<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 15, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GENOMETRIX INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8731 76-0634223
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
2700 RESEARCH FOREST DRIVE
THE WOODLANDS, TX 77381
(281) 465-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MITCHELL D. EGGERS
CHIEF EXECUTIVE OFFICER
CHAIRMAN OF THE BOARD
GENOMETRIX INCORPORATED
2700 RESEARCH FOREST DRIVE
THE WOODLANDS, TX 77381
(281) 465-5000
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
STANFORD N. GOLDMAN, JR., ESQ. JUSTIN P. MORREALE, ESQ.
WILLIAM T. WHELAN, ESQ. GERALD J. KEHOE, ESQ.
MINTZ, LEVIN, COHN, FERRIS, BINGHAM DANA LLP
GLOVSKY AND POPEO, P.C. 150 FEDERAL STREET
ONE FINANCIAL CENTER BOSTON, MA 02110
BOSTON, MA 02111 (617) 951-8000
(617) 542-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- ----------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS PROPOSED MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per share........ $120,000,000 $31,680
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of registration
fee pursuant to Rule 457(a) under the Securities Act, as amended.
(2) Calculated pursuant to Rule 457(a) based on an estimate of the proposed
maximum aggregate offering price.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE> 2
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND WE ARE NOT
SOLICITING OFFERS TO BUY.
Subject to Completion, dated March 15, 2000
PROSPECTUS
Shares
[GENOMETRIX INCORPORATED LOGO]
Common Stock
- --------------------------------------------------------------------------------
This is our initial public offering of shares of common stock. We are offering
shares of our common stock. No public market currently exists for our
shares. We have applied for quotation on the Nasdaq National Stock Market under
the symbol "GNMX." We expect the initial public offering price to be between
$ and $ per share.
INVESTING IN THE SHARES INVOLVES RISKS. "RISK FACTORS" BEGIN ON PAGE 6.
<TABLE>
<CAPTION>
PER
SHARE TOTAL
------ --------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount and Commissions....................... $ $
Proceeds to Genometrix...................................... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to an aggregate
of additional shares of common stock to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Lehman Brothers, on behalf of the underwriters, expects to deliver the shares of
common stock on or about May , 2000.
- --------------------------------------------------------------------------------
Joint Lead Managers
LEHMAN BROTHERS CHASE H&Q
---------------------------
DAIN RAUSCHER WESSELS THOMAS WEISEL PARTNERS LLC
---------------------------
FIDELITY CAPITAL MARKETS
a division of National Financial Services Corporation
, 2000
<PAGE> 3
INSIDE FRONT COVER
Title of Page: "Genometrix Technology"
Graphics: Rendition of 96-well format VistaArray microarray with exploded view
of one microarray to show details and image data.
Text: Summary description of Genometrix' GenoVista Partnership Program and the
VistaArray microarray technology.
Tag line: "we take genomics personally"
FRONT FOLD-OUT SPREAD
Title of Page: "Genometrix Vision of Personalized Medicine"
Graphics: Photographs and images to represent the overall process for utilizing
Genometrix technology. Images are linked by arrows and flow from a list of
types of collaborators through our VistaClinic DNA Repository and into our
GenoVista Partnership Program and out to our current and future customers.
Text: Description of the applications for the GenoVista Partnership Program,
including list of components within each category of sample sources, program
modules and market segments.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 2
Risk Factors.......................... 6
Special Note Regarding Forward-Looking
Statements and Market Data.......... 17
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Selected Financial Data............... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 27
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management............................ 45
Certain Related Transactions.......... 52
Principal Stockholders................ 54
Description of Capital Stock.......... 57
Shares Eligible for Future Sale....... 60
Underwriting.......................... 62
Legal Matters......................... 65
Experts............................... 65
Where You Can Find Additional
Information......................... 65
Index to Financial Statements......... F-1
</TABLE>
------------------------
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is not an offer to sell or a
solicitation of an offer to buy our common stock in any jurisdiction where it is
unlawful. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock. This preliminary prospectus is
subject to completion prior to this offering. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of common stock.
"Genometrix" and "GenoVista" are pending trademark applications of our
subsidiary, Genometrix Genomics Incorporated, formerly known as Genometrix
Incorporated.
Until , 2000, all dealers selling shares of the common stock,
whether or not participating in the public offering, may be required to deliver
a prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
1
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes appearing elsewhere in this
prospectus. This summary is not complete and does not contain all of the
information that you should consider before investing in our common stock. You
should read the entire prospectus carefully, especially the risks of investing
in our common stock discussed under "Risk Factors."
GENOMETRIX
We are a pioneer and leading provider of cost-effective, high throughput
genomic services and information. We believe that applied genomics -- the
practical use of genetic information -- is the key to reducing the risk, cost
and lead-time of drug discovery and to the development of personalized medicine.
We believe our unified platform is the only technology that enables automated
genotyping, gene expression and protein analysis on a single system. Our goal is
to become the leading provider of high throughput genomic services to the
pharmaceutical and biotechnology industries for the discovery and development of
new drugs. And, in time, we plan to establish ourselves as the leading provider
of high throughput genomic services to physicians in support of therapeutic
treatments personalized for each patient's genetic profile.
In November 1999, we commercially launched our genomic services through the
GenoVista Partnership Program. Our current commercial customers are
Schering-Plough Corporation and Procter & Gamble Pharmaceuticals. We also have
research and development collaborations with the University of Arizona Cancer
Center, the University of Texas M.D. Anderson Cancer Center, the National Cancer
Institute and the U.S. National Center for Toxicological Research. In addition,
we have formed a strategic partnership with Motorola, Inc. under which we
entered into a research and development agreement, and licensed certain
intellectual property primarily for Motorola's own commercial development of
portable DNA-based clinical systems that are complementary to our genomic
services. Concurrent with entering into this license agreement, Motorola made an
equity investment of $10 million in our company.
MARKET OPPORTUNITY
The first phase of the genomics revolution has focused on sequencing
significant portions of DNA within the human genome. The next phase, applied
genomics, is the effort to understand how genetic variation among individuals
impacts disease and its treatment, and to use this information in the
development of new therapeutics. Thousands of genes have been discovered and
each gene is a potential drug target. As a result, a strong demand has emerged
for efficient high throughput genomic services that reduce the time and cost of
bringing a new drug to market, and increase the success rate of therapeutic
response. Overall, our technology leverages genomic information in a number of
areas, including drug discovery and development, diagnostics and, eventually,
personalized medicine. We believe our efficient, high throughput on-line genomic
services business will be especially suited to these market opportunities.
OUR SOLUTION
We have developed a highly integrated technology platform that combines
high throughput microarray analyses, automated sample handling, high capacity
bioinformatics and statistical genetics. We are also amassing a repository of
patient-consented samples with attendant clinical records for DNA analysis. We
believe our technology and services overcome certain limitations of existing
technologies and address the requirements of drug discovery and development
because we have:
- a unified and integrated technology platform;
- cost-effective, high throughput services;
- interactive bioinformatics solutions;
- an expanding DNA repository; and
- a strong intellectual property position.
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<PAGE> 6
OUR STRATEGY
Our goal is to establish our technology platform as the industry standard
and to become the market leader in high throughput genomic services and
information for the pharmaceutical and biotechnology industries (business to
business), and subsequently for physicians in the clinical environment
(personalized medicine). Unlike most of our competitors who provide product
solutions to specific components of the drug discovery and development process,
we offer a unified genomic service solution that can be employed throughout the
pharmaceutical development process without customer investment in
instrumentation. Key components of our strategy include the following:
- establish, build and maintain strong commercial relationships with
our biotechnology and pharmaceutical customers;
- develop research and development collaborations with pharmaceutical,
biotechnology and academic institutions;
- expand our proprietary solid-state DNA repository;
- generate and license intellectual property from our DNA repository;
- develop genotype-based diagnostics to expand the applications of our
core technology; and
- establish genotyping and database services to facilitate personalized
medicine.
OUR SERVICES
We believe we have the only unified DNA chip microarray technology that can
serve genotyping, gene expression and, in the future, protein analysis
applications. We have developed and are commercializing the following services,
which have been designed to promote access to genomic technologies and to
facilitate use by pharmaceutical and biotechnology companies:
- VistaMorph Genotyping Service, featuring high throughput genetic
variation analysis using standard or custom microarrays;
- VistaExpress Gene Expression Service, which enables researchers to
efficiently profile gene expression patterns across thousands of
biological samples;
- VistaLogic Information System, an Internet-based application software
providing a user friendly interface between Genometrix and our
customers; and
- VistaClinic DNA Repository, a collection of DNA samples and attendant
clinical records which will be available to our customers for
large-scale genotyping analysis.
Genometrix Incorporated was incorporated in Delaware on March 10, 2000 and
is the holding company of Genometrix Genomics Incorporated, the operating entity
formerly known as "Genometrix Incorporated," incorporated in Delaware on May 28,
1993. Genometrix Genomics Incorporated formed Genometrix Incorporated as a
wholly-owned subsidiary, which in turn formed a wholly-owned subsidiary,
Genometrix Merger Corp. On March 10, 2000, Genometrix Merger Corp. merged with
and into Genometrix Genomics Incorporated and shares of Genometrix Genomics
Incorporated were exchanged for shares of Genometrix Incorporated, resulting in
the present holding company structure. Accordingly, Genometrix Genomics
Incorporated is currently wholly-owned by Genometrix Incorporated and is the
only subsidiary of Genometrix Incorporated.
