholders. The
representations and warranties of the Corporation and the
Novalon Stockholders set forth in Sections 3 and 4 hereof
shall be true and correct in all material respects as of the
Acquisition Closing Date with the same force and effect as
though made again at and as of the Acquisition Closing Date,
except for changes permitted or required by this Agreement.
7.2. Compliance by the Corporation and the Novalon
Stockholders. The Corporation and the Novalon Stockholders
shall have performed and complied in all material respects
with all covenants and agreements contained in this
Agreement required to be performed or complied with by them
on or before the Acquisition Closing Date.
7.3. No Material Change. Since December 31, 1996
there shall not have been or threatened to be any material
damage to or loss or destruction of any properties or assets
owned or leased by the Corporation or any of its
Subsidiaries (whether or not covered by insurance) or any
material adverse change in the condition (financial or
otherwise), operations, business or assets of the
Corporation and its Subsidiaries taken as a whole or
imposition of any laws, rules or regulations which would
materially adversely affect the condition (financial or
otherwise), operations, business or assets of the
Corporation and its Subsidiaries taken as a whole.
7.4. Officers' Closing Certificate. The Corporation
shall have executed and delivered to Cubist at and as of the
Acquisition Closing a certificate, duly executed by the
Corporation's President, in form and substance satisfactory
to Cubist and Cubist's counsel, certifying that the
conditions specified in each of Section 7.1, 7.2 and 7.3
have been satisfied.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
16
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7.5. Definitive Acquisition Agreement. Each of
Cubist, the Corporation and the Novalon Stockholders shall
have executed and delivered to each other counterparts of
the Definitive Acquisition Agreement.
7.6. UNC License Agreement. Each of the Corporation
and UNC shall have executed and delivered to the other
counterparts of a license agreement with respect to the U.S.
patent application entitled "Electrochemical Probes for
Detection of Molecular Interactions and Drug Discovery" and
any continuations and divisions derived therefrom, and such
license agreement shall be in form and substance
satisfactory to Cubist and shall be in full force and effect
prior to and immediately after the Acquisition Closing.
7.7. Invention Assignments. The Corporation shall
have made available to Cubist such invention assignments
requested by Cubist with respect to the U.S. patent
application entitled "Identification of Drugs Using
Complementary Combinatorial Libraries", and such invention
assignments shall be in form and substance satisfactory to
Cubist.
7.8. Employment and Non-Competition Agreement with
Dana Fowlkes. Dana Fowlkes and the Corporation shall have
terminated Dr. Fowlkes employment agreement with the
Corporation, and Dr. Fowlkes shall have executed and
delivered to Cubist an employment and non-competition
agreement (the "Fowlkes Employment Agreement"), pursuant to
which Dr. Fowlkes shall become a Vice President of Cubist
from and after the Acquisition Closing upon such terms and
conditions (including, without limitation, base salary and
fringe benefits) as Cubist and Dr. Fowlkes shall have
mutually agreed upon as reflected in the Fowlkes Employment
Agreement; provided, however, that in no event shall the
base salary and fringe benefits of Dr. Fowlkes under the
Fowlkes Employment Agreement be less than the base salary
and fringe benefits of Dr. Fowlkes under his employment
agreement with the Corporation, as in effect on March 21,
1997.
7.9. Employment Matters.
(a) Each of the scientific employees of the
Corporation shall have agreed to become employees of Cubist
upon the same terms of employment as were in effect for such
scientific employees on March 21, 1997; provided, however,
that the terms of such scientific employees' employment with
Cubist may require that such scientific employees relocate.
(b) Each of the scientific employees of the
Corporation shall have executed and delivered to Cubist a
counterpart of Cubist's standard form of Proprietary
Information and Inventions Agreement, a copy of which is
attached to this Agreement as Exhibit A hereto.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
17
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7.10. Consulting Agreements.
(a) The Corporation and each of its consultants shall
have terminated such consultant's consulting relationship
with the Corporation, and such consultant shall have entered
into a consulting agreement with Cubist for a term equal to
the balance of the term of such consultant's consulting
agreement with the Corporation and upon such other terms
(including, without limitation, consulting effort and
consideration) as were included in such consultant's
consulting agreement with the Corporation, as in effect on
March 21, 1997.
(b) Each of the consultants of the Corporation shall
have executed and delivered to Cubist a counterpart of
Cubist's standard form of Proprietary Information and
Inventions Agreement, a copy of which is attached to this
Agreement as Exhibit A hereto.
7.11. Scientific Advisory Board. Each of Thomas
Shenk, Holden Thorp and Brian Kay shall have agreed to
become members of Cubist's Scientific Advisory Board.
7.12. No Injunctions or Restraints. No temporary
restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the
consummation of the Acquisition shall be in effect.
7.13. Opinion of the Corporation's Counsel. The
Corporation shall have delivered to Cubist the opinion of
Jenner & Block, counsel to the Corporation and the Novalon
Stockholders, dated the Acquisition Closing Date and in form
and substance reasonably satisfactory to Cubist and Cubist's
counsel.
7.14. Accounting Treatment. Cubist shall have
received letters from Coopers & Lybrand L.L.P. (on behalf of
Cubist) and Ernst & Young L.L.P. (on behalf of the
Corporation and the Novalon Stockholders), dated the date of
the Acquisition Closing, substantially to the effect that,
on the basis of a review of this Agreement and the
transactions contemplated hereby, in such accountants'
opinion Accounting Principles Board Opinion No. 16 requires
that the Acquisition be accounted for as a pooling of
interests.
7.15. Tax Opinion. Cubist shall have received a legal
opinion from Bingham, Dana & Gould LLP, counsel to Cubist,
to the effect that, on the basis of the facts and
representations set forth therein, or set forth in writing
elsewhere and referred to therein, for federal income tax
purposes the Acquisition constitutes a reorganization under
Section 368 of the Code. In rendering any such opinions,
such counsel may rely, to the extent it deems necessary or
appropriate, upon opinions of
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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other counsel and upon representations of an officer or officers of Cubist
and the Corporation or any of their affiliates.
7.16. Due Diligence. Cubist shall have completed its
due diligence review of the Corporation and its assets,
properties, contractual obligations, intellectual property
position, business and operations, and the results of such
due diligence review shall be satisfactory to Cubist in its
reasonable discretion.
7.17. Proceedings and Documents Satisfactory. All
proceedings in connection with the Acquisition and the other
transactions contemplated by this Agreement and all
certificates and documents delivered to Cubist pursuant to
this Section 7 shall be reasonably satisfactory to Cubist
and its counsel.
SECTION 8. CONDITIONS PRECEDENT TO THE CORPORATION'S
AND THE NOVALON STOCKHOLDERS' OBLIGATIONS. Notwithstanding
Cubist's exercise of the Acquisition Option pursuant to, and
in accordance with, the provisions of Section 2.1 hereof,
the Corporation and the Novalon Stockholders shall be
obligated to consummate the Acquisition only if each of the
following conditions is satisfied at or prior to the
Acquisition Closing Date, unless any such condition is
waived in writing by the Corporation:
8.1. Compliance by Cubist. Cubist shall have
performed and complied in all material respects with all of
the covenants and agreements required to be performed or
complied with by it on or before the Acquisition Closing
Date.
8.2. Officers' Certificate. Cubist shall have
delivered to the Corporation a certificate of its President,
dated the Acquisition Closing Date, stating that the
conditions set forth in Section 8.1 have been satisfied.
8.3. Employment and Non-Competition Agreement with
Dana Fowlkes. Cubist shall have executed and delivered to
Dana Fowlkes a counterpart of the Fowlkes Employment
Agreement, pursuant to which Dr. Fowlkes shall become a Vice
President of Cubist from and after the Acquisition Closing
upon such terms and conditions (including, without
limitation, base salary and fringe benefits) as Cubist and
Dr. Fowlkes shall have mutually agreed upon as reflected in
the Fowlkes Employment Agreement; provided, however, that in
no event shall the base salary and fringe benefits of Dr.
Fowlkes under the Fowlkes Employment Agreement be less than
the base salary and fringe benefits of Dr. Fowlkes under his
employment agreement with the Corporation, as in effect on
March 21, 1997.
8.4. Employment Matters. Cubist shall have offered
employment to each of the scientific employees of the
Corporation upon the same terms of employment as were
applicable to such scientific employees during their
employment by the
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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Corporation; provided, however, that the terms of such scientific employees
employment with Cubist may require that such scientific employees relocate.
8.5. Consulting Agreements. Cubist shall have
executed and delivered to each of the Corporation's
consultants a consulting agreement with a term equal to the
balance of the term of such consultant's consulting
agreement with the Corporation and upon such other terms
(including, without limitation, consulting effort and
consideration) as were included in such consultant's
consulting agreement with the Corporation, as in effect on
March 21, 1997.
8.7. Scientific Advisory Board. Each of Thomas Shenk,
Holden Thorp and Brian Kay shall have been appointed as
members of Cubist's Scientific Advisory Board.
8.8. No Injunctions or Restraints. No temporary
restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the
consummation of the Acquisition shall be in effect.
8.9. Opinion of Cubist's Counsel. Cubist shall have
delivered to the Novalon Stockholders the opinion of
Bingham, Dana & Gould LLP, counsel to Cubist, dated the
Acquisition Closing Date and in form and substance
reasonably satisfactory to the Novalon Stockholder and their
counsel.
8.10. Tax Opinion. The Novalon Stockholders shall
have received a legal opinion from Jenner & Block, counsel
to the Novalon Stockholders, to the effect that, on the
basis of the facts and representations set forth therein, or
set forth in writing elsewhere and referred to therein, for
federal income tax purposes the Acquisition constitutes a
reorganization under Section 368 of the Code. In rendering
any such opinions, such counsel may rely, to the extent it
deems necessary or appropriate, upon opinions of other
counsel and upon representations of an officer or officers
of Cubist and the Corporation or any of their affiliates.
8.11. Proceedings and Documents Satisfactory. All
proceedings in connection with the Acquisition and the other
transactions contemplated by this Agreement and all
certificates and documents delivered to the Corporation and
the Novalon Stockholders pursuant to this Section 8 shall be
reasonably satisfactory to the Corporation, the Novalon
Stockholders and their counsel.
SECTION 9. CONFIDENTIAL INFORMATION. Any and all
non-public information disclosed by Cubist to Corporation or
by Corporation to Cubist as a result of the negotiations
leading to the execution of this Agreement, or in
furtherance hereof, shall remain subject to the terms of the
Confidential Non-
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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Disclosure Agreement dated March 12, 1997
executed and delivered to each other by Cubist and the
Corporation (the "Confidentiality Agreement").
SECTION 10. SURVIVAL OF REPRESENTATIONS. Each of the
representations and warranties in this Agreement made by the
Corporation or any of the Novalon Stockholders shall survive
the Acquisition Closing and shall expire on the third
anniversary of the Acquisition Closing Date.