Unless the context otherwise requires, references to "Genometrix," "our,"
"we," "us" and "the Company" in this prospectus refer to both Genometrix
Incorporated and Genometrix Genomics Incorporated.
Our principal executive offices are located at 2700 Research Forest Drive,
The Woodlands, TX 77381. Our telephone number at that address is (281) 465-5000.
We maintain a Web site on the Internet at www.genometrix.com. The information on
our Web site is not part of this prospectus.
3
<PAGE> 7
THE OFFERING
Common stock offered in this
offering......................... shares
Common stock to be outstanding
after this offering.............. shares
Use of proceeds.................. Support and expand our commercialization
activities, expand our DNA repository and
research and development efforts and
working capital and other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol........................... GNMX
The number of shares of common stock to be outstanding after the offering
does not include:
- 4,187,463 shares of common stock that may be issued upon the exercise
of stock options outstanding as of March 10, 2000 at a weighted
average exercise price of $1.95 per share;
- warrants to purchase 235,710 shares of Series B Convertible Preferred
Stock at an exercise price of $1.10 per share which will be
automatically converted into warrants to purchase an equivalent
number of common shares at the same exercise price upon completion of
this offering; and
- 543,954 shares of common stock that we could issue under our 1994
Stock Plan and 5,000,000 shares we could issue under our 2000
Employee, Director and Consultant Stock Option Plan.
------------------------
Unless otherwise indicated, all information contained in this prospectus:
- Assumes that the underwriters do not exercise their over-allotment
option;
- Assumes we adopt and file a Restated Certificate of Incorporation and
the adoption of restated By-laws upon completion of this offering;
- Shows a common equivalent number of shares for our Series A and
Series B Convertible Preferred Stock amounts outstanding to reflect
an adjustment to conversion price ratio of each series for a 10 for 1
split of our common stock that occurred on May 25, 1998;
- Reflects the automatic conversion of all of our outstanding shares of
preferred stock into a total of 8,941,674 shares of common stock upon
completion of this offering;
- Reflects the conversion of certain notes payable and related accrued
interest as of December 31, 1999 into 392,840 shares of common stock
upon completion of this offering; and
- Assumes the exercise of 919,544 common stock purchase warrants
immediately prior to completion of this offering.
4
<PAGE> 8
SUMMARY FINANCIAL DATA
The following summary historical financial data has been derived from our
audited and unaudited financial statements and is not necessarily indicative of
future anticipated results of operations. The financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the financial statements and the notes thereto and
any other information contained in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------------------- ---------------
1995 1996 1997 1998 1999 1998 1999
------ ------ ------ -------- -------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Grant and contract research revenue....................... $ 714 $ 796 $ 970 $ 1,467 $ 1,637 $ 618 $ 234
Service revenue........................................... -- -- 34 77 14 -- 255
------ ------ ------ -------- -------- ------ ------
Total revenue............................................... 714 796 1,004 1,544 1,651 618 489
Costs and expenses:
General and administrative................................ 528 823 533 1,412 3,514 668 1,299
Research and development.................................. 535 596 635 1,435 2,603 549 915
Amortization of deferred stock compensation............... -- -- -- -- -- -- 183
------ ------ ------ -------- -------- ------ ------
Total costs and expenses.................................... 1,063 1,419 1,168 2,847 6,117 1,217 2,397
------ ------ ------ -------- -------- ------ ------
Operating loss.............................................. (349) (623) (164) (1,303) (4,466) (599) (1,908)
Net loss.................................................... (394) (689) (304) (1,715) (4,370) (607) (1,872)
Dividend related to beneficial conversion feature of
preferred stock........................................... -- -- -- -- -- -- (1,344)
------ ------ ------ -------- -------- ------ ------
Net loss attributable to common stockholders................ $ (394) $ (689) $ (304) $ (1,715) $ (4,370) $ (607) $(3,216)
====== ====== ====== ======== ======== ====== ======
Net loss per common share, basic and diluted................ $ (.04) $ (.07) $ (.03) $ (.16) $ (.39) $ (.06) $ (.28)
====== ====== ====== ======== ======== ====== ======
Shares used in computing net loss per common share, basic
and diluted............................................... 9,046 10,300 10,416 10,629 11,109 10,893 11,664
Pro forma net loss per common share, basic and diluted...... $ (.21) $ (.08)
======== ======
Shares used in computing pro forma net loss per common
share, basic and diluted.................................. 21,224 21,779
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA AS ADJUSTED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1999(1) 1999(2)
------------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 7,369 $ 6,545 $ 14,045
Working capital............................................ $ 6,327 $ 6,022 $ 13,953
Total assets............................................... $10,721 $ 10,584 $ 18,083
Accumulated deficit........................................ $(7,635) $ (9,507) $ (9,507)
Total stockholders' equity................................. $ 9,169 $ 9,281 $ 17,212
</TABLE>
- ---------------
(1) The pro forma balance sheet data gives effect to (i) the sale to Motorola,
Inc. in January 2000 of 1,000,000 shares of Series E Convertible Preferred
Stock, representing a second round investment pursuant to a Stock Purchase
Agreement dated July 6, 1999 and the sale of 712,095 shares of Series F
Convertible Preferred Stock in January 2000, representing a third round
investment of an offering commenced in August 1999, (ii) the conversion of
all 8,941,674 outstanding shares of convertible preferred stock into
8,941,674 shares of common stock, (iii) the conversion of notes payable with
a principal face amount of $300,000 and related accrued interest of $132,134
into 392,840 shares of common stock and (iv) the assumed exercise of 919,544
outstanding common stock purchase warrants into an equivalent number of
shares of common stock at a weighted average exercise price of $2.57 per
share upon completion of this offering.
(2) The adjusted pro forma balance sheet data reflects the sale of
shares of our common stock offered by us at an assumed initial public
offering price of $ per share, less underwriting discounts and
commissions and the estimated offering expenses payable by us.
5
<PAGE> 9
RISK FACTORS
An investment in our common stock is risky. You should carefully consider
the following risks, as well as the other information contained in this
prospectus. Our business and results of operations could be seriously harmed by
any of the following risks. This could cause the trading price of our common
stock to decline and you may lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
WE ARE IN THE EARLY STAGE OF COMMERCIALIZATION IN A RECENTLY FORMED INDUSTRY
THAT IS BASED ON NEW TECHNOLOGIES, AND WE MAY BE UNABLE TO ADDRESS THE RISKS WE
FACE IN ORDER TO ACHIEVE OUR OBJECTIVES.
We commenced operations in 1993 and are in the early stage of
commercializing our services. Further, the genomics industry has only a limited
history and is based on technological innovations, many of which have yet to be
proven commercially viable. While we are beginning to generate revenues from
this commercialization, we have incurred significant losses to date and our
revenues have been almost exclusively derived from grants from governmental
bodies and from universities. Substantially all of our resources have been
dedicated to developing our high throughput microarray technology and genomic
services infrastructure. We cannot assure you that we will successfully design,
develop, market, manufacture or sell any future products or services, or that we
will be able to sustain or increase revenue from our current services. Our
failure to do so could harm our business, operations and financial condition.
Our business is subject to all of the risks inherent in the development of
a new business enterprise, such as the need:
- to obtain sufficient capital to support the expenses of developing
our technology and commercializing our products and services;
- to develop a market and attract customers for our products and
services;
- to successfully transition from a company with a research focus to a
company capable of supporting commercial activities;
- to successfully execute our business strategy;
- to attract and retain qualified management, sales, technical and
scientific staff; and
- to manage our growth.
Our operations also may be affected by problems frequently encountered with
the use of new technologies and by the competitive environment in which we
operate, and by the risks detailed below.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES AND NEGATIVE CASH FLOW
AND WE MAY NEVER ACHIEVE OR MAINTAIN PROFITABILITY.
We have an accumulated deficit of $9.5 million as of December 31, 1999 and
expect that we will continue to incur additional net operating losses for the
foreseeable future. These losses may increase as we expand our investment in
microarray technology and genomic services infrastructure. Since we are in the
early stages of commercializing our business, we face significant challenges in
simultaneously expanding our operations, pursuing key scientific goals and
attracting customers for our services. As a result, there is a high degree of
uncertainty that we will be able to achieve significant revenue or
profitability.
WE MAY NEED ADDITIONAL CAPITAL TO SUPPORT OUR OPERATIONS, WHICH MAY BE
UNAVAILABLE OR COSTLY.