SECTION 11. TAX CONSEQUENCES TO THE PARTIES. Cubist,
on the one hand, and the Corporation and the Novalon
Stockholders, on the other, understand and agree that
neither Cubist, on the one hand, nor the Corporation or the
Novalon Stockholders, on the other, are making any
representation or warranty as to the tax consequences of
this Agreement and the events and actions contemplated
hereby. Nonetheless, if the Acquisition Closing occurs all
parties hereto agree to report the Acquisition on their
respective federal income tax returns as a tax-free
reorganization under Section 368 of the Code.
SECTION 12. TERMINATION; LIABILITIES CONSEQUENT
THEREON. This Agreement may be terminated and the
Acquisition abandoned at any time prior to the Acquisition
Closing only as follows:
(a) by Cubist, upon notice to the Corporation at
any time prior to the exercise of the Acquisition Option; or
(b) by Cubist or the Corporation, upon notice to
the other at any time after the expiration of the
Acquisition Option Period if Cubist did not timely exercise
the Acquisition Option pursuant to, and in accordance with,
the provisions of Section 2.1 hereof; or
(c) by Cubist, upon notice to the Corporation if
the conditions set forth in Section 7 shall not have been
satisfied within ninety (90) days following Cubist's
exercise of the Acquisition Option pursuant to, and in
accordance with, the provisions of Section 2.1 hereof; or
(d) by the Corporation, upon notice to Cubist if
the conditions set forth in Section 8 shall not have been
satisfied within ninety (90) days following Cubist's
exercise of the Acquisition Option pursuant to, and in
accordance with, the provisions of Section 2.1 hereof; or
(e) at any time by mutual agreement of Cubist and
the Corporation; or
(f) by Cubist, if there has been any material
breach of any representation, warranty or covenant of the
Corporation or the Novalon
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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Stockholders contained herein and the same has not been cured within 30 days
after notice thereof; or
(g) by the Corporation, if there has been any
material breach of any covenant of Cubist contained herein
and the same has not been cured within 30 days after notice
thereof.
Any termination pursuant to this Section 12 shall be without
liability on the part of any party, unless such termination
is the result of a material breach of this Agreement by a
party to this Agreement in which case such breaching party
shall remain liable for such breach notwithstanding any
termination of this Agreement. The Confidentiality
Agreement shall survive any termination of this Agreement.
SECTION 13. GENERAL.
13.1 Expenses. Each party hereto will pay its own
expenses in connection with the transactions contemplated
hereby, whether or not such transactions shall be
consummated
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13.2. Assignment and Benefits of Agreement. This
Agreement shall be binding upon and shall inure to the
benefit of the parties and their respective successors, but
may not be assigned by any of the parties without the
written consent of the others. Except as aforesaid or as
specifically provided for elsewhere in this Agreement,
nothing in this Agreement, express or implied, is intended
to confer upon any person other than the parties hereto and
their said successors and permitted assigns, any rights
under or by reason of this Agreement.
13.3 Remedies. In case that any one or more of the
covenants and/or agreements set forth in this Agreement
shall have been breached by any party hereto, the party or
parties entitled to the benefit of such covenants or
agreements may proceed to protect and enforce its or their
rights, either by suit in equity and/or
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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action at law, including, but not limited to, an action for damages as a
result of any such breach and/or an action for specific performance of any
such covenant or agreement contained in this Agreement. The rights, powers
and remedies of the parties to this Agreement are cumulative and not
exclusive of any other right, power or remedy which such parties may have
under any other agreement or law. No single or partial assertion or exercise
of any right, power or remedy of a party hereunder shall preclude any other
or further assertion or exercise thereof.
13.4 Entire Agreement. Except as specifically
otherwise provided for elsewhere in this Agreement, this
Agreement contains the entire agreement among the parties
with respect to the subject matter hereof and supersedes all
prior and contemporaneous arrangements or understandings
with respect thereto.
13.5 Notices. All notices, requests, consents and
other communications hereunder to any party shall be deemed
to be sufficient if contained in a written instrument
delivered in person or duly sent by first class, registered,
certified or overnight mail, postage prepaid, or telecopied
with a confirmation copy by regular mail, addressed or
telecopied, as the case may be, to such party at the address
or telecopier number, as the case may be, set forth below or
such other address or telecopier number, as the case may be,
as may hereafter be designated in writing by the addressee
to the addressor listing all parties:
(i) If to the Corporation, to:
Novalon Pharmaceutical Corporation
214 West Cameron Avenue, Suite B
Chapel Hill, N.C. 27516
Attention: Dana M. Fowlkes, M.D., Ph.D.,
President & CEO
Telecopier:(919) 968-9255
with a copy to:
Jenner & Block
12th Floor
601 Thirteenth Street, N.W.
Washington, D.C. 20005
Attention: D. Joe Smith, Esq.
Telecopier: (203) 639-6066
(ii) If to Cubist, to:
Cubist Pharmaceuticals, Inc.
24 Emily Street
Cambridge, MA 02139
Attention: Scott M. Rocklage, Ph.D.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
23
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Telecopier: (617) 576-0232
with a copy to:
Bingham, Dana & Gould LLP
150 Federal Street
Boston, MA 02110-1726
Attention: Julio E. Vega, Esquire
Telecopier:(617) 951-8736
(iii) If to any Novalon Stockholder, to
c/o Novalon Pharmaceutical Corporation
214 West Cameron Avenue, Suite B
Chapel Hill, N.C. 27516
Attention: Dana M. Fowlkes, M.D., Ph.D.,
President & CEO
Telecopier:(919) 968-9255
with a copy to:
Jenner & Block
12th Floor
601 Thirteenth Street, N.W.
Washington, D.C. 20005
Attention: D. Joe Smith, Esq.
Telecopier: (203) 639-6066
Any notice or other communication pursuant to this Agreement
shall be deemed to have been duly given or made and to have
become effective (i) when delivered in hand to the party to
which it was directed, (ii) if sent by telex, telecopier,
facsimile machine or telegraph and properly addressed in
accordance with the foregoing provisions of this Section
13.5, when received by the addressee, (iii) if sent by
commercial courier guaranteeing next business day delivery,
on the business day following the date of delivery to such
courier, or (iii) if sent by first-class mail, postage
prepaid, and properly addressed in accordance with the
foregoing provisions of this Section 13.5, (A) when received
by the addressee, or (B) on the third business day following
the day of dispatch thereof, whichever of (A) or (B) shall
be the earlier.
13.6 Amendments and Waivers. Any provision of this
Agreement may be amended, modified or terminated, and the
observance of any provision of this Agreement may be waived
(either generally or in a particular instance and either
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
24
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retrospectively or prospectively), with, but only with, the
written consent of each of the parties hereto.
13.7 Severability. Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating
the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other
jurisdiction.
13.8 No Waiver of Future Breach. No failure or delay
on the part of any party to this Agreement in exercising any
right, power or remedy hereunder shall operate as a waiver
thereof. No assent, express or implied, by any party hereto
to any breach in or default of any agreement or condition
herein contained on the part of any other party hereto shall
constitute a waiver of or assent to any succeeding breach in
or default of the same or any other agreement or condition
hereof by such other party.
13.9 Attorneys' Fees. If any party to this Agreement
brings an action to enforce its rights under this Agreement
and such party is the prevailing party, then such party
shall be entitled to recover its costs and expenses,
including, without limitation, reasonable attorneys' fees,
incurred in connection with such action, including any
appeal of such action. The amount of such costs and
expenses to which such party shall be entitled shall be
determined and set by the judge and not a jury.
13.10 Headings. The headings of the various
sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be
a part of this Agreement.
13.11 Nouns and Pronouns. Whenever the context may
require, any pronouns used herein shall include the
corresponding masculine, feminine or neuter forms, and the
singular form of names and pronouns shall include the plural
and vice-versa.
13.12 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Delaware, excluding choice of law rules thereof.
13.13 Counterparts. This Agreement may be executed
in any number of counterparts, and each such counterpart
shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
25
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* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first above written.
CORPORATION:
NOVALON PHARMACEUTICAL
CORPORATION
By: [signature appears here]
--------------------------------------------
Name: Dana M. Fowlkes, M.D., Ph.D.
Title: President & CEO
CUBIST:
CUBIST PHARMACEUTICALS, INC.
By: [signature appears here]
--------------------------------------------
Scott M. Rocklage, President
NOVALON STOCKHOLDERS:
[signature appears here]
--------------------------------------------
Dana M. Fowlkes
[signature appears here]
--------------------------------------------
Susan T. Lord
[signature appears here]
--------------------------------------------
Thomas E. Shenk
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
27
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Confidential Treatment
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT, dated this 5th day of May, 1997, is entered
into by and between NOVALON PHARMACEUTICAL CORPORATION, a
Delaware corporation (the "Corporation"), and CUBIST
PHARMACEUTICALS, INC. (the "Investor").
WHEREAS, the Corporation desires to issue and sell
to the Investor, and the Investor desires to purchase
from the Corporation, shares of the Series B Convertible
Preferred Stock, $.001 par value per share, of the
Corporation, upon the terms and subject to the conditions
set forth herein.
NOW, THEREFORE, in consideration of the mutual
covenants and agreements herein contained, the parties
hereto, intending to be legally bound, hereby agree as
follows.
SECTION 1. DEFINITIONS. The following terms as
used herein shall have the meanings set forth below in
this Section 1 or shall have the meanings ascribed
thereto elsewhere in this Agreement as referred to below
in this Section 1:
"Acquisition" shall have the meaning ascribed
to such term in the Acquisition Option Agreement.
"Acquisition Option Agreement" shall mean
that certain Acquisition Option Agreement, in
substantially the form of Exhibit A hereto, among
the Corporation, the Novalon Stockholders (as
defined therein) and the Investor.
"Acquisition Option" shall have the meaning
ascribed to such term in the Acquisition Option
Agreement.
"Acquisition Option Period" shall have the
meaning ascribed to such term in the Acquisition
Option Agreement.
"Affiliate" shall mean, with regard to any
Person, any other Person or entity that directly
or indirectly controls, or is controlled by, or is
under common control with, such Person.
"Agreement" and "this Agreement" shall mean
this Series B Convertible Preferred Stock Purchase
Agreement, dated May 5, 1997, by and among the
Corporation and the Investor, as amended from time
to time.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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"Benefit Plan" shall mean any plan, fund,
program, policy, arrangement or contract, whether
formal or informal, which is in the nature of (i)
an employee pension benefit plan (as defined in
Section 3(2) of ERISA) or (ii) an employee welfare
benefit plan (as defined in Section 3(l) of
ERISA).
"Closing" shall have the meaning provided
therefor in Section 3 hereof.
"Closing Date" shall have the meaning
provided therefor in Section 3 hereof.
"Code" shall mean the Internal Revenue Code
of 1986, as amended.
"Common Stock" shall mean the Common Stock,
$.001 par value per share, of the Corporation.
"Environmental Laws" shall mean any Federal,
state or local law or ordinance or regulation
pertaining to the protection of human health,
safety or the environment, including, without
limitation, the Occupational Safety and Health
Act, 29 U.S.C. Sections 651 et seq., the
Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Sections 9601, et
seq., the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. Sections 11001, et
seq., and the Resource Conservation and Recovery
Act, 42 U.S.C. Sections 6901, et seq.
"ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended.
"Hazardous Substances" shall include medical
waste, biological waste, oil and petroleum
products, asbestos, polychlorinated biphenyls,
urea formaldehyde and any other materials
classified as pollutants or contaminants or as
hazardous or toxic or as a biohazard under any
Environmental Laws.
"Investors' Rights Agreement" shall mean that
certain Investors' Rights Agreement, in
substantially the form of Exhibit B hereto, among
the Corporation and the Investors (as defined
therein).
"Management Stock Restriction Agreement"
shall mean that certain Stock Restriction
Agreement, in substantially the form of Exhibit C
hereto, among the Corporation, the Management
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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Stockholders (as defined therein), the Management
Stockholder Transferees (as defined therein) and
the Investors (as defined therein).
"Person" shall mean an individual,
partnership, corporation, association, limited
liability company, trust, joint venture,
unincorporated organization, and any government,
governmental department or agency or political
subdivision thereof.
"Registration Rights Agreement" shall mean
that certain Registration Rights Agreement, in
substantially the form of Exhibit D hereto, among
the Corporation and the Investors (as defined
therein).
"Related Documents" shall mean, collectively,
this Agreement, the Investors' Rights Agreement,
the Management Stock Restriction Agreement, the
Registration Rights Agreement, the Restated
Certificate of Incorporation and the Acquisition
Option Agreement.
"Restated Certificate of Incorporation" shall
mean the Restated Certificate of Incorporation
filed with the Secretary of State of Delaware on
May 2, 1997, a copy of which is attached hereto as
of Exhibit E, as amended and in effect from time
to time.
"Returns" shall mean, collectively, all
returns, declarations, reports, statements and
other documents required to be filed in respect of
Taxes.
"Securities Act" shall mean the Securities
Act of 1933, as amended.
"Series A Preferred Stock" shall mean the
Series A Convertible Preferred Stock, $.001 par
value per share, of the Corporation.
"Series B Preferred Stock" shall mean the
Series B Convertible Preferred Stock, $.001 par
value per share, of the Corporation.
"Subsidiaries" shall mean, collectively, all
corporations, partnerships, limited liability
companies or other Persons with respect to which
the Corporation shall own, directly or indirectly,
more that fifty percent (50%) of the issued and
outstanding equity interests of such corporations,
partnerships, limited liability companies or other
Persons.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
3
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"Taxes" shall mean all federal, state, local,
foreign and other net income, gross income, gross
receipts, sales, use, ad valorem, transfer,
franchise, profits, license, lease, service,
service use, withholding, payroll, employment,
excise, severance, stamp, occupation, premium,
property, windfall profits, customs duties, or
other taxes, fees, assessments or other charges of
any kind whatever, together with any interest and
any penalties, additions to tax or additional
amounts with respect thereto.
SECTION 2. THE SERIES B CONVERTIBLE PREFERRED STOCK.
2.1. Series B Convertible Preferred Stock. Prior to
the Closing Date, the Corporation will have duly authorized
the issuance and sale to the Investor, at the Closing, of an
aggregate of ********** shares (the "Series B Shares") of
the Series B Preferred Stock, at a purchase price per share
of *******. The Series B Shares shall have the powers,
preferences, rights and other terms and conditions
applicable to shares of Series B Preferred Stock, as set
forth in Article IV of the Restated Certificate of
Incorporation.
2.2. Conversion Shares. Prior to the Closing Date, the
Corporation will have duly authorized and reserved, and
covenants to continue to reserve, free of preemptive rights
and other preferential rights, a sufficient number of its
authorized but unissued shares of Common Stock to satisfy
the obligation of the Corporation to issue shares of Common
Stock upon conversion of all Series B Shares. For purposes
of this Agreement, any shares of Common Stock issuable upon
conversion of the Series B Shares, and such shares when
issued, are sometimes herein referred to as the "Conversion
Shares".
SECTION 3. SALE AND PURCHASE OF STOCK. The
Corporation shall issue and sell to the Investor, and,
subject to compliance with all of the terms and conditions
hereof and in reliance on the representations, warranties
and covenants set forth or referred to herein, the Investor
shall purchase from the Corporation, the Series B Shares for
the aggregate purchase price of $999,999. (the "Series B
Purchase Price"). The closing of the sale and purchase of
the Series B Shares (the "Closing") will occur on May 5,
1997 and will take place by facsimile transmission of
executed copies of the documents contemplated hereby to the
offices of Bingham, Dana & Gould LLP, 150 Federal Street,
Boston, Massachusetts, at 10:00 a.m., local time, or at such
other time as may be mutually agreed upon by the Investor
and the Corporation. The date of the Closing is herein
called the "Closing Date". At the Closing, the Corporation
shall, unless otherwise requested, deliver to the Investor a
single certificate evidencing the Series B Shares, against
payment of the aggregate purchase price therefor by bank or
certified check or wire transfer of immediately available
funds to such account or accounts as the Corporation shall
designate in writing.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
4
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SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE
CORPORATION. The Corporation represents and warrants to
the Investor that, except as set forth in the Disclosure
Schedule attached hereto as Schedule 4 (which Disclosure
Schedule makes explicit reference to the particular
representation or warranty as to which exception is taken,
which in each case shall constitute the sole representation
and warranty as to which such exception shall apply):
4.1. Organization, Qualifications and Corporate Power.
(a) The Corporation is a corporation duly
incorporated, validly existing and in good standing under
the laws of the State of Delaware and is duly licensed or
qualified to transact business as a foreign corporation and
is in good standing in each jurisdiction in which the nature
of the business transacted by it or the character of the
properties owned or leased by it requires such licensing or
qualification. The Corporation has the corporate power and
authority to own and hold its properties and to carry on its
business as now conducted and as proposed to be conducted,
to execute, deliver and perform this Agreement and each of
the other Related Documents, to issue, sell and deliver the
Series B Shares, and to issue and deliver the Conversion
Shares upon conversion of the Series B Shares.
(b) The attached Schedule 4.1(b) contains a list
of all Subsidiaries of the Corporation. The Corporation
does not (i) own of record or beneficially, directly or
indirectly, (A) any shares of capital stock or securities
convertible into capital stock of any other corporation or
(B) any participating interest in any partnership, joint
venture or other non-corporate business enterprise or (ii)
control, directly or indirectly, any other entity.
4.2. Authorization of Agreements, Etc.
(a) The execution and delivery by the Corporation
of this Agreement and each of the other Related Documents,
the performance by the Corporation of its obligations
hereunder and thereunder, the issuance, sale and delivery of
the Series B Shares and the issuance and delivery of the
Conversion Shares have been duly authorized by all requisite
corporate action and will not violate any provision of law,
any order of any court or other agency of government, the
Restated Certificate of Incorporation or the By-laws of the
Corporation, as amended, or any provision of any indenture,
agreement or other instrument to which the Corporation or
any of its properties or assets is bound, or conflict with,
result in a breach of or constitute (with due notice or
lapse of time or both) a default under any such indenture,
agreement or other instrument, or result in the creation or
imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the
properties or assets of the Corporation.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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(b) The Series B Shares have been duly authorized
and, when issued in accordance with this Agreement, will be
validly issued, fully paid and nonassessable shares of
Series B Preferred Stock with no personal liability
attaching to the ownership thereof and will be free and
clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Corporation except as
set forth in any of the other Related Documents. The
Conversion Shares have been duly reserved for issuance upon
conversion of the Series B Shares and, when so issued, will
be duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock with no personal
liability attaching to the ownership thereof and will be
free and clear of all liens, charges, restrictions, claims
and encumbrances imposed by or through the Corporation
except as set forth in any of the other Related Documents.
None of the issuance, sale or delivery of the Series B
Shares or the issuance or delivery of the Conversion Shares
is subject to any preemptive right of stockholders of the
Corporation or to any right of first refusal or other right
in favor of any Person.
4.3. Validity. This Agreement has been duly executed
and delivered by the Corporation and constitutes the legal,
valid and binding obligation of the Corporation, enforceable
in accordance with its terms. Each of the other Related
Documents, when executed and delivered or filed, as the case
may be, in accordance with this Agreement, will constitute
the legal, valid and binding obligations of the Corporation,
enforceable in accordance with their respective terms.
4.4. Authorized Capital Stock. The authorized capital
stock of the Corporation consists of (i) 700,000 shares of
Preferred Stock, $.001 par value (the "Preferred Stock"), of
which 200,000 have been designated as shares of Series A
Preferred Stock and 500,000 have been designated as shares
of Series B Preferred Stock, and (ii) 11,000,000 shares of
Common Stock. Immediately prior to the Closing, 200,000
shares of Series A Preferred Stock and 2,140,000 shares of
Common Stock will be validly issued and outstanding, fully
paid and nonassessable with no personal liability attaching
to the ownership thereof. The stockholders of record and
holders of subscriptions, warrants, options, convertible
securities, and other rights (contingent or other) to
purchase or otherwise acquire equity securities of the
Corporation, and the number of shares of Series A Preferred
Stock or of Common Stock and the number of such
subscriptions, warrants, options, convertible securities,
and other such rights held by each, are as set forth in the
attached Schedule 4.4. The designations, powers,
preferences, rights, qualifications, limitations and
restrictions in respect of each class and series of
authorized capital stock of the Corporation are as set forth
in the Restated Certificate of Incorporation, and all such
designations, powers, preferences, rights, qualifications,
limitations and restrictions are valid, binding and
enforceable and in accordance with all applicable laws. As
of the date hereof, each outstanding share of Series A
Preferred Stock is convertible into one share of Common
Stock. Except as provided for in the
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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Restated Certificate of Incorporation or as set forth in
the attached Schedule 4.4, (i) no Person owns of record
or is known to the Corporation to own beneficially any
share of capital stock of the Corporation, (ii) no
subscription, warrant, option, convertible security, or
other right (contingent or other) to purchase or
otherwise acquire equity securities of the Corporation is
authorized or outstanding and (iii) there is no
commitment by the Corporation to issue shares,
subscriptions, warrants, options, convertible securities,
or other such rights or to distribute to holders of any
of its equity securities any evidence of indebtedness or
asset. Except as provided for in the Restated Certificate
of Incorporation or as set forth in the attached Schedule
4.4, the Corporation has no obligation (contingent or
other) to purchase, redeem or otherwise acquire any of
its equity securities or any interest therein or to pay
any dividend or make any other distribution in respect
thereof. Except as set forth in any of the Related
Documents, to the best of the Corporation's knowledge,
there are no voting trusts or agreements, stockholders'
agreements, pledge agreements, buy-sell agreements,
rights of first refusal, preemptive rights or proxies
relating to any securities of the Corporation (whether or
not the Corporation is a party thereto). All of the
outstanding securities of the Corporation were issued in
compliance with all applicable Federal and state
securities laws.
4.5. Financial Statements, Etc. The Corporation has
furnished to the Investor the audited balance sheet of the
Corporation as of December 31, 1996 and the related audited
statements of income, stockholders equity and cash flows of
the Corporation for the year ended December 31, 1996, and
the unaudited balance sheet of the Corporation as of March
31, 1997 (the "Balance Sheet") and the related unaudited
statements of income, stockholders' equity and cash flows of
the Corporation for the three months ended March 31, 1997.