Based on our current plans, we believe that our existing cash and cash
equivalents, together with the net proceeds of this offering, will be sufficient
to fund our operating expenses, debt obligations and capital requirements
through at least December 2001. However, we may need to raise additional capital
to fund our research and development programs, to scale up manufacturing
activities, to expand our sales and
6
<PAGE> 10
marketing capabilities and to fund unforeseeable expenses. Future collaborations
may require us to commit substantial capital. Even if we have sufficient funds
for our operating plans, we may choose to raise additional capital due to market
conditions or strategic considerations. We may seek funding through public or
private equity offerings, debt financing or additional collaborations. If we
raise additional funds by selling additional shares of our capital stock, the
ownership interest of our stockholders will be diluted. We cannot assure you
that additional financing will be available when needed, or that, if available,
it will be obtained on favorable terms. Our failure to raise capital on
acceptable terms when needed could materially and adversely affect our business,
financial condition, results of operations and cash flows. Many factors, some of
which are beyond our control, will determine our funding requirements and we may
need funds sooner than currently anticipated. These factors include:
- our level of success in selling our high throughput VistaMorph
Genotyping Services, our VistaExpress Gene Expression Services and
our VistaClinic DNA Repository and related database and in developing
and selling other genomic services which use our high throughput
microarray technology;
- our ability to establish, maintain and successfully implement
collaborations;
- our ability to add customers and to generate additional business from
existing customers;
- the level of our manufacturing, sales and marketing expenses;
- the level of our expenses associated with unforeseen litigation or
other extraordinary items;
- the costs and timing of defending our proprietary rights and of
obtaining new patent rights; and
- regulatory changes, competition and technological developments in the
market.
If we require additional funds but are unable to obtain them on favorable
terms, we may have to substantially reduce or eliminate expenditures for further
commercialization of our products, sell some or all of our technology or assets,
or merge with another entity. If we raise additional funds by selling additional
shares of our capital stock, the ownership interests of our stockholders will be
diluted and debt financing, if available, may include restrictive covenants.
IF OUR SERVICES FAIL TO ACHIEVE OR MAINTAIN SUFFICIENT MARKET ACCEPTANCE OUR
BUSINESS WILL BE HARMED.
In the near-term we must be able to convince pharmaceutical companies of
our ability to assist in discovering complex connections between genetic
profiles, disease risk and therapeutic response so as to enhance drug discovery
and development. In the long-term, our commercial objectives include playing a
key role in the provision of "personalized medicine." The commercial success of
our services depends upon continuing and expanding market acceptance of our high
throughput microarray platform, genomic services and VistaClinic DNA Repository
by pharmaceutical and biotechnology companies, academic research centers,
government-funded research laboratories and physicians. Market acceptance
depends on many factors, including demonstrating to customers that our
technology and services are superior to and more cost-effective than other
technologies and services which are available now or which may become available
in the future.
Our newly launched GenoVista Partnership Program offers high throughput
custom microarray fabrication and analysis services for genotyping and gene
expression profiling. Although we are beginning to obtain revenue from this
program, we may be unable to sustain or grow these revenues. We must be able to
market and sell our capabilities to many areas within the pharmaceutical drug
discovery development process, including target identification, target
validation, primary screening, lead optimization and preclinical and clinical
development. We may not, however, succeed in selling our services and in
maintaining annual subscriptions to our database with pharmaceutical companies.
The cost of our services and subscriptions may deter certain potential customers
and we may be required to discount the price of our services. Pharmaceutical and
biotechnology companies may not agree to purchase our services at the
anticipated subscription rate. Potential customers will need to be trained to
use our technology to benefit from its capabilities and we may be unable to
provide sufficient training and technical support to facilitate
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<PAGE> 11
our customers' projects. Any of these factors could reduce the potential market
for our products, which could seriously harm our business, financial condition,
operations and cash flows.
WE MAY BECOME INVOLVED IN LAWSUITS TO PROTECT OR ENFORCE OUR PATENTS, WHICH
WOULD BE EXPENSIVE AND, IF WE LOSE, MAY CAUSE US TO LOSE SOME OR ALL OF OUR
INTELLECTUAL PROPERTY RIGHTS, AND THEREBY REDUCE OUR ABILITY TO COMPETE IN OUR
MARKETS.
Our success may depend on our ability to obtain and defend patent rights
and trade secrets. Our patent rights may not afford adequate protection for our
technology. Others may challenge our patents and, as a result, our patents could
be held invalid or unenforceable. In addition, our patent applications may not
result in the issue of patents in the United States or foreign countries.
Competitors may develop products similar to ours that do not infringe our
patents. In addition, others may develop high throughput microarray systems and
other technology in violation of our patents or independent of our patents that
may reduce the market for our services. In order to protect or enforce our
patent rights, it may be necessary to undertake patent litigation against third
parties, such as infringement suits or interference proceedings. These lawsuits
can be expensive, take significant time, divert management's attention from
other business concerns and may provoke third parties to assert their patents
against us. The patent position of biotechnology firms is generally uncertain,
involves complex legal and factual questions, and has been subject to
litigation. No consistent policy has emerged from the U.S. Patent and Trademark
Office or the courts regarding the breadth of claims allowed or the degree of
protection afforded under biotechnology patents. In addition, the approval or
rejection of patent applications may take several years.
THE RIGHTS WE RELY UPON TO PROTECT OUR INTELLECTUAL PROPERTY MAY NOT BE
ADEQUATE, AND, IF SO, COULD ENABLE THIRD PARTIES TO USE OUR TECHNOLOGY AND
REDUCE OUR ABILITY TO COMPETE IN THE MARKETS.
We require our employees, consultants and advisors to execute
confidentiality agreements. However, we cannot guarantee that these agreements
will provide us with adequate protection against improper use or disclosure of
confidential information. In addition, in some situations, these agreements may
conflict with, or be subject to, the rights of third parties with whom our
employees, consultants or advisors have prior employment or consulting
relationships. Further, others may independently develop substantially
equivalent proprietary information and techniques, or otherwise gain access to
our trade secrets.
OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO OPERATE WITHOUT INFRINGING ON
OR MISAPPROPRIATING THE PROPRIETARY RIGHTS OF OTHERS AND WITHOUT OTHERS
INFRINGING ON OR MISAPPROPRIATING OUR PROPRIETARY RIGHTS.
To date, we have received no notices alleging that we are infringing the
patents of any third party. Nonetheless, we may in the future be sued for
infringing the patent rights of others. Intellectual property litigation is
costly, and, even if we prevail, the cost of such litigation could adversely
affect our business, financial condition, results of operations and cash flows.
In addition, litigation is time-consuming and could divert management attention
and resources away from our business. If we do not prevail in any litigation, in
addition to any damages we might have to pay, we could be required to cease the
allegedly infringing activity or to obtain a license. Such a required license
may not be available to us or may not be available on acceptable terms, if at
all. In addition, some licenses may be non-exclusive, so that our competitors
may have access to the same technology licensed to us. If we fail to obtain a
required license, or are unable to design around a third party patent, ceasing
an allegedly infringing activity could have a materially adverse affect on our
business, financial condition, operations and cash flows.
Other companies may infringe on or misappropriate our proprietary rights
that are necessary for the operation of our business. Litigation to enforce our
proprietary rights could be expensive and time-consuming, especially if the
other parties to such litigation commit greater financial resources and
personnel. We may decide not to enforce our proprietary rights because of the
high cost and personnel required to prosecute any such case. In the event we
fail to enforce our proprietary claims, or are unsuccessful at enforcing such
claims, it could have a material adverse effect on our business, financial
condition, operations and cash flows.
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BECAUSE RIGHTS TO SOME OF OUR TECHNOLOGY HAVE BEEN LICENSED FROM THIRD PARTIES,
A BREACH BY US OF A MATERIAL TERM OF ONE OF THESE LICENSES COULD RESULT IN
LOSING SOME TECHNOLOGY RIGHTS AND COULD DELAY OR SUSPEND OUR OVERALL
COMMERCIALIZATION EFFORTS.
Our core technology has been licensed from third parties. We have exclusive
rights to certain of our core technology, but these exclusive rights terminate
in 2006, and may be extended after good faith negotiations as provided in the
agreement, but there can be no assurance that the licensor will extend such
exclusivity on commercially reasonable terms, or at all. In addition, changes to
or termination of our agreements with these third parties could result in losing
access to this technology and could delay or suspend our overall
commercialization efforts. For example, the academic institutions from whom we
license rights to electrokinetic hybridization technologies may refuse to
license these rights to us, or may insist on licensing these rights on
commercially unreasonable terms. Such failure to maintain the right to license
such technologies could seriously harm our business, financial condition,
operations and cash flows.
WE MAY BE UNABLE TO OBTAIN LICENSES TO PATENTED SNPS WHICH COULD PREVENT US FROM
OBTAINING SIGNIFICANT REVENUE OR BECOMING PROFITABLE.
The U.S. Patent and Trademark Office has issued at least one patent to a
third party relating to a single nucleotide polymorphism (SNP). If important
SNPs are patented, we will need to obtain rights to those SNPs in order to
develop, use and sell related assays. Required licenses may not be available on
commercially acceptable terms, or at all. If we fail to obtain licenses to
important patented SNPs, we may never achieve significant revenue or become
profitable.