All such financial statements have been prepared in
accordance with generally accepted accounting principles
consistently applied (except that such unaudited financial
statements do not contain all of the required footnotes) and
fairly present the financial position of the Corporation as
of December 31, 1996 and March 31, 1997, respectively, and
the results of their operations and cash flows for the year
ended December 31, 1996 and the three months ended March 31,
1997, respectively. Since the date of the Balance Sheet,
(i) there has been no change in the assets, liabilities or
financial condition of the Corporation from that reflected
in the Balance Sheet except for changes in the ordinary
course of business which in the aggregate have not been
materially adverse and (ii) none of the business, prospects,
financial condition, operations, property or affairs of the
Corporation has been materially adversely affected by any
occurrence or development, individually or in the aggregate,
whether or not insured against.
4.6. Events Subsequent to the Date of the Balance
Sheet. Since the date of the Balance Sheet, the Corporation
has not (i) issued any stock, bond or other corporate
security except as otherwise contemplated hereby, (ii)
borrowed any amount or incurred or become subject to any
liability (absolute, accrued or
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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<PAGE>
contingent), except current liabilities incurred and
liabilities under contracts entered into in the ordinary
course of business, (iii) discharged or satisfied any
lien or encumbrance or incurred or paid any obligation or
liability (absolute, accrued or contingent) other than
current liabilities shown on the Balance Sheet and
current liabilities incurred since the date of the
Balance Sheet in the ordinary course of business, (iv)
declared or made any payment or distribution to
stockholders or purchased or redeemed any share of its
capital stock or other security, (v) mortgaged, pledged,
encumbered or subjected to lien any of its assets,
tangible or intangible, other than liens of current real
property taxes not yet due and payable, (vi) sold,
assigned or transferred any of its tangible assets except
in the ordinary course of business, or canceled any debt
or claim, (vii) sold, assigned, transferred or granted
any exclusive license with respect to any patent,
trademark, trade name, service mark, copyright, trade
secret or other intangible asset, (viii) suffered any
loss of property or waived any right of substantial value
whether or not in the ordinary course of business, (ix)
made any change in officer compensation except in the
ordinary course of business and consistent with past
practice, (x) made any material change in the manner of
business or operations of the Corporation, (xi) entered
into any transaction except in the ordinary course of
business or as otherwise contemplated hereby or (xii)
entered into any commitment (contingent or otherwise) to
do any of the foregoing.
4.7. Litigation; Compliance with Law. There is no (i)
action, suit, claim, proceeding or investigation pending or,
to the best of the Corporation's knowledge, threatened
against or affecting the Corporation, at law or in equity,
or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, (ii) arbitration
proceeding relating to the Corporation pending under
collective bargaining agreements or otherwise or (iii)
governmental inquiry pending or, to the best of the
Corporation's knowledge, threatened against or affecting the
Corporation (including, without limitation, any inquiry as
to the qualification of the Corporation to hold or receive
any license, permit, or other authorization), and there is
no basis for any of the foregoing. The Corporation has not
received any opinion or memorandum or legal advice from
legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may be
material to its business, prospects, financial condition,
operations, property or affairs. The Corporation is not in
default with respect to any order, writ, injunction or
decree known to or served upon the Corporation of any court
or of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or
instrumentality, domestic or foreign. There is no action or
suit by the Corporation pending or threatened against
others. The Corporation has complied with all laws, rules,
regulations and orders applicable to its business,
operations, properties, assets, products and services, the
Corporation has all necessary permits, licenses and other
authorizations required to conduct its business as conducted
and as proposed to be conducted, and the Corporation has
been operating its business
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
8
<PAGE>
pursuant to and in compliance with the terms of all such
permits, licenses and other authorizations. There is no
existing law, rule, regulation or order, and the
Corporation after due inquiry is not aware of any
proposed law, rule, regulation or order, whether Federal,
state, county or local, which would prohibit or restrict
the Corporation from, or otherwise materially adversely
affect the Corporation in, conducting its business in any
jurisdiction in which it is now conducting business or in
which it proposes to conduct business.
4.8. Proprietary Information of Third Parties. To the
best of the Corporation's knowledge, no third party has
claimed or has reason to claim that any Person employed by
or affiliated with the Corporation has (a) violated or may
be violating any of the terms or conditions of his
employment, non-competition or nondisclosure agreement with
such third party, (b) disclosed or may be disclosing or
utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party or (c)
interfered or may be interfering in the employment
relationship between such third party and any of its present
or former employees. No third party has requested
information from the Corporation which suggests that such a
claim might be contemplated. To the best of the
Corporation's knowledge, no Person employed by or affiliated
with the Corporation has employed or proposes to employ any
trade secret or any information or documentation proprietary
to any former employer, and to the best of the Corporation's
knowledge, no Person employed by or affiliated with the
Corporation has violated any confidential relationship which
such Person may have had with any third party, in connection
with the development, manufacture or sale of any product or
proposed product or the development or sale of any service
or proposed service of the Corporation, and the Corporation
has no reason to believe there will be any such employment
or violation. To the best of the Corporation's knowledge,
none of the execution or delivery of this Agreement or any
of the other Related Documents by any officer, director or
key employee of the Corporation, or the carrying on of the
business of the Corporation as officers, employees or agents
by such officer, director or key employee of the
Corporation, will conflict with or result in a breach of the
terms, conditions or provisions of or constitute a default
under any contract, covenant or instrument under which any
such officer, director or key employee is obligated.
4.9. Patents, Trademarks Etc. Set forth in Schedule
4.9 attached hereto is a list and brief description of all
domestic and foreign patents, patent rights, patent
applications, trademarks, trademark applications, service
marks, service mark applications, trade names and
copyrights, and all applications for such which are in the
process of being prepared, owned by or registered in the
name of the Corporation, or of which the Corporation is a
licensor or licensee or in which the Corporation has any
right, and in each case a brief description of the nature of
such right. The Corporation owns or possesses adequate
licenses or other rights to use all patents, patent
applications, trademarks, trademark applications, service
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
9
<PAGE>
marks, service mark applications, trade names,
copyrights, manufacturing processes, formulae, trade
secrets, customer lists and know how (collectively,
"Intellectual Property") necessary to the conduct of its
business as conducted and as proposed to be conducted,
and no claim is pending or, to the best of the
Corporation's knowledge, threatened to the effect that
the operations of the Corporation infringe upon or
conflict with the asserted rights of any other Person
under any Intellectual Property, and there is no basis
for any such claim (whether or not pending or
threatened). No claim is pending or threatened to the
effect that any such Intellectual Property owned or
licensed by the Corporation, or which the Corporation
otherwise has the right to use, is invalid or
unenforceable by the Corporation, and there is no basis
for any such claim (whether or not pending or
threatened). To the best of the Corporation's knowledge,
all technical information developed by and belonging to
the Corporation which has not been patented has been kept
confidential. The Corporation has not granted or
assigned to any other Person or entity any right to
manufacture, have manufactured, assemble or sell the
products or proposed products or to provide the services
or proposed services of the Corporation.
4.10. Title to Properties. The Corporation has
good, clear and marketable title to all of its properties
and assets, including, without limitation, those reflected
on the Balance Sheet or acquired by it since the date of the
Balance Sheet (other than properties and assets disposed of
in the ordinary course of business since the date of the
Balance Sheet), and all of the Corporation's properties and
assets are free and clear of mortgages, pledges, security
interests, liens, charges, claims, restrictions and other
encumbrances (including, without limitation, easements and
licenses), except for liens for or current taxes not yet due
and payable and minor imperfections of title, if any, not
material in nature or amount and not materially detracting
from the value or impairing the use of the property subject
thereto or impairing the operations or proposed operations
of the Corporation, including without limitation, the
ability of the Corporation to secure financing using such
properties and assets as collateral. To the best of the
Corporation's knowledge after due inquiry, there are no
condemnation, environmental, zoning or other land use
regulation proceedings, either instituted or planned to be
instituted, which would adversely affect the use or
operation of the Corporation's properties and assets for
their respective intended uses and purposes, or the value of
such properties, and the Corporation has not received notice
of any special assessment proceedings which would affect
such properties and assets.
4.11. Leasehold Interests. Each lease or agreement
to which the Corporation is a party under which it is a
lessee of any property, real or personal, is a valid and
subsisting agreement, duly authorized and entered into,
without any default of the Corporation thereunder and, to
the best of the Corporation's knowledge, without any default
thereunder of any other party thereto. No event has
occurred and is continuing which, with due notice or lapse
of time or both,
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
10
<PAGE>
would constitute a default or event of default by the
Corporation under any such lease or agreement or, to the
best of the Corporation's knowledge, by any other party
thereto. The Corporation's possession of such property
has not been disturbed and, to the best of the
Corporation's knowledge after due inquiry, no claim has
been asserted against the Corporation adverse to its
rights in such leasehold interests.
4.12. Insurance. Schedule 4.12 hereto lists all
policies of fire, liability, workmen's compensation, life,
property and casualty and other insurance owned or held by
the Corporation. Such policies of insurance are maintained
with financially sound and reputable insurance companies,
funds or underwriters and are of the kinds and cover such
risks and are in such amounts and with such deductibles and
exclusions as are consistent with prudent business practice.
All such policies (a) are in full force and effect, (b) are
sufficient for compliance by the Corporation with all
requirements of law and all agreements to which the
Corporation is a party and (c) provide that they will remain
in full force and effect through the respective dates set
forth in such Schedule. The Corporation is not in default
with respect to its obligations under any of such insurance
policies and has not received any notification of
cancellation of any such insurance policies.
4.13. Taxes. The Corporation has filed all Returns
required to be filed by it and has paid all Taxes shown to
be due by such Returns, as well as all other Taxes,
assessments and governmental charges which have become due
or payable, including without limitation, all Taxes which it
is obligated to withhold for amounts owing to employees,
creditors and third parties. All Taxes with respect to
which the Corporation has become obligated pursuant to
elections made by it in accordance with generally accepted
practice have been paid and adequate reserves have been
established for all Taxes accrued but not yet payable. No
issues have been raised (and are currently pending) by any
taxing authority in connection with any of the Returns. No
waivers of statutes of limitation with respect to any of the
Returns have been given by or requested from the
Corporation. All deficiencies asserted or assessments made
as a result of any examinations have been fully paid, or are
fully reflected as a liability in the financial statements
of the Corporation, or are being contested and an adequate
reserve therefor has been established and is fully reflected
in the financial statements of the Corporation. There are
no liens for Taxes (other than for current Taxes not yet due
and payable) upon the assets of the Corporation. All
material elections with respect to Taxes affecting the
Corporation, as of the date hereof, are set forth in the
financial statements of the Corporation, or are annexed
hereto in a disclosure schedule. The Corporation has not
agreed to make, nor is it required to make, any adjustment
under Section 481(a) of the Code by reason of a change in
accounting method or otherwise. The Corporation is not a
party to any agreement, contract, arrangement or plan that
has resulted or would result, separately or in the
aggregate, in the payment of any "excess parachute payments"
within the meaning of Section 28OG of the Code. The
Corporation does not have and has not had a permanent
establishment in any foreign country, as
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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<PAGE>
defined in any applicable tax treaty or convention
between the United States of America and such foreign
country. Notwithstanding anything to the contrary
contained in this Agreement, the provisions of this
Section 4.13 shall survive until the applicable statutes
of limitations with respect to any Taxes contemplated
hereby shall have expired.
4.14. Other Agreements. Except as set forth in the
attached Schedule 4.14(a), the Corporation is not a party to
or otherwise bound by any written or oral agreement,
instrument, commitment or restriction which individually or
in the aggregate could materially adversely affect the
business, prospects, financial condition, operations,
property or affairs of the Corporation. Except as set forth
in the attached Schedule 4.14(b), the Corporation is not a
party to or otherwise bound by any written or oral:
(a) distributor, dealer, manufacturer's
representative or sales agency agreement which is not
terminable on less than ninety (90) days, notice without
cost or other liability to the Corporation (except for
agreements which, in the aggregate, are not material to the
business of the Corporation);
(b) sales or service agreement which entitles any
customer to a rebate or right of set-off, to return any
product to the Corporation after acceptance thereof or to
delay the acceptance thereof, or which varies in any
material respect from the Corporation's standard form
agreements;
(c) agreement with any labor union (and, to the
best of the Corporation's knowledge, no organizational
effort is being made with respect to any of its employees);
(d) agreement with any supplier containing any
provision permitting any party other than the Corporation to
renegotiate the price or other terms, or containing any
payback or other similar provision, upon the occurrence of a
failure by the Corporation to meet its obligations under the
agreement when due or the occurrence of any other event;
(e) agreement for the future purchase of fixed
assets or for the future purchase of materials, supplies or
equipment in excess of its normal operating requirements;
(f) agreement for the employment of any officer,
employee or other individual (whether of a legally binding
nature or in the nature of informal understandings) on a
full-time or consulting basis which is not terminable on
notice without cost or other liability to the Corporation,
except normal severance arrangements and accrued vacation
pay;
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
12
<PAGE>
(g) bonus, pension, profit-sharing, retirement,
hospitalization, insurance, stock purchase, stock option or
other plan, agreement or understanding pursuant to which
benefits are provided to any employee of the Corporation
(other than group insurance plans applicable to employees
generally);
(h) agreement relating to the borrowing of money
or to the mortgaging or pledging of, or otherwise placing a
lien or security interest on, any asset of the Corporation;
(i) guaranty of any obligation for borrowed money
or otherwise;
(j) voting trust or agreement, stockholders'
agreement, pledge agreement, buy-sell agreement or first
refusal or preemptive rights agreement relating to any
securities of the Corporation;
(k) agreement, or group of related agreements
with the same party or any group of affiliated parties,
under which the Corporation has advanced or agreed to
advance money or has agreed to lease any property as lessee
or lessor;
(l) agreement or obligation (contingent or
otherwise) to issue, sell or otherwise distribute or to
repurchase or otherwise acquire or retire any share of its
capital stock or any of its other equity securities;
(m) assignment, license or other agreement with
respect to any form of intangible property;
(n) agreement under which it has granted any
Person any registration rights, other than the Registration
Rights Agreement;
(o) agreement under which it has limited or
restricted its right to compete with any Person in any
respect;
(p) other agreement or group of related
agreements with the same party involving more than $10,000
or continuing over a period of more than six months from the
date or dates thereof (including renewals or extensions
optional with another party), which agreement or group of
agreements is not terminable by the Corporation without
penalty upon notice of thirty (30) days or less, but
excluding any agreement or group of agreements with a
customer of the Corporation for the sale, lease or rental of
the Corporation's products or services if such agreement or
group of agreements was entered into by the Corporation in
the ordinary course of business; or
(q) other agreement, instrument, commitment, plan
or arrangement, a copy of which would be required to be
filed with the Securities and
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
13
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Exchange Commission (the "Commission") as an exhibit to a
registration statement on Form S-1 if the Corporation
were registering securities under the Securities Act.
The Corporation and, to the best of the Corporation's
knowledge after due inquiry, each other party thereto have
in all material respects performed all the obligations
required to be performed by them to date (or each
non-performing party has received a valid, enforceable and
irrevocable written waiver with respect to its
non-performance), have received no notice of default and are
not in default (with due notice or lapse of time or both)
under any agreement, instrument, commitment, plan or
arrangement to which the Corporation is a party or by which
it or its property may be bound. The Corporation has no
present expectation or intention of not fully performing all
its obligations under each such agreement, instrument,
commitment, plan or arrangement, and the Corporation has no
knowledge of any breach or anticipated breach by the other
party to any agreement, instrument, commitment, plan or
arrangement to which the Corporation is a party. The
Corporation is in full compliance with all of the terms and
provisions of its Restated Certificate of Incorporation and
By-laws, as amended.
4.15. Loans and Advances. The Corporation does not
have any outstanding loans or advances to any Person and is
not obligated to make any such loans or advances, except, in
each case, for advances to employees of the Corporation in
respect of reimbursable business expenses anticipated to be
incurred by them in connection with their performance of
services for the Corporation.
4.16. Assumptions, Guaranties, Etc. of Indebtedness
of Other Persons. The Corporation has not assumed,
guaranteed, endorsed or otherwise become directly or
contingently liable on any indebtedness of any other Person
(including, without limitation, liability by way of
agreement, contingent or otherwise, to purchase, to provide
funds for payment, to supply funds to or otherwise invest in
the debtor, or otherwise to assure the creditor against
loss), except for guaranties by endorsement of negotiable
instruments for deposit or collection in the ordinary course
of business.
4.17. Significant Customers and Suppliers. No
customer or supplier which was significant to the
Corporation during the period covered by the financial
statements referred to in Section 4.5 hereof or which has
been significant to the Corporation thereafter, has
terminated, materially reduced or threatened to terminate or
materially reduce its purchases from or provision of
products or services to the Corporation, as the case may be.
4.18. Governmental Approvals. Subject to the
accuracy of the representations and warranties of the
Investor set forth in Section 5 of this Agreement, no
registration or filing with, or consent or approval of or
other action by, any Federal, state or other governmental
agency or instrumentality is or will be necessary for the
valid execution, delivery and performance by the Corporation
of
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
14
<PAGE>
this Agreement or any of the other Related Documents, the
issuance, sale and delivery of the Series B Shares or, upon
conversion thereof, the issuance and delivery of the
Conversion Shares, other than (i) filings pursuant to state
securities laws (all of which filings have been made by the
Corporation, other than those which are required to be made
after the Closing and which will be duly made on a timely
basis) in connection with the sale of the Series B Shares
and (ii) with respect to the Registration Rights Agreement,
the registration of the shares covered thereby with the
Commission and filings pursuant to state securities laws.
4.19. Issuance Taxes. There are no transfer,
issuance or similar taxes imposed by law in connection with
the issuance, sale or delivery of the Series B Shares or the
Conversion Shares to the Investor.
4.20. Offering of the Series B Shares. Neither the
Corporation nor any Person acting on behalf of the
Corporation has offered the Series B Shares or any security
of the Corporation similar to the Series B Shares for sale
to, or solicited any offer to buy the Series B Shares or any
such similar security from, or otherwise approached or
negotiated with respect thereto with, any Person or Persons,
and neither the Corporation nor any Person acting on its
behalf has taken or will take any other action (including,
without limitation, any offer, issuance or sale of any
security of the Corporation under circumstances which might
require the integration of such security with the Series B
Shares under the Securities Act or the rules and regulations
of the Commission thereunder or under any applicable State
securities laws), in either case so as to subject the
offering, issuance or sale of the Series B Shares to the
registration provisions of the Securities Act.
4.21. Brokers. The Corporation has no contract,
arrangement or understanding with any broker, finder or
similar agent with respect to the transactions contemplated
by this Agreement.
4.22. Officers. Set forth in Schedule 4.22
attached hereto is a list of the names of the officers of
the Corporation, together with the title or job
classification of each such individual and the total
compensation anticipated to be paid to each such individual
by the Corporation in 1997. None of such individuals has an
employment agreement or understanding, whether oral or
written, with the Corporation, which is not terminable on
notice by the Corporation without cost or other liability to
the Corporation.
4.23. Transactions With Affiliates. Except as set
forth in Schedule 4.23, no director, officer, employee or
stockholder of the Corporation, or member of the family of
any such Person, or any corporation, partnership, trust or
other entity in which any such Person, or any member of the
family of any such Person, has a substantial interest or is
an officer, director, trustee, partner or holder of more
than 5% of the outstanding capital stock thereof, is a party
to any transaction with the
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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<PAGE>
Corporation, including any contract, agreement or other
arrangement providing for the employment of, furnishing
of services by, rental of real or personal property from
or otherwise requiring payments to any such Person or
firm.
4.24. Employees. Each of the officers of the
Corporation, each key employee or consultant and each other
employee or consultant now employed by, or consulting for,
the Corporation who has access to confidential information
of the Corporation has executed a written confidentiality
and nondisclosure agreement, and all of such agreements are
in full force and effect. The Corporation has provided the
Investor with copies of all of such written confidentiality
and nondisclosure agreements. No officer or key employee or
consultant of the Corporation has advised the Corporation
(orally or in writing) that he intends to terminate his or
her employment or consultancy, as the case may be, with the
Corporation. The Corporation has complied in all material
respects with all applicable laws relating to the employment
of labor, including provisions relating to wages, hours,
equal opportunity, collective bargaining and the payment of
Social Security and other taxes, and with ERISA.
4.25. U.S. Real Property Holding Corporation. The
Corporation is not now and has never been a "United States
real property holding corporation", as defined in Section
897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service, and
the Corporation has filed with the Internal Revenue Service
all statements, if any, with its United States income tax
returns which are required under Section 1.897-2(h) of such
Regulations.
4.26. Environmental Protection. The Corporation
has not caused or allowed, or contracted with any party for,
the generation, use, transportation, treatment, storage or
disposal of any Hazardous Substances in connection with the
operation of its business or otherwise. The Corporation,
the operation of its business, and any real property that
the Corporation owns, leases or otherwise occupies or uses
(the "Premises") are in compliance with all applicable
Environmental Laws and orders or directives of any
governmental authorities having jurisdiction under such
Environmental Laws, including, without limitation, any
Environmental Laws or orders or directives with respect to
any cleanup or remediation of any release or threat of
release of Hazardous Substances. The Corporation has not
received any citation, directive, letter or other
communication, written or oral, or any notice of any
proceeding, claim or lawsuit, from any Person arising out of
the ownership or occupation of the Premises, or the conduct
of its operations, and the Corporation is not aware of any
basis therefor. The Corporation has obtained and is
maintaining in full force and effect all necessary permits,
licenses and approvals required by all Environmental Laws
applicable to the Premises and the business operations
conducted thereon (including operations conducted by tenants
on the Premises), and is in compliance with all such
permits, licenses and approvals. The Corporation has not
caused or allowed a release, or a threat of release, of any
Hazardous Substance
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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onto, at or near the Premises, and, to the best of the
Corporation's knowledge, neither the Premises nor any
property at or near the Premises has ever been subject to
a release, or a threat of release, of any Hazardous
Substance.