WE DEPEND, AND EXPECT TO DEPEND IN THE FORESEEABLE FUTURE, ON A SMALL NUMBER OF
CUSTOMERS FOR A SUBSTANTIAL PORTION OF OUR REVENUE. THE LOSS OF ANY ONE OR MORE
OF THESE CUSTOMERS, OR A REDUCTION IN SERVICES REQUIRED BY OUR CUSTOMERS, COULD
RESULT IN A SUBSTANTIAL DECLINE IN OUR REVENUE.
For the foreseeable future, we expect that our customers will be
concentrated in a limited number of pharmaceutical and biotechnology companies,
academic research centers and government-funded research laboratories. As a
result, our financial performance may depend on large orders from a limited
number of customers, and the loss of, or reduction in, the purchase of our
services from our customers could harm our business, financial condition,
results of operations and cash flows. Also, if consolidation trends in the
pharmaceutical and biotechnology industries continue, the number of our current
and potential customers could decrease. If this occurs, large customers may seek
reductions in the prices of our services based on volume purchases.
ETHICAL AND OTHER CONCERNS SURROUNDING THE USE OF GENETIC INFORMATION MAY REDUCE
THE OVERALL MARKET FOR OUR SERVICES.
We believe that the value of our VistaClinic DNA Repository to customers
will depend upon our success in collecting and archiving patient-consented
biological samples and medical records and in providing rapid responses to
requests for customized and existing microarrays and samples. Genetic testing
has raised ethical issues regarding confidentiality and the appropriate uses of
the resulting information. For these reasons, governmental authorities may call
for limits on or regulation of the use of information obtained from genetic
testing or may prohibit testing for genetic predisposition to certain
conditions, particularly for those conditions that have no known cure. The
successful development of our VistaClinic DNA Repository depends upon collecting
a large number of biological samples and accompanying patient medical records,
for which we must obtain patient consent. Individuals may not give such consent
due to concerns about the privacy and use of medical records and biological
specimens. Failure to develop a sufficient database and archive could reduce the
potential market for our services, which could seriously harm our business,
financial condition, operations and cash flows.
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THE FAILURE OF OUR CUSTOMERS TO SUCCESSFULLY COMMERCIALIZE PRODUCTS THAT WERE
DEVELOPED USING OUR PRODUCTS AND SERVICES COULD SUBSTANTIALLY HARM OUR BUSINESS.
Our business model for earning revenues includes a royalty-sharing
provision with customers who develop products using our genotyping and gene
expression services and our bioinformatics services. If our customers fail to
commercialize products using our products and services, we will not realize this
potential stream of revenue and such failure could substantially harm our
business. Moreover, there is no assurance that customers will agree to a
royalty-sharing provision even if their own commercialization efforts are
successful. The failure to share in our customers' commercialization efforts may
substantially harm our business.
ANY SIGNIFICANT REDUCTION, DELAY OR TERMINATION OF RESEARCH AND DEVELOPMENT
BUDGETS AND GOVERNMENT FUNDING COULD LIMIT OUR MARKET AND HARM OUR BUSINESS.
Our customers include researchers at pharmaceutical and biotechnology
companies, at academic institutions and at government and private laboratories.
If our customers reduce their research and development budgets, they may reduce
the services they purchase from us, in which case our business, results of
operations, financial condition and cash flow will suffer.
A significant portion of our services is provided to researchers,
universities, government laboratories and private foundations whose funding is
dependent upon grants from government agencies such as, for example, the U.S.
National Institutes of Health ("NIH"). Although the level of NIH research
funding has increased during the past several years, these increases may not
continue or research funding may be reduced. Government funding of research and
development is subject to the political process, which is inherently fluid and
unpredictable. A reduction in government funding for the NIH or other government
research agencies could harm our business, operations, financial condition and
cash flows.
Our academic customers generally receive funds from approved grants at
particular times of the year. In the past, grants have been frozen for extended
periods or have otherwise become unavailable to various institutions without
advance notice. The timing of the receipt of grant funds affects the timing of
purchase decisions by our customers and, as a result, can cause fluctuations in
our sales and operating results.
THE SALES CYCLE FOR OUR SERVICES IS LENGTHY. WE MAY EXPEND SUBSTANTIAL FUNDS AND
MANAGEMENT EFFORT WITH NO ASSURANCE OF SUCCESSFULLY SELLING OUR SERVICES.
Our ability to obtain customers for our services depends in significant
part upon the perception that our services can help accelerate drug discovery
and development efforts. The sales cycle is typically 9 to 12 months due to the
education effort that is required. Our sales effort requires the effective
demonstration of the benefits of our technology and services to and significant
training of many different departments within a potential customer. These
departments might include research and development personnel and key management.
In addition, we may be required to negotiate agreements containing terms unique
to each customer. Our marketing and sales force may not be sufficiently large or
knowledgeable to successfully undertake these efforts. We may expend substantial
funds and management effort with no assurance that we will successfully sell our
services.
OUR PHARMACEUTICAL CUSTOMERS MUST USUALLY OBTAIN REGULATORY APPROVAL TO MARKET
THEIR PRODUCTS IN THE UNITED STATES AND FOREIGN JURISDICTIONS, AND IF THEY FAIL
TO OBTAIN SUCH APPROVALS AND TO COMMERCIALIZE PRODUCTS DEVELOPED WITH GENOMIC
INFORMATION WE PROVIDE THEM, OUR MARKETS COULD BE LIMITED AND OUR BUSINESS
HARMED.
The pharmaceutical industry is subject to stringent regulation by a wide
range of authorities. We cannot predict whether regulatory clearance will be
obtained for any product that our pharmaceutical customers develop. A
pharmaceutical product cannot be marketed in the United States until it has
completed rigorous preclinical testing and clinical trials and an extensive
regulatory clearance process overseen by the FDA. It typically takes many years
and substantial resources to satisfy regulatory requirements, depending upon the
type, complexity and novelty of the product. Of particular significance
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are the requirements covering research and development, testing, manufacturing,
quality control, labeling and promotion of drugs for human use.
Before commencing clinical trials in humans, pharmaceutical companies must
submit to, and receive approval from, the FDA. Clinical trials also are subject
to oversight by institutional review boards. Before receiving FDA clearance to
market a product, pharmaceutical companies must demonstrate that the product is
safe and effective on the patient population that will be treated. Data obtained
from preclinical and clinical activities are susceptible to varying
interpretations that could delay, limit or prevent regulatory clearances. In
addition, delays or rejections may be encountered based upon additional
government regulation from future legislation or administrative action or
changes in FDA policy during the period of product development, clinical trials
and FDA regulatory review. Failure to comply with applicable FDA or other
applicable regulatory requirements may result in criminal prosecution, civil
penalties, recall or seizure of products, total or partial suspension of
production or injunction, as well as other regulatory action against the
pharmaceutical company.
If regulatory clearance of a product is granted, this clearance will be
limited to those disease states and conditions for which the product is
demonstrated through clinical trials to be safe and efficacious. We cannot
ensure that any compound developed by our pharmaceutical customers based on
genomic information we provide will prove to be safe and efficacious in clinical
trials and will meet all of the applicable regulatory requirements needed to
receive marketing clearance.
Outside the United States, a pharmaceutical company's ability to market a
product is contingent upon receiving a marketing authorization from the
appropriate regulatory authorities. This foreign regulatory approval process
includes all of the risks associated with FDA clearance described above.
WE MAY BECOME SUBJECT TO INCREASED GOVERNMENT REGULATION.
Our services are not currently subject to regulation by the FDA, although
the products of many of the pharmaceutical and biotechnology companies to which
we market our services are regulated by the FDA. The interest of the FDA or
other governmental agencies in our services may increase as the number of
pharmaceuticals and other products developed using our technology increases. We
are subject to laws and regulations pertaining to the protection of human
subjects and to genetic privacy. For example, we are subject to the Policy for
the Protection of Human Subjects, a body of regulations which applies to all
federally funded research on humans. In addition, although we are not a "covered
entity" under the Health Insurance Portability and Accountability Act (HIPAA),
health plans from whom we may seek clinical information for our VistaClinic DNA
Repository are covered entities, and their compliance with HIPAA will place
additional administrative and cost burdens on Genometrix and will affect our
ability to obtain individual health information from covered entities. If we
fail to obtain such clinical information, it could affect the usefulness of our
VistaClinic database and our business, operations, financial condition and cash
flows will suffer.
WE ARE HIGHLY DEPENDENT ON PRINCIPAL MEMBERS OF OUR MANAGEMENT, SALES AND
SCIENTIFIC STAFF, IN PARTICULAR OUR CHIEF EXECUTIVE OFFICER AND CHIEF SCIENTIFIC
OFFICER. THE FAILURE TO ATTRACT AND RETAIN KEY PERSONNEL COULD HURT OUR
BUSINESS.
Our success depends on our ability to attract, retain and motivate highly
skilled managers, biochemists, engineers, other scientists and technicians and
sales persons and particularly on our ability to retain our current Chief
Executive Officer, Mitchell D. Eggers, and our Chief Scientific Officer, Michael
Hogan. Our ability to maintain, expand or renew existing arrangements with our
customers, enter into new arrangements and provide additional services to our
existing customers depends, in large part, on our ability to hire and retain
scientists and technicians with the skills necessary to keep pace with
continuing changes in genomic and proteomic research. We believe that there is a
shortage of, and significant competition for, scientists and technicians with
the skills and experience in chemistry and engineering necessary to perform the
services we require. We compete with the research departments of pharmaceutical
companies, biotechnology companies, combinatorial chemistry companies, contract
research
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companies, hospitals and research and academic institutions for new personnel.