4.27. ERISA. Except as listed in Schedule 4.27,
neither the Corporation nor any entity required to be
aggregated with the Corporation under Sections 4.14(b), (c),
(m) or (n) of the Code sponsors, maintains, has any
obligation to contribute to, has any liability under, or is
otherwise a party to, any Benefit Plan. With respect to
each Benefit Plan listed in Schedule 4.27, to the extent
applicable:
(a) Each such Benefit Plan has been maintained
and operated in all material respects in compliance with its
terms and with all applicable provisions of ERISA, the Code
and all regulations, rulings and other authority issued
thereunder;
(b) All contributions required by law to have
been made under each such Benefit Plan (without regard to
any waivers granted under Section 412 of the Code) to any
fund or trust established thereunder or in connection
therewith have been made by the due date thereof;
(c) Each such Benefit Plan intended to qualify
under Section 401(a) of the Code is the subject of a
favorable unrevoked determination letter issued by the
Internal Revenue Service as to its qualified status under
the Code, which determination letter may still be relied
upon as to such tax qualified status, and no circumstances
have occurred that would adversely affect the tax qualified
status of any such Benefit Plan;
(d) The actuarial present value of all accrued
benefits under each such Benefit Plan subject to Title IV of
ERISA did not, as of the latest valuation date of such
Benefit Plan, exceed the then current value of the assets of
such Benefit Plan allocable to such accrued benefits, all as
based upon the actuarial assumptions and methods currently
used for such Benefit Plan;
(e) None of such Benefit Plans that are "employee
welfare benefit plans" as defined in Section 3(l) of ERISA
provides for continuing benefits or coverage for any
participant or beneficiary of a participant after such
participant's termination of employment; and
(f) Neither the Corporation nor any trade or
business (whether or not incorporated) under common control
with the Corporation within the meaning of Section 4001 of
ERISA has, or at any time has had, any obligation to
contribute to any "multiemployer plan" as defined in Section
3(37) of ERISA.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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4.28. Foreign Corrupt Practices Act. The
Corporation has not taken any action which would cause it to
be in violation of the Foreign Corrupt Practices Act of
1977, as amended, or any rules and regulations thereunder.
To the best of the Corporation's knowledge after due
inquiry, there is not now, and there has never been, any
employment by the Corporation of, or beneficial ownership in
the Corporation by, any governmental or political official
in any country in the world.
4.29. Federal Reserve Regulations. The Corporation
is not engaged in the business of extending credit for the
purpose of purchasing or carrying margin securities (within
the meaning of Regulation G of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of the
Series B Shares will be used to purchase or carry any margin
security or to extend credit to others for the purpose of
purchasing or carrying any margin security or in any other
manner which would involve a violation of any of the
regulations of the Board of Governors of the Federal Reserve
System.
4.30. Indemnification of Directors and Officers.
The By-Laws, as in effect on the date hereof, provide for
the indemnification of officers and directors to the full
extent permitted by the General Corporation Law of Delaware.
4.31. Disclosure. Neither this Agreement, nor any
Schedule or Exhibit to this Agreement, nor any of the
financial statements delivered pursuant to Section 4.5 of
this Agreement, nor the Business Plan of the Corporation
dated November 25, 1996 (the "Business Plan"), contains an
untrue statement of a material fact or omits a material fact
necessary to make the statements contained herein or therein
not misleading. None of the statements, documents,
certificates or other items prepared or supplied by the
Corporation with respect to the transactions contemplated
hereby contains an untrue statement of a material fact or
omits a material fact necessary to make the statements
contained therein not misleading. There is no fact which
the Corporation has not disclosed to the Investor and its
counsel in writing and of which the Corporation is aware
which materially and adversely affects or could materially
and adversely affect the business, prospects, financial
condition, operations, property or affairs of the
Corporation.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE
INVESTOR. The Investor represents and warrants to the
Corporation that:
5.1. Organization, Authority, Binding Effect.
(a) It has full power and authority to enter into
and perform this Agreement and the other Related Documents
to which it is a party, in accordance with their respective
terms. It is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization
and has the power and
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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authority to enter into this Agreement and the other
Related Documents to which it is a party.
(b) The execution, delivery and performance by it
of this Agreement and the other Related Documents to which
it is a party, and the consummation by it of the
transactions contemplated hereby and thereby, have been duly
authorized by all requisite action of it, and each such
agreement or document constitutes the valid and binding
obligation of the Investor, enforceable in accordance with
its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to
or affecting the enforcement of creditors' rights and by the
discretionary nature of equitable remedies, and except as
rights to indemnity and contribution may be limited by
applicable law.
5.2. Investment Representations.
(a) The Investor represents and warrants to the
Corporation as follows:
(i) It is acquiring the Series B Shares and,
in the event it should acquire Conversion Shares
upon conversion of the Series B Shares, it will be
acquiring such Conversion Shares, for its own
account, for investment and not with a view to the
distribution thereof within the meaning of the
Securities Act.
(ii) It is an "accredited investor" as such
term is defined in Rule 501 (a) promulgated under
the Securities Act.
(iii) It agrees that the Corporation may
place a legend on the certificates delivered
hereunder stating that the Series B Shares and any
Conversion Shares have not been registered under
the Securities Act, and, therefore, cannot be
offered, sold or transferred unless they are
registered under the Securities Act or an
exemption from such registration is available, and
that the Corporation may place stop transfer
orders on the transfer books of the Corporation.
(iv) It further understands that the
exemptions from registration afforded by Rule 144
and Rule 144A (the provisions of each of which are
known to it) promulgated under the Securities Act
depend on the satisfaction of various conditions,
and that, if applicable, Rule 144 may afford the
basis for sales only in limited amounts.
(v) It has such knowledge and experience in
business and financial matters and with respect to
investments in securities of
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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privately-held companies so as to enable it to
understand and evaluate the risks of the Investor's
investment in the Series B Shares and the Conversion
Shares and form an investment decision with respect
thereto. It has been afforded the opportunity during the
course of negotiating the transactions contemplated by
this Agreement to ask questions of, and to secure such
information from, the Corporation and its officers and
directors as it deemed necessary to evaluate the merits of
entering into such transactions.
(vi) It has adequate net worth and means of
providing for its current needs and contingencies
to sustain a complete loss of its investment in
the Corporation.
(b) The Investor further represents and warrants
to the Corporation that: (i) it is a Delaware corporation,
(ii) it was not formed for the specific purpose of acquiring
any of the Series B Shares or the Conversion Shares, (iii)
it has assets in excess of $5,000,000 and (iv) its principal
office is located in Cambridge, Massachusetts.
5.3. Brokers. The Investor has not retained, utilized
or been represented by any broker or finder in connection
with the transactions contemplated by this Agreement.
SECTION 6. CONDITIONS TO THE OBLIGATIONS OF THE
INVESTOR. The obligation of the Investor to purchase and
pay for the Series B Shares is subject to the satisfaction,
on or before such Closing Date, of the following conditions
(unless waived in writing by the Investor):
6.1 Representations and Warranties to be True and
Correct. The representations and warranties contained in
Section 4 hereof shall be true, complete and correct on and
as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of
the Closing Date, and the President and Treasurer of the
Corporation shall have certified to such effect to the
Investor in writing.
6.2 Performance. The Corporation shall have performed
and complied with all agreements contained herein required
to be performed or complied with by it prior to or at the
Closing, and the President and Treasurer of the Corporation
shall have certified to the Investor in writing to such
effect and to the further effect that all of the conditions
set forth in this Section 6 have been satisfied.
6.3 Investors' Rights Agreement. The Corporation and
the Investor shall have executed and delivered the
Investors' Rights Agreement.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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6.4 Stock Restriction Agreement. The Corporation, the
Management Stockholders and the Investor shall have executed
and delivered the Stock Restriction Agreement.
6.5 Registration Rights Agreement. The Corporation
and the Investor shall have executed and delivered the
Registration Rights Agreement.
6.6 Nondisclosure and Invention Assignment Agreements.
Each of the Corporation's officers, key employees or
consultants and employees and consultants having access to
confidential information of the Corporation shall have
executed and delivered to the Corporation a written
nondisclosure and invention assignment agreement in form and
substance satisfactory to the Investor, and copies thereof
have been delivered to counsel for the Investor.
6.7 Restated Certificate of Incorporation. The
Restated Certificate of Incorporation shall have been duly
executed and shall have been filed with the Secretary of
State of Delaware and shall be in full force and effect.
6.8. Preemptive Rights. All stockholders of the
Corporation having any preemptive, first refusal or other
right with respect to the issuance of the Series B Shares or
Conversion Shares shall have irrevocably waived the same in
writing.
6.9 Opinion of Corporation's Counsel. The Corporation
shall have delivered to the Investor an opinion from Jenner
& Block, counsel to the Corporation, in form and substance
satisfactory to the Investor and its counsel.
6.10 Supporting Documents. The Corporation shall have
delivered to the Investor and its counsel copies of the
following documents:
(a) the Restated Certificate of
Incorporation, certified as of a recent date by
the Secretary of State of the State of Delaware;
(b) a certificate of the Secretary of State
of Delaware, dated as of a recent date, as to the
due incorporation and good standing of the
Corporation, the payment of all excise taxes by
the Corporation and listing all documents of the
Corporation on file with said Secretary;
(c) a certificate of the Secretary or an
Assistant Secretary of the Corporation, dated the
Closing Date, and certifying: (A) that attached
thereto is a true and complete copy of the By-laws
of the Corporation as in effect on the date of
such certification; (B) that attached thereto is a
true and complete copy of all resolutions adopted
by the Board of Directors and/or stockholders of
the Corporation
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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authorizing the execution, delivery and performance
of this Agreement, the other Related Documents,
the issuance, sale and delivery of the Series B
Shares, the reservation, issuance and delivery
of the Conversion Shares and that all such
resolutions are in full force and effect and
are all the resolutions adopted in connection
with the transactions contemplated by
this Agreement and the other Related Documents;
(C) that the Restated Certificate of Incorporation
has not been amended since the date of the last
amendment referred to in the certificate delivered
pursuant to clause (b) above; and (D) to the
incumbency and specimen signature of each officer
of the Corporation executing this Agreement, the
other Related Documents, the stock certificates
representing the Series B Shares and any
certificate or instrument furnished pursuant
hereto, and a certification by another officer of
the Corporation as to the incumbency and signature
of the officer signing the certificate referred to
in this clause (c); and
(d) such additional supporting documents and
other information with respect to the operations
and affairs of the Corporation as the Investor or
its counsel reasonably may request.
6.11 No Adverse Change. There shall not have been any
material adverse change in the Corporation, its business,
financial condition, operations or prospects.
6.12 Litigation. No proceeding challenging this
Agreement or any of the other Related Documents, or any of
the transactions contemplated hereby or thereby, or seeking
to prohibit, alter, prevent or materially delay the Closing,
shall have been instituted before any court, arbitrator or
governmental body, agency or official and shall be pending.