Our inability to hire additional qualified personnel may materially adversely
affect our future growth. In addition, our inability to hire additional
qualified personnel may require an increase in the level of responsibility for
both existing and new personnel. We cannot assure you that we will be successful
in attracting, retaining or motivating our scientific, technical and sales
personnel. Any failure on our part to hire, train and retain sufficient
qualified personnel would seriously damage our business.
IF WE DO NOT EFFECTIVELY MANAGE OUR GROWTH, IT COULD AFFECT OUR ABILITY TO
PURSUE BUSINESS OPPORTUNITIES AND EXPAND OUR BUSINESS.
Growth in our business has placed, and will continue to place, a
significant strain on our management systems and resources. We will need to
continue to improve our operational and financial systems and managerial
controls and procedures and expand, train and manage our workforce. We will have
to maintain close coordination among our technical, accounting, marketing, sales
and research departments. If we fail to effectively manage our growth and
address the above concerns, it could affect our ability to pursue business
opportunities and expand our business.
WE DEPEND ON THIRD-PARTY PRODUCTS AND SERVICES AND SINGLE OR LIMITED SOURCES OF
SUPPLY TO PROVIDE OUR SERVICES AND TO MANUFACTURE SOME COMPONENTS OF OUR
TECHNOLOGY.
We rely to a substantial extent on outside vendors to manufacture many of
the components used in our microarrays and other technology and in providing our
genomic services. Some of these components and materials are obtained from a
single supplier or a limited group of suppliers. Our reliance on outside vendors
generally and on a sole or a limited group of suppliers in particular, involves
several risks, including:
- the inability to obtain an adequate supply of required components due
to constraints in manufacturing capacity, a discontinuance of a
product by a third-party manufacturer or other supply constraints;
- reduced control over quality and pricing of components; and
- delays and long lead times in receiving materials from vendors.
Any interruption in the supply of a single-sourced product would have a
material adverse effect on our ability to increase the number of work stations
we have in production and on our overall throughput until a new source of supply
is qualified. We may be unable to secure a sufficient alternative source within
a reasonable time period, or on commercially reasonable terms, if at all. If we
are unable to obtain the components we need for our work stations and other
technology on favorable terms, our throughput will be reduced and our business,
operations, financial condition and cash flows will suffer.
IF WE FAIL TO ACHIEVE AND MAINTAIN THE HIGH MANUFACTURING STANDARDS THAT OUR
MICROARRAYS AND OTHER TECHNOLOGY REQUIRE, WE WILL NOT BE SUCCESSFUL.
The production of our microarrays requires careful calibration and precise,
high-quality manufacturing. Our failure to achieve and maintain these high
manufacturing standards, including the incidence of manufacturing errors, design
defects or component failures, could result in delays or failures in technology
testing or service delivery, cost overruns or other problems that could
seriously hurt our business. Despite our high manufacturing standards, we cannot
completely eliminate the risk of errors, defects or failures. If we are unable
to manufacture the components of our high throughput microarray technology on a
timely basis at acceptable quality and cost, or if we experience unanticipated
technological problems or delays in production, our business, financial
condition and operations will suffer.
The manufacture of our technology is and will continue to be complex and
costly, requiring a number of separate processes and components. Achieving
precision and quality control requires skill and diligence by our personnel.
Further, to be successful, we believe we will need to increase our manufacturing
capacity.
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We may experience difficulties in scaling up manufacturing of new services
and products, including problems related to quality control and assurance,
component and service availability, adequacy of control policies and procedures
and lack of skilled personnel. If we cannot hire, train and retain enough
experienced and capable scientific and technical workers, we may not be able to
manufacture sufficient quantities of our current or future technology and
products at an acceptable cost and on time, which could limit market acceptance
of our technology or otherwise damage our business.
SECURITY BREACHES INTO OUR VISTALOGIC INFORMATION SYSTEM COULD RESULT IN
LAWSUITS OR A LOSS OF CUSTOMERS.
If any customer data transmitted over the Internet through our VistaLogic
Information System is intercepted or destroyed by hackers, computer viruses,
programming errors or any similar malfunction, we could be subject to lawsuits
or loss of customers. We may be required to spend substantial amounts to protect
against security breaches or to ameliorate problems caused by such a security
breach. Breaches of our security could result in losing customer confidence and
the goodwill of the public, resulting in material harm to our business.
IF OUR FACILITY IS DAMAGED, WE COULD EXPERIENCE LOST REVENUE AND OUR BUSINESS
COULD BE SERIOUSLY HARMED.
Our only facility is located in The Woodlands, Texas, near Houston. Damage
to our facility due to fire, natural disaster, power loss, communications
failure, unauthorized entry or other events could cause us to cease development
and manufacturing of our products. We do not currently have a backup DNA
repository for housing our blood samples. We have limited insurance to protect
against business interruption; however, there can be no assurance that this
insurance will be adequate or that it will continue to be available to us on
commercially reasonable terms, or at all.
WE MAY FAIL TO DEVELOP OR EXPAND OUR INTERNATIONAL PRESENCE, WHICH COULD LIMIT
THE MARKETS FOR OUR SERVICES.
We have limited experience in developing an international presence. To
successfully expand our international presence, we must develop and maintain
relationships with international customers and partners. As we expand our
operations in foreign countries, we must continue to hire additional personnel
and to maintain good relations with our foreign customers and partners. If we
are unable to do so, our international expansion efforts will not be successful.
THE RISKS ASSOCIATED WITH DEVELOPING AND MAINTAINING INTERNATIONAL OPERATIONS
COULD ADVERSELY AFFECT OUR BUSINESS.
Providing services internationally involves a number of risks not typically
present when providing domestic services, including:
- currency fluctuation risks;
- difficulties in staffing and managing foreign operations;
- costs and risks of deploying systems in foreign countries;
- changes in regulatory requirements;
- licenses, tariffs and other trade barriers;
- different laws for obtaining and enforcing intellectual property
rights;
- the burden of complying with a wide variety of complex foreign laws
and treaties;
- potentially adverse tax consequences; and
- political and economic instability.
Our international operations also will be subject to the risks associated
with the imposition of legislation and regulations relating to the import or
export of high-technology products. We cannot predict
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whether tariffs or restrictions upon the importation or exportation of our
technology will be implemented by the United States or other countries. If such
tariffs or restrictions are imposed, it could adversely affect our ability to
sustain or increase our international sales.
OUR INDUSTRY IS HIGHLY COMPETITIVE AND WE MAY NOT HAVE THE RESOURCES REQUIRED TO
SUCCESSFULLY COMPETE.
Our industry is highly competitive. We compete with several companies that
provide or intend to provide genomic products and services to the pharmaceutical
industry in the United States and elsewhere. We believe that our future success
will depend, in large part, on our ability to cost-effectively perform the
large-scale genotyping and expression profiling studies required by
pharmaceutical companies in their development of personalized, genomic-based
medicines.
Many of our competitors have greater financial, technical, research,
marketing, sales, distribution, service and other resources than we do.
Moreover, our competitors may offer broader product lines and have greater name
recognition than we do and may offer discounts as a competitive tactic. Several
companies that are currently making or developing products and services that
compete with or will compete with our products and services are discussed below.
See "Business -- Competition."
OUR COMPETITORS MAY DEVELOP SUPERIOR TECHNOLOGIES, SO THAT ONE OR MORE OF OUR
PRODUCTS AND SERVICES BECOMES OBSOLETE.
The biotechnology industry is characterized by rapid technological change.
Our future success will depend on our ability to maintain a competitive position
with respect to the new technologies germane to our business. Other companies
may develop competing technologies that are superior to our technologies. These
companies may also be more effective in implementing their technologies to
develop commercial products and services. Our failure to discover or to
commercialize new technologies or to respond to technological advances and
emerging industry standards could impair our ability to attract and retain
customers for our products and services.
IF PRODUCT LIABILITY CLAIMS ARE SUCCESSFULLY BROUGHT AGAINST US, WE COULD FACE
SUBSTANTIAL LIABILITIES THAT EXCEED OUR RESOURCES.
Our business exposes us to potential product liability claims that are
inherent in the life science field. Any product liability claim for which the
company would be responsible for payment would have to be paid out of our cash
reserves which would have a detrimental effect on our financial condition,
results of operations and cash flows. Also, we cannot assure you that we can or
will maintain insurance policies on commercially acceptable terms, or at all.
WE USE HAZARDOUS CHEMICALS AND RADIOACTIVE AND BIOLOGICAL MATERIALS IN OUR
BUSINESS. RESPONDING TO CLAIMS RELATING TO IMPROPER HANDLING, STORAGE OR
DISPOSAL OF THESE MATERIALS COULD BE TIME CONSUMING AND COSTLY.
We use controlled hazardous and radioactive materials in our business. The
risk of accidental contamination or injury from these materials cannot be
completely eliminated. If an accident with these substances occurs, we could be
liable for any damages that result, which could seriously harm our business.
Additionally, an accident could damage our research and operations, resulting in
delays and increased costs.
RISKS RELATED TO THIS OFFERING
CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK AMONG OUR EXISTING EXECUTIVE
OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM
INFLUENCING SIGNIFICANT CORPORATE DECISIONS.
Upon completion of this offering, our executive officers, directors and
beneficial owners of 5% or more of our common stock and their affiliates will,
in aggregate, beneficially own approximately % of our outstanding common
stock or % if the underwriters' over-allotment option is exercised in full.
As a
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result, these persons, acting together, will have the ability to determine the
outcome of all matters submitted to our stockholders for approval, including the
election and removal of directors and any merger, consolidation or sale of all
or substantially all of our assets. In addition, such persons, acting together,
will have the ability to control the management and affairs of our company.
Accordingly, this concentration of ownership may harm the market price of our
common stock by:
- delaying, deferring or preventing a change in control of our company;
- impeding a merger, consolidation, takeover or other business
combination involving our company; or
- discouraging a potential acquirer from making a tender offer or
otherwise attempting to obtain control of our company.
Please see "Principal Stockholders" for additional information on
concentration of ownership of our common stock.
THERE MAY NOT BE AN ACTIVE, LIQUID TRADING MARKET FOR OUR COMMON STOCK.
We cannot assure you that an active trading market for our common stock
will develop following this offering. You may not be able to sell your shares
quickly or at the market price if trading in our stock is not active. The
initial public offering price will be determined by negotiations between us and
the representatives of the underwriters based upon a number of factors. The
initial public offering price may not be indicative of prices that will prevail
in the trading market. Please see "Underwriting" for more information regarding
our arrangement with the underwriters and the factors considered in setting the
initial public offering price.
MANAGEMENT WILL HAVE BROAD DISCRETION AS TO THE USE OF PROCEEDS FROM THIS
OFFERING.
Our management will have broad discretion regarding how we use the net
proceeds of the offering. We intend to use the net proceeds of this offering to
support and expand our commercialization activities, expand our DNA repository
and research and development efforts and for working capital and other general
corporate purposes. We have not yet determined the allocation of net proceeds
among the foregoing and other uses. Investors will be relying on the judgment of
management regarding the application of the proceeds of the offering. The result
and effectiveness of our use of the proceeds is uncertain.
OUR STOCK PRICE COULD BE VOLATILE AND YOUR INVESTMENT COULD SUFFER A DECLINE IN
VALUE, WHICH IN TURN COULD AFFECT OUR ABILITY TO RAISE ADDITIONAL CAPITAL TO
FUND THE COMMERCIALIZATION OF OUR SERVICES.
The trading price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations in price in response to various factors,
many of which are beyond our control, including:
- actual or anticipated variations in quarterly operating results;
- announcements of technological innovations by us or our competitors;
- new products or services introduced or announced by us or our
competitors;
- changes in financial estimates by securities analysts;
- conditions or trends in the biotechnology, pharmaceutical and
genomics industries;
- changes in the market valuations of other similar companies;
- announcements by us of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
- additions or departures of key personnel; and
- sales of our common stock.
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In addition, the stock market in general, and the Nasdaq National Market
and the market for technology companies in particular, has experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of those companies. Further, there has been
particular volatility in the market prices of securities of biotechnology and
life science companies. These broad market and industry factors may seriously
harm the market price of our common stock, regardless of our operating
performance. In the past, following periods of volatility in the market price of
a company's securities, securities class-action litigation has often been
instituted against that company. Such litigation, if instituted against us,
could result in substantial costs and a diversion of management's attention and
resources, which could seriously harm our business, financial condition, results
of operations and cash flows.
THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD
CAUSE OUR STOCK PRICE TO DECLINE.
Sales of substantial amounts of our common stock in the public market after
this offering could seriously harm prevailing market prices for our common
stock. These sales might make it difficult or impossible for us to sell
additional securities when we need to raise capital. The number of additional
shares available for sale in the public market will be affected by restrictions
imposed by:
- the Securities Act and related rules, including the volume and other
restrictions of Rule 144; and
- lock-up agreements between us and certain stockholders or between
stockholders and the underwriters.
Please see "Shares Eligible for Future Sale" for a description of the
number of shares that may be sold by existing stockholders in the future.
NEW INVESTORS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION IN THE TANGIBLE NET
BOOK VALUE OF THEIR SHARES.
We expect the initial public offering price will be substantially higher
than the tangible net book value per share of the common stock. As a result,
investors purchasing common stock in this offering will incur immediate
substantial dilution. The net tangible book value of a share of common stock
purchased at the assumed initial public offering price of $ per share will
be only $ . In addition, we have issued options and warrants to acquire
common stock at prices significantly below the initial public offering price,
which will result in additional dilution when and if they are exercised.
Please see "Dilution" for more information about the dilutive effect of
this offering.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD MAKE A
THIRD-PARTY ACQUISITION OF OUR COMPANY DIFFICULT. THIS COULD LIMIT THE PRICE
INVESTORS MIGHT BE WILLING TO PAY IN THE FUTURE FOR OUR COMMON STOCK.
The anti-takeover provisions in our certificate of incorporation, our
bylaws and Delaware law could make it more difficult for a third party to
acquire our company without approval of our board of directors. These
provisions:
- establish a staggered board and provide that members of the board of
directors may be removed only for cause upon the affirmative vote of
stockholders owning at least two-thirds of our capital stock;
- authorize the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of
outstanding shares and thwart a takeover attempt;
- limit who may call a special meeting of stockholders;
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- prohibit stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders;
- establish advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted
upon at stockholder meetings; and
- require a super-majority stockholder vote for certain actions.
As a result of these provisions, we could delay, deter or prevent a
takeover attempt or third party acquisition that our stockholders consider to be
in their best interests, including a takeover attempt that results in a premium
over the market price for the shares held by our stockholders. Please see
"Description of Capital Stock" for more information on these anti-takeover
provisions.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus constitute
forward-looking statements. These statements relate to future events or our
future financial performance and involve known and unknown risks, uncertainties
and other factors that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
these forward-looking statements. Such factors include those listed under "Risk
Factors" in this prospectus.
In some cases, you can identify forward-looking statements by terminology
like "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "continue" or the negative of these terms
or other comparable words.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform these
statements to actual results.
This prospectus also contains market data related to our business and the
specific segments of the genomics industry in which we compete. This market data
includes statistics that are based on a number of factors and were prepared by
third parties unrelated to us. Our markets may not grow at the rates
historically experienced or at growth rates implied by these statistics, or at
all. The failure of these markets to grow at implied rates may have a material
adverse impact on our business and the market price of our common stock.
17
<PAGE> 21
USE OF PROCEEDS
The net proceeds that we will receive from the sale of our shares of common
stock in this offering are estimated to be $ million, after deducting
the estimated underwriting discounts and commissions and offering expenses
payable by us and assuming an initial public offering price of $ per
share. If the underwriters exercise their over-allotment option in full, we
estimate the net proceeds from this offering will be $ million.
Our management will have broad discretion as to the use of proceeds from
this offering. We intend to use the net proceeds of this offering to support and
expand our commercialization activities, expand our DNA repository and our
research and development efforts and for working capital and other general
corporate purposes.
At the present time, we have no understandings, commitments or agreements
with respect to any material business acquisition. Pending the use of the net
proceeds of this offering for the purposes described above, we intend to invest
these proceeds in short-term, interest-bearing, investment-grade securities.
The foregoing discussion is based on our current business plans and we may
allocate the net proceeds among these purposes as we determine is prudent. The
amounts and timing of our actual expenditures depend on several factors,
including future sales growth, the progress of our product development efforts
and the amount of cash generated or used by our operations. Other market factors
may require us to allocate portions of the net proceeds for purposes other than
those described above. See "Risk Factors -- Risks Related to this
Offering -- Management will have broad discretion as to the use of proceeds from
this offering."
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
intend to retain any earnings to fund our future growth and the operation of our
business. Therefore, we do not anticipate paying any cash dividends in the
foreseeable future.