6.13 Compliance with Laws; Governmental Consents and
Approvals. The purchase of and payment for the Series B
Shares by the Investor shall not be prohibited by any law or
governmental order or regulation; and all necessary
consents, approvals, licenses, permits, orders and
authorizations of, or registrations, declarations and
filings with, any governmental or administrative agency or
of any other Person with respect to any of the transactions
contemplated under this Agreement or any of the other
Related Documents shall have been duly obtained or made and
shall be in full force and effect.
6.14 All Proceedings to be Satisfactory. All corporate
and other proceedings to be taken by the Corporation in
connection with the transactions contemplated hereby and all
documents incident thereto shall be satisfactory in form and
substance to the Investor and its counsel, and the Investor
and their counsel shall have received all such counterpart
originals or certified or other copies of such documents as
they reasonably may request.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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SECTION 7. RESEARCH COLLABORATION.
7.1 Collaboration.
(a) The Corporation and the Investor hereby agree
(i) to engage in the Collaborative "BioKeys" Research
Project and the "ElectroScreen" Research Project, all as
described in Exhibit F attached hereto, (ii) to engage in
the research activities described in Section 7.1(c) below
and (iii) to engage in such other research activities as the
parties may agree upon from time to time. For purposes
hereof, the term "Collaboration" shall mean the
collaboration and other research activities engaged in by
the parties pursuant to this Section 7. The terms and
conditions of the Collaboration and of all research
activities of the parties pursuant to the Collaboration
shall be governed by, to the extent applicable, the
provisions of this Section 7, the provisions of Exhibit F
attached hereto and such other provisions as the parties may
agree upon in writing from and after the date hereof. The
term of the Collaboration (the "Term") shall commence on the
date hereof and end on
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************. For purposes of this Agreement, (A) the term
"Collaboration Termination Date" shall mean the earlier of
******************** or (ii) the effective date of
termination of the Collaboration pursuant to the provisions
of this Section 7.1(a), (B) the term "Minimum Research
Period" shall mean the period commencing on the date hereof
and ending on the earlier of (i) the Collaboration
Termination Date or (ii) **************** (the "Acquisition
Option Expiration Date"), and (C) the term "Remaining
Research Period" shall mean the period commencing on
******************* and ending on the Collaboration
Termination Date.
(b) During the Minimum Research Period, the
Corporation and the Investor shall engage in the research
activities described in Exhibit F attached hereto. The
respective tasks, activities and obligations of the parties
during the Minimum Research Period are set forth in Exhibit
F attached hereto.
(c) In the event that the Investor elects not to
exercise the Acquisition Option, the Investor shall, within
thirty (30) days after the Acquisition Option Expiration
Date, deliver to the Corporation a schedule listing all of
the research programs then being conducted by the Investor
(the "Specified Research Programs"). During the Remaining
Research Period, the Corporation and the Investor shall (i)
continue the research activities described in Exhibit F,
(ii) engage in such research, screening, target discovery
and validation, and drug discovery and development
activities as the Investor shall request, provided that such
research, screening, target discovery and validation and
drug discovery and development activities are related to, or
involve, biological targets that are within the scope of
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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the Specified Research Programs and (iii) engage in such
other research activities as the parties may agree from
time to time. The respective tasks, activities and
obligations of the parties in connection with any of the
matters on which the parties are collaborating during the
Remaining Research Period shall be mutually agreed upon
by the parties.
7.2 Funding.
(a) On the first day of each month during the
Minimum Research Period and on the first day of the first
month immediately after the Minimum Research Period, the
Investor shall reimburse the Corporation for any payments
made by the Corporation during the immediately preceding
month in respect of (i)
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************************************************ and (ii)
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************************ (it being understood that any
expenses incurred or payments made by the Corporation in
connection with the Collaboration in any month during the
Minimum Research Period in excess of ******** shall be the
Corporation's sole responsibility and the Investor shall
have no obligation to reimburse the Corporation with respect
to any such excess). In addition, the Investor shall
reimburse the Corporation for up to a total of ******** of
travel expenses incurred by the Corporation in connection
with travel by officers or employees of the Corporation in
the performance of tasks and duties pertaining to the
Collaboration, provided that such travel expenses are
incurred by the Corporation, and are submitted by the
Corporation for reimbursement, in accordance with the
Investor's policy on reimbursable travel expenses that is
applicable to all officers and employees of the Investor.
(b) On the first day of each month during the
Remaining Research Period and on the first day of the first
month immediately after the Remaining Research Period, the
Investor shall reimburse the Corporation for *************
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*************************************************** provided
that such costs shall not exceed the amount budgeted for
such costs by mutual agreement of the Investor and the
Corporation (it being understood that any costs incurred by
the Corporation in connection with the Collaboration
activities that are in excess of the amount budgeted by the
parties for such costs shall be the Corporation's sole
responsibility and the Investor shall have no obligation to
reimburse the Corporation with respect to any such excess).
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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(c) The Investor shall also pay to the
Corporation ****************
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7.3 Obligations Following Termination of
Collaboration. Except for the Investor's obligation,
pursuant to Section 7.2(a) above, to make a payment to the
Corporation on the first day of the first month immediately
after the Minimum Research Period and except for any other
payment obligations of the Investor in connection with the
Collaboration which are agreed upon by the parties in
writing after the date hereof and which by their own terms
survive the Collaboration Termination Date, the Investor
shall have no obligations or liabilities to the Corporation
pursuant to this Section 7 (including, without limitation,
the obligation to make payments to the Corporation in
connection with the Collaboration) from and after the
Collaboration Termination Date.
7.4 Exclusivity.
(a) Until the later of (i) the expiration of the
Acquisition Option Period or (ii) if the Acquisition Option
is exercised, the closing of the Acquisition, the
Corporation shall not engage in any research or screening
activities or programs, any research collaboration, any drug
discovery or drug development collaboration, partnership or
alliance, any licensing transaction, or any other kind of
transaction, involving all or any portion of the
Corporation's intellectual property or know-how or the
intellectual property or know-how of any Person; provided,
however, that the foregoing provisions of this Section
7.4(a) shall not preclude the Corporation from engaging in
(i) the Collaboration or (ii) any research or screening
activities or programs set forth in Schedule 7.4(a) attached
hereto, all of which are research or screening activities or
programs in which the Corporation is currently involved as
of the date of this Agreement. The restrictions set forth
in this Section 7.4(a) may be waived, in any instance, by
written consent of the Investor.
(b) During the period commencing upon the
expiration of the restrictions set forth in Section 7.4(a)
above and ending on the Collaboration
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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Termination Date, the Corporation shall not engage in any
research or screening activities or programs, any
research collaborations, any drug discovery or drug
development collaborations, partnerships or alliances,
any licensing transactions, or any other kind of
transactions, in the anti-bacterial and/or anti-fungal
therapeutic area; provided, however, that the foregoing
provisions of this Section 7.4(b) shall not preclude the
Corporation from engaging in (i) the Collaboration, (ii)
any research or screening activities or programs set
forth in Schedule 7.4(b) attached hereto, all of which
are research or screening activities or programs in which
the Corporation is currently involved as of the date of
this Agreement or (iii) any research or screening
activity or program so long as it (A) covers a finite
number of specific biological targets for drug discovery
and development, (B) provides for the Corporation to
engage in active research, discovery and development
activities with respect to all of such biological
targets, (C) provides for the payment to the Corporation
of commercially reasonable consideration and (D) does not
preclude the Corporation from entering into similar
arrangements with other parties (including the Investor)
relating to other targets in the same or any different
field or pathogen. The restrictions set forth in this
Section 7.4(b) may be waived, in any instance, by written
consent of the Investor.
(c) Until the later of (i) the expiration of the
Acquisition Option Period or (ii) if the Acquisition Option
is exercised, the closing of the Acquisition, the
Corporation, subject to any applicable nondisclosure
agreements between the Corporation and third parties, shall
discuss and coordinate in advance with the Investor any
contacts, meetings, discussions or negotiations that the
Corporation proposes to make or in which the Corporation
proposes to participate, to the extent that such proposed
contacts, meetings, discussions or negotiations relate to
any research or screening activities or programs, any
research collaboration, any drug discovery or drug
development collaboration, partnership or alliance, any
licensing transaction, or any other kind of transaction,
involving all or any portion of the Corporation's
intellectual property or know-how or the intellectual
property or know-how of any Person; provided, however, that
the foregoing provisions of this Section 7.4(c) shall not
apply to (i) the Collaboration or (ii) any research or
screening activities or programs set forth in Schedules
7.4(a) or 7.4(b) attached hereto, all of which are research
or screening activities or programs in which the Corporation
is currently involved as of the date of this Agreement.
7.5 License. Subject to the provisions of this
Section 7.5 hereof, the Corporation hereby grants to the
Investor a worldwide license (the "License") to use any and
all inventions, technology, know-how and intellectual
property of the Corporation (collectively, the "Licensed
Technology") for purposes of (i) researching, screening for,
discovering or developing anti-bacterial or anti-fungal drug
candidates or anti-bacterial or anti-fungal drug discovery
targets or (ii) selling, licensing, marketing or otherwise
commercializing anti-bacterial or anti-fungal drugs
discovered or developed using any portion of the Licensed
Technology during
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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the Term. Without limiting the generality of the
definition of the term "Licensed Technology" set forth
above, such term shall include any patent or patent
applications of the Corporation and any inventions,
technology or know-how disclosed in such patents or
patent applications. The License shall be perpetual and
irrevocable. The License shall be exclusive to the
extent and for the period of time that the Corporation
has agreed to abide by the exclusivity provisions of
Section 7.4 above. The Investor shall have the right to
sublicense the License and the Licensed Technology.
Except for any payments made or required to be made by
the Investor to the Corporation pursuant to Section 7.2
above in connection with the Collaboration, the Investor
shall not have to pay or otherwise owe to the Corporation
any consideration of any kind in connection with the
License.
7.6 Collaborative Research Agreement. The parties
hereby acknowledge that the foregoing provisions of this
Section 7 do not address all of the matters with respect to
the Collaboration that would customarily be addressed in a
stand-alone collaborative research agreement. Accordingly,
the parties hereby agree that, within sixty (60) days after
the Closing Date, the parties shall negotiate and enter into
a collaborative research agreement with respect to the
Collaboration (the "Collaborative Agreement"), which
Collaborative Agreement shall contain terms and provisions
that are consistent with all of the provisions set forth
above in this Section 7 and such other terms and provisions
as are customary for research collaborations similar to the
Collaboration. In the event that the parties fail to reach
agreement with respect to the terms and conditions of the
Collaborative Agreement, the respective Chief Executive
Officers of the parties shall, within thirty (30) days after
the expiration of such sixty (60) day period, meet and
negotiate in good faith a resolution of the parties'
differences. If the parties' respective Chief Executive
Officers are unable to resolve the parties' differences,
then such differences shall be submitted to binding
arbitration as provided in Section 7.7 below. Upon
execution and delivery by both parties of the Collaborative
Agreement, the provisions of this Section 7 shall terminate
and be superseded by the provisions of the Collaborative
Agreement. Nothing in this Section 7.6 shall be construed
as limiting the enforceability, validity or binding effect
of any of the other provisions of this Section 7.
7.7 Arbitration. If the parties are unable to agree
on the terms and conditions of the Collaborative Agreement
contemplated by Section 7.6 above prior to or during the
thirty (30) day period referred to in Section 7.6 above, the
dispute issues shall be submitted to binding arbitration.