18
<PAGE> 22
CAPITALIZATION
The following table presents the following information:
- Our actual capitalization as of December 31, 1999;
- Our pro forma capitalization reflecting (i) the sale to Motorola,
Inc. in January 2000 of 1,000,000 shares of Series E Convertible
Preferred Stock, representing a second round investment pursuant to a
Stock Purchase Agreement dated July 6, 1999 and the sale of 712,095
shares of Series F Convertible Preferred Stock in January 2000,
representing a third round investment of an offering commenced in
August 1999, (ii) the conversion of all 8,941,674 outstanding shares
of convertible preferred stock into 8,941,674 shares of common stock,
(iii) the conversion of notes payable with a principal face amount of
$300,000 and related accrued interest of $132,134 into 392,840 shares
of common stock and (iv) the exercise of 919,544 outstanding common
stock purchase warrants into an equivalent number of shares of common
stock at a weighted average exercise price of $2.57 per share upon
completion of this offering; and
- Our pro forma as adjusted capitalization reflecting the sale of
shares of common stock offered by us at an assumed initial
offering price of $ per share, less the underwriting discounts
and commissions and the estimated offering expenses payable by us.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ---------- ------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
Convertible notes payable.................................. $ 300 $ -- $ --
======= ======= =======
Stockholders' equity:
Convertible preferred stock, $.001 par value, 11,823,381
shares authorized, 7,229,579 issued and outstanding,
actual; 6,000,000 shares authorized, no shares issued and
outstanding, pro forma and pro forma as adjusted......... 6 -- --
Common stock, $.01, formerly $.0001, par value, 36,000,000
shares authorized, 12,463,473 shares issued and
11,663,473 shares outstanding, actual; 22,717,531 issued
and 21,917,531 outstanding, pro forma; 75,000,000 shares
authorized, issued and outstanding, pro forma
as adjusted.............................................. 1 2
Additional paid-in-capital................................. 19,032 26,968
Accumulated deficit........................................ (9,507) (9,507)
Deferred stock-based compensation.......................... (251) (251)
Treasury stock, 800,000 shares at cost..................... -- --
Total stockholders' equity................................. $ 9,281 $17,212 $
======= ======= =======
</TABLE>
The table above excludes:
- 3,365,033 shares issuable upon exercise of options as of December 31,
1999 at a weighted average exercise price of $1.37 per share;
- 483,087 additional shares as of December 31, 1999 that we could issue
under our 1994 Stock Plan, plus an additional 1,000,000 shares
authorized in March 2000, of which options to purchase 945,800 shares
of common stock were granted in March 2000 at a weighted average
exercise price of $3.92 per share;
- 5,000,000 shares authorized as of March 2000 that we could issue
under our 2000 Employee, Director and Consultant Stock Option Plan;
and
- warrants to purchase 235,710 shares of Series B Convertible Preferred
Stock at an exercise price of $1.10 per share, which shall be
automatically converted into warrants to purchase an equivalent
number of common shares at the same exercise price upon completion of
this offering.
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<PAGE> 23
DILUTION
The pro forma net tangible book value of our common stock on December 31,
1999, after giving effect to the conversion of all of our outstanding preferred
stock into a total of 8,941,674 shares of common stock upon completion of this
offering was $ million or $ per share of common stock. Pro forma net
tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by the number of shares of common stock
outstanding. Assuming the sale by us of shares of common stock in this
offering at an assumed initial public offering price of $ per share, our pro
forma net tangible book value as of would have been $ million, or
$ per share of common stock. This represents an immediate increase in pro
forma net tangible book value of $ per share to our existing stockholders
and an immediate dilution in pro forma net tangible book value of $ per
share to new investors purchasing shares in this offering. The following table
illustrates this dilution on a per share basis:
<TABLE>
<S> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of December
31, 1999 ...... $
Increase attributable to new investors......................
Pro forma net tangible book value per share after this
offering..................................................
Dilution and net tangible book value to new investors....... $
</TABLE>
The following table summarizes on a pro forma basis, as of December 31,
1999, the number of shares of stock purchased from us, the total consideration
paid to us and the average price per share paid by existing stockholders and by
new investors. We have used an assumed initial public offering price of $
per share for shares purchased in this offering, before deducting the estimated
underwriting discounts and commissions and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
New investors........................ % $ % $
Existing stockholders................ 21,917,531 % $26,237,223 % $1.20
---------- --- ----------- ---
Total.............................. 100% $ 100% $
========== === =========== ===
</TABLE>
As of December 31, 1999, there were:
- 3,365,033 shares of common stock issuable upon the exercise of stock
options outstanding at a weighted average exercise price of $1.37 per
share and, as of March 10, 2000, options to purchase an additional
945,800 shares of common stock that were granted at a weighted
average exercise price of $3.92 per share; and
- 919,544 outstanding common stock purchase warrants at a weighted
average exercise price of $2.57 per share.
These tables assume no exercise of any outstanding stock options to
purchase common stock. To the extent these options are exercised, there will be
further dilution to the new investors.
20
<PAGE> 24
SELECTED FINANCIAL DATA
The statements of operations data for each of the three years ended
September 30, 1997, 1998 and 1999 and the balance sheet data as of September 30,
1998 and 1999 have been derived from our audited financial statements included
elsewhere in this prospectus. The statement of operations data for the three
months ended December 31, 1998 and 1999 and the balance sheet data as of
December 31, 1999 have been derived from our unaudited financial statements
included elsewhere in this prospectus, and, in the opinion of management, have
been prepared on a basis consistent with the audited financial statements and
include all adjustments, which consist only of normal recurring adjustments,
necessary to present fairly in all material respects the information included in
those statements. The statement of operations data for the years ended September
30, 1995 and 1996 and the balance sheet data as of September 30, 1997 have been
derived from audited financial statements not included in this prospectus. Our
historical results are not necessarily indicative of results to be expected for
any future period. The data presented below have been derived from financial
statements that have been prepared in accordance with generally accepted
accounting principles and should be read in connection with our financial
statements, including the notes, and with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------------------------- ----------------
1995 1996 1997 1998 1999 1998 1999
----- ------ ------ ------- ------- ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue:
Grant and contract research revenue....................... $ 714 $ 796 $ 970 $ 1,467 $ 1,637 $ 618 $ 234
Service revenue........................................... -- -- 34 77 14 -- 255
----- ------ ------ ------- ------- ------ -------
Total revenue............................................... 714 796 1,004 1,544 1,651 618 489
Costs and expenses:
General and administrative................................ 528 823 533 1,412 3,514 668 1,299
Research and development.................................. 535 596 635 1,435 2,603 549 915
Amortization of deferred stock compensation............... -- -- -- -- -- -- 183
----- ------ ------ ------- ------- ------ -------
Total costs and expenses.................................... 1,063 1,419 1,168 2,847 6,117 1,217 2,397
----- ------ ------ ------- ------- ------ -------
Operating loss.............................................. (349) (623) (164) (1,303) (4,466) (599) (1,908)
Net interest income (expense)............................... (45) (66) (140) (412) 96 (8) 36
----- ------ ------ ------- ------- ------ -------
Net loss.................................................... (394) (689) (304) (1,715) (4,370) (607) (1,872)
Dividend related to beneficial conversion feature of
preferred stock........................................... -- -- -- -- -- -- (1,344)
----- ------ ------ ------- ------- ------ -------
Net loss attributable to common stockholders................ $(394) $ (689) $ (304) $(1,715) $(4,370) $ (607) $(3,216)
===== ====== ====== ======= ======= ====== =======
Net loss per common share, basic and diluted................ $(.04) $ (.07) $ (.03) $ (.16) $ (.39) $ (.06) $ (.28)
===== ====== ====== ======= ======= ====== =======
Shares used in computing net loss per common share, basic
and diluted............................................... 9,046 10,300 10,416 10,629 11,109 10,893 11,664
Pro forma net loss per common share, basic and diluted...... $ (.21) $ (.08)
======= =======
Shares used in computing pro forma net loss per common
share, basic and diluted.................................. 21,224 21,779
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30, PRO FORMA AS ADJUSTED
--------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999 1999 1999(1) 1999(2)
------- ------- ------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 298 $ 1,684 $ 7,369 $ 6,545 $ 14,045
Working capital........................................ 405 1,715 6,327 6,022 13,953
Total assets........................................... 630 3,279 10,721 10,584 18,083
Convertible notes...................................... 300 300 -- -- --
Accumulated deficit.................................... (1,550) (3,265) (7,635) (9,507) (9,507)
Total stockholders' equity............................. 7 2,243 9,169 9,281 17,212
</TABLE>
- ---------------
(1) The pro forma balance sheet data gives effect to (i) the sale to Motorola,
Inc. in January 2000 of 1,000,000 shares of Series E Convertible Preferred
Stock, representing a second round investment pursuant to a Stock Purchase
Agreement dated July 6, 1999 and the sale of 712,095 shares of Series F
Convertible Preferred Stock in January 2000, representing a third round
investment of an offering commenced in August 1999, (ii) the conversion of
all 8,941,674 outstanding shares of convertible preferred stock into
8,941,674 shares of common stock, (iii) the conversion of notes payable with
a principal face amount of $300,000 and related accrued interest of $132,134
into 392,840 shares of common stock and (iv) the exercise of 919,544
outstanding common stock purchase warrants into an equivalent number of
shares of common stock at a weighted average exercise price of $2.57 per
share upon completion of this offering.
(2) The adjusted pro forma balance sheet data reflects the sale of
shares of our common stock offered by us at an assumed initial public
offering price of $ per share, less underwriting discounts and
commissions and the estimated offering expenses payable by us.
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<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of Genometrix should be read in conjunction with "Selected
Financial Data" and our financial statements and related notes appearing
elsewhere in this prospectus. This discussion and analysis contains forward-
looking statements that involve risks, uncertainties and assumptions. The actual
results may differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to, those
set forth under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
Genometrix was founded in 1993 to capitalize on the convergence of
electronics with molecular biology. We have built a highly integrated technology
platform that combines high throughput microarray analyses, automated sample
handling, high capacity bioinformatics and statistical genetics. We offer on-
line, cost-effective, high throughput analysis services to assist pharmaceutical
and biotechnology companies in their efforts to develop safer, personalized
therapeutics.