The parties shall select one arbitrator, provided that, if
the parties cannot agree on the arbitrator, each party shall
select an arbitrator, and these two arbitrators will then
select a third arbitrator. The arbitrator or arbitrators
shall be accredited by the American Arbitration Association
and shall be individuals with relevant business experience
in structuring and negotiating biotechnology research
collaborations; provided, however, that the parties may
mutually agree in writing to waive either or both of
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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the foregoing requirements. The arbitration shall be
held in Boston, Massachusetts or in such other city in
the United States as the parties may mutually agree. The
arbitration session will be held no later than thirty
(30) days after the expiration of the thirty (30) day
period referred to in Section 7.6 above. The arbitrator
or arbitrators shall render a decision within ten (10)
business days of the conclusion of the arbitration
session. The arbitration proceeding shall be conducted
in accordance with the rules of the American Arbitration
Association. The decision of the arbitrator or
arbitrators shall be final and binding on both parties.
If the parties are able to agree on the appointment of a
single arbitrator, then the cost of such arbitrator shall
be shared equally by both parties. If the parties are
unable to agree on the appointment of a single
arbitrator, each party shall bear the cost of the
arbitrator appointed by such party and the cost of the
third arbitrator shall be shared equally by both parties.
Each party shall be responsible for all costs incurred
by it in preparing for and participating in the
arbitration.
7.8 Termination. The provisions of this Section 7
shall automatically terminate upon consummation of the
Acquisition.
SECTION 8. USE OF PROCEEDS. The Corporation shall use
the proceeds from the sale of the Series B Shares solely for
working capital in the ordinary course of its business as
currently conducted by the Corporation.
SECTION 9. RESTRICTIONS ON TRANSFER. The Series B
Shares and the Conversion Shares shall be subject to the
restrictions on transfer set forth in Section 4 of the
Investors' Rights Agreement.
SECTION 10. INDEMNIFICATION. The Corporation agrees
to indemnify, defend and hold the Investor (and its
directors, officers, employees, agents and affiliates and
the directors, officers, employees and agents of such
affiliates) harmless against any and all liabilities,
losses, costs or damages, together with all reasonable costs
and expenses related thereto (including reasonable legal and
accounting fees and expenses), incurred or suffered by any
such indemnified Person arising from, relating to, or in
connection with the untruth, inaccuracy or breach of any
statements, representations, warranties or covenants of the
Corporation contained herein. The Investor agrees to
indemnify, defend and hold the Corporation (and its
directors, officers, employees, agents and affiliates and
the directors, officers, employees and agents of such
affiliates) harmless against any and all liabilities,
losses, costs or damages, together with all reasonable costs
and expenses related thereto (including reasonable legal and
accounting fees and expenses), incurred or suffered by any
such indemnified Person arising from, relating to, or in
connection with the untruth, inaccuracy or breach of any
statements, representations, warranties or covenants of the
Investor contained herein. Indemnification pursuant to
this Section 10 shall be in addition to any liability the
Corporation or the Investor may otherwise have.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
28
<PAGE>
SECTION 11. GENERAL.
11.1 Election to Board of Directors. The Corporation
shall use its best efforts to cause a representative of the
Investor to be elected as a director of the Corporation
within thirty days after the Closing Date.
11.2 Expenses. Each party hereto will pay its own
expenses in connection with the transactions contemplated
hereby, whether or not such transactions shall be
consummated*************************************************
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11.3 Survival of Agreements. All covenants,
agreements, representations and warranties made herein or in
any of the other Related Documents, or any certificate or
instrument delivered to the Investor pursuant to or in
connection with this Agreement or any of the other Related
Documents, shall survive the execution and delivery of this
Agreement and each of the other Related Documents, the
issuance, sale and delivery of the Series B Shares and the
issuance and delivery of the Conversion Shares, and all
statements contained in any certificate or other instrument
delivered by the Corporation hereunder or thereunder or in
connection herewith or therewith shall be deemed to
constitute representations and warranties made by the
Corporation.
11.4 Brokerage. Each party hereto will indemnify and
hold harmless the others against and in respect of any claim
for brokerage or other commissions relative to this
Agreement or to the transactions contemplated hereby, based
in any way on agreements, arrangements or understandings
made or claimed to have been made by such party with any
third party.
11.5 Parties in Interest. All representations,
covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and permitted
assigns of the parties hereto whether so expressed or not.
Without limiting the generality of the foregoing, all
representations, covenants and agreements benefiting the
Investor shall inure to the benefit of any and all
subsequent holders from time to time of Series B Shares or
Conversion Shares.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
29
<PAGE>
11.6 Assignment. This Agreement and the respective
rights and obligations of the parties hereto may not be
assigned or delegated, except to the extent otherwise
consented to in writing by the Corporation and the Investor
and except that, after the Closing, the Investor may assign
all of its rights under this Agreement to any Person.
11.7 Remedies. In case that any one or more of the
covenants and/or agreements set forth in this Agreement
shall have been breached by any party hereto, the party or
parties entitled to the benefit of such covenants or
agreements may proceed to protect and enforce its or their
rights, either by suit in equity and/or action at law,
including, but not limited to, an action for damages as a
result of any such breach and/or an action for specific
performance of any such covenant or agreement contained in
this Agreement. The rights, powers and remedies of the
parties to this Agreement are cumulative and not exclusive
of any other right, power or remedy which such parties may
have under any other agreement or law. No single or partial
assertion or exercise of any right, power or remedy of a
party hereunder shall preclude any other or further
assertion or exercise thereof.
11.8 Entire Agreement. This Agreement contains the
entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior and
contemporaneous arrangements or understandings with respect
thereto.
11.9 Notices. All notices, requests, consents and
other communications hereunder to any party shall be deemed
to be sufficient if contained in a written instrument
delivered in person or duly sent by first class, registered,
certified or overnight mail, postage prepaid, or telecopied
with a confirmation copy by regular mail, addressed or
telecopied, as the case may be, to such party at the address
or telecopier number, as the case may be, set forth below or
such other address or telecopier number, as the case may be,
as may hereafter be designated in writing by the addressee
to the addresser listing all parties:
(i) If to the Corporation to:
Novalon Pharmaceutical Corporation
214 West Cameron Avenue, Suite B
Chapel Hill, N.C. 27516
Attention: Dana M. Fowlkes, M.D., Ph.D.,
President & CEO
Telecopier:(919) 968-9255
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
30
<PAGE>
with a copy to:
Jenner & Block
12th Floor
601 Thirteenth Street, N.W.
Washington, D.C. 20005
Attention: D. Joe Smith
Telecopier: (203) 639-6066
(ii) If to the Investor, to:
Cubist Pharmaceuticals, Inc.
24 Emily Street
Cambridge, MA 02139
Attention: Scott M. Rocklage, Ph.D.
Telecopier: (617) 576-0232
with a copy to:
Bingham, Dana & Gould LLP
150 Federal Street
Boston, MA 02110-1726
Attention: Julio E. Vega, Esquire
Telecopier:(617) 951-8736
Any notice or other communication pursuant to this Agreement
shall be deemed to have been duly given or made and to have
become effective (i) when delivered in hand to the party to
which it was directed, (ii) if sent by telex, telecopier,
facsimile machine or telegraph and properly addressed in
accordance with the foregoing provisions of this Section
11.9, when received by the addressee, (iii) if sent by
commercial courier guaranteeing next business day delivery,
on the business day following the date of delivery to such
courier, or (iii) if sent by first-class mail, postage
prepaid, and properly addressed in accordance with the
foregoing provisions of this Section 11.9, (A) when received
by the addressee, or (B) on the third business day following
the day of dispatch thereof, whichever of (A) or (B) shall
be the earlier.
11.10 Amendments and Waivers. Any provision of
this Agreement may be amended, modified or terminated, and
the observance of any provision of this Agreement may be
waived (either generally or in a particular instance and
either retrospectively or prospectively), with, but only
with, the written consent of each of the parties hereto.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
31
<PAGE>
11.11 Severability. Any provision of this
Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision
in any other jurisdiction.
11.12 No Waiver of Future Breach. No failure or
delay on the part of any party to this Agreement in
exercising any right, power or remedy hereunder shall
operate as a waiver thereof. No assent, express or implied,
by any party hereto to any breach in or default of any
agreement or condition herein contained on the part of any
other party hereto shall constitute a waiver of or assent to
any succeeding breach in or default of the same or any other
agreement or condition hereof by such other party.
11.13 No Implied Rights or Remedies; Third Party
Beneficiaries. Except as otherwise expressly provided in
this Agreement, nothing herein expressed or implied is
intended or shall be construed to confer upon or to give any
Person, firm or corporation, other than the Corporation and
the Investor, any rights or remedies under or by reason of
this Agreement. Except as otherwise expressly provided in
this Agreement, there are no intended third party
beneficiaries under or by reason of this Agreement.
11.14 Headings. The headings of the various
sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be
a part of this Agreement.
11.15 Nouns and Pronouns. Whenever the context may
require, any pronouns used herein shall include the
corresponding masculine, feminine or neuter forms, and the
singular form of names and pronouns shall include the plural
and vice-versa.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
32
<PAGE>
11.16 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Delaware, excluding the choice of law rules
thereof.
11.17 Counterparts. This Agreement may be executed
in any number of counterparts, and each such counterpart
shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
IN WITNESS WHEREOF, the parties hereto have executed
this Series B Convertible Preferred Stock Purchase Agreement
as of the date first above written.
CORPORATION:
NOVALON PHARMACEUTICAL
CORPORATION
By: [signature appears here]
Name: Dana M. Fowlkes, M.D., Ph.D.
Title: President & CEO
INVESTOR:
CUBIST PHARMACEUTICALS, INC.
By: [signature appears here]
Scott M. Rocklage,
President
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
33
<PAGE>
EXHIBIT 11
CALCULATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
<S> <C> <C>
1997 1996
------------- -------------
Beginning Balance December 31................................... 9,544,373 1,016,662
Issuance of Common Stock........................................ 3,398 (12,187)
Issuance of Cheap Stock......................................... -- 828,059
------------- -------------
Weighted Average Shares at March 31............................. 9,547,771 1,832,534
Net Loss First Quarter.......................................... ($ 1,591,374) ($ 1,873,227)
Net Loss per Share.............................................. ($ 0.17) ($ 1.02)
------------- -------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 3,892,300
<SECURITIES> 10,635,801
<RECEIVABLES> 505,267
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,459,690
<PP&E> 5,216,912
<DEPRECIATION> (1,956,114)
<TOTAL-ASSETS> 21,469,584
<CURRENT-LIABILITIES> 1,715,050
<BONDS> 0
0
0
<COMMON> 9,555
<OTHER-SE> 18,699,507
<TOTAL-LIABILITY-AND-EQUITY> 21,469,584
<SALES> 0
<TOTAL-REVENUES> 834,600
<CGS> 0
<TOTAL-COSTS> 2,656,742
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (230,768)
<INCOME-PRETAX> (1,591,374)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,591,374)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> 0
</TABLE>