We are a development stage company. Until November 1999, when we launched
our first commercial services, we had financed our operations primarily through
the sale of private equity securities and funding under governmental grant
programs and contract research. We have an accumulated deficit as of December
31, 1999 of $9.5 million and expect to incur additional losses through fiscal
year 2001 as we continue to develop and commercialize our genomic services
platform.
Our initial source of commercial revenue has come from fee-for-service
agreements with pharmaceutical customers. We recognize revenue for the design,
fabrication and analysis of custom or standard DNA microarrays as services are
performed in accordance with the specific provisions of each agreement. Payments
received in advance of performance are deferred and recognized systematically as
the related services are delivered. Subsequent to the launch of our VistaClinic
database in Fall 2000, we expect another source of revenue from the sale of
multi-year subscriptions providing access to the samples and associated clinical
information in our DNA repository for large-scale genotyping analysis.
Subscription access fees will be determined and recognized as revenue over the
subscription period. Future potential sources of revenue may come from our own
DNA discovery program whereby we will seek to discover panels of gene variation.
We plan to patent and license any predictive correlations discovered through
data mining of our DNA repository. We have a future revenue opportunity to
supply microarray-based diagnostic instrumentation by developing genomic-based
diagnostics utilizing our DNA repository in conjunction with our high-throughput
genomics platform. We expect to continue to receive government grant and
research funding under research and development collaborations. We recognize
grant and contract revenue as the related work is performed and we are assured
of collection of the receivable; however, we expect this source of revenue to
decline as a percentage of total revenues as we focus on commercial business
opportunities.
Our expenses have consisted primarily of costs incurred in research and
development, production scale-up, business development and overall general and
administrative costs. Research and development expenses consist primarily of
salaries and related personnel costs and material costs for the design,
development, testing, and enhancement of our products and services. We expect
research and development expenses to increase significantly as we expand our
product offerings. Our marketing, sales and business development expenses will
increase as we broaden our commercial product and service offerings and attempt
to more broadly penetrate our target customer base. General and administrative
expenses consist primarily of salaries and related expenses for executive,
financial and other administrative personnel, professional fees and other
corporate expenses. Overall general and administrative expenses are expected to
increase to support our growing business activities and due to the costs
associated with operating as a public reporting entity.
We have a limited history of operations. We anticipate that our quarterly
results of operations will fluctuate for the foreseeable future due to various
factors, including market evaluation and acceptance of
22
<PAGE> 26
current or new products and services, the introduction of new products by our
competitors, the timing and extent of our research and development efforts,
potential patent conflicts and the timing of significant service contracts. Our
limited operating history makes accurate predictions of future operations
difficult if not impossible.
We account for stock-based employee compensation arrangements in accordance
with provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"). Under APB No. 25, compensation
expense is based on the difference, if any, on the date of grant between the
fair value of our stock and the exercise price.
In connection with the grant of stock options to employees in December
1999, we recorded deferred stock compensation of $433,000 in the three months
ended December 31, 1999. This amount was recorded as a component of
stockholders' equity and is being amortized as a charge to operations over the
vesting period of the options using the straight line method. We recorded
amortization of deferred compensation of $183,000 for the three months ended
December 31, 1999 consisting of $55,000 and $128,000, respectively, applicable
to general and administrative and research and development expenses.
In connection with the grant of stock options to recently-hired employees,
we anticipate recording deferred stock compensation of approximately $12.3
million in the quarter ending March 31, 2000. We anticipate recording
amortization of deferred compensation of approximately $600,000 in the quarter
ending March 31, 2000 and approximately $1.9 million during the remainder of
fiscal year 2000.
We account for equity instruments issued to non-employees in accordance
with the provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") and Emerging Issues
Task Force Issue No. 96-18, "Accounting for Equity Instruments That Are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services."
The sale of 1,000,000 shares of Series E Convertible Preferred Stock in
January 2000 is anticipated to result in an approximate charge of $3.7 million
attributable to the beneficial conversion feature. Due to our strategic
licensing and research and development agreement with Motorola, the beneficial
conversion feature was calculated at fair value and was not limited by the
proceeds from the Series E issuance.
The sale of 597,000 shares of Series F Convertible Preferred Stock on
December 29, 1999, representing a second round investment of an offering
commenced in August 1999, resulted in a $1.3 million dividend related to the
beneficial conversion feature included in net loss allocable to common
stockholders for the three months ended December 31, 1999. The sale of 712,095
shares of Series F Convertible Preferred Stock on January 31, 1999, representing
a third round investment of an offering commenced in August 1999, is anticipated
to result in an approximate $1.8 million dividend related to the beneficial
conversion feature for the three months ending March 31, 2000. The dividend is
calculated in accordance with Emerging Issues Task Force No. 98-5, "Accounting
for Convertible Securities with Beneficial Conversion Features."
RESULTS OF OPERATIONS
Three months ended December 31, 1999 and 1998
Revenue. For the three months ended December 31, 1999, revenue decreased
to $489,000 from $618,000 for the comparable period in 1998. The decrease was
principally due to a decrease in governmental grant revenue of $509,000
partially offset by service revenue of $255,000 from a major pharmaceutical
customer and $125,000 in contract research revenue from a research
collaboration.
General and administrative expenses. For the three months ended December
31, 1999, general and administrative expenses increased to $1,299,000 from
$669,000 for the comparable period in 1998. The increase of $630,000 was due
principally to increased costs associated with higher staffing levels.
Research and development expenses. For the three months ended December 31,
1999, research and development expenses increased to $915,000 from $549,000 for
the comparable period in 1998. The
23
<PAGE> 27
increase was attributable to the continued growth of research and development
activities due to increased personnel and materials costs to support our initial
commercialization activities.
Net interest income (expense). For the three months ended December 31,
1999, net interest income was $35,000 compared to net interest expense of $8,000
for the comparable period in 1998. This change was principally due to an
increase in our interest bearing cash and cash equivalent balances.
Fiscal years ended September 30, 1999 and 1998
Revenue. For the fiscal year ended September 30, 1999, revenue increased
to $1,651,000 from $1,544,000 in fiscal year 1998. This increase was primarily
attributable to revenue recognized on a contract research collaboration and a
$100,000 increase in overall grant revenue. Included in 1999 revenue is the
first year of a three year $1,800,000 grant from the National Institute of
Environmental Health Sciences.
General and administrative expenses. For the fiscal year ended September
30, 1999, general and administrative expenses increased to $3,514,000 from
$1,412,000 in fiscal year 1998. The increase was primarily due to increased
staffing and personnel related costs incurred to manage and support our growth.
Research and development expenses. For the fiscal year ended September 30,
1999, research and development expenses increased to $2,603,000 from $1,435,000
in fiscal year 1998. The increase was primarily attributable to increased
payroll and associated costs from expanding research and development personnel
by 26 individuals as well as costs to further develop our processes and
technologies into commercial applications.
Net interest income (expense). For the fiscal year ended September 30,
1999, net interest income was $96,000 compared to net interest expense of
$412,000 in fiscal year 1998. The net change of approximately $500,000 was
primarily due to a one-time charge in fiscal year 1998 of $381,000 in original
issue discount costs on our convertible notes payable and our higher cash and
cash equivalent balances during fiscal year 1999.
Fiscal years ended September 30, 1998 and 1997
Revenue. For the fiscal year ended September 30, 1998, revenue increased
to $1,544,000 from $1,004,000 in fiscal year 1997. This increase was
attributable primarily to a subcontract awarded to us in a collaboration with
Baylor College of Medicine under a grant from the National Cancer Institute for
developing microarray technology for molecular oncology.
General and administrative expenses. For the fiscal year ended September
30, 1998, general and administrative expenses increased to $1,412,000 from
$533,000 in fiscal year 1997. The increase was due primarily to compensation
costs for additional general and administrative employees, recruiting,
relocation and legal fees.
Research and development expenses. For the fiscal year ended September 30,
1998, research and development expenses increased to $1,435,000 from $635,000 in
fiscal year 1997. The increase was principally due to equipment purchases under
federal grants which are expensed as research and development, increased salary
and related costs associated with higher staffing levels and higher material
purchases.
Net interest income (expense). For the fiscal year ended September 30,
1998, net interest expense increased to $412,000 from $140,000 in fiscal year
1997. The increase was primarily attributable to the recognition of $381,000 in
original issue discount costs on our convertible notes payable associated with
the notes beneficial conversion feature.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception through February 29, 2000, we have financed our
business primarily with $22.8 million of preferred stock issuances, $1.1 million
in convertible debt issuances and $5.8 million in cumulative funding under
government grants. As of December 31, 1999 we had $300,000 in convertible
24
<PAGE> 28
notes payable plus related accrued interest payable of $132,134 which will
automatically convert into 392,840 shares of common stock upon completion of the
offering contemplated herein.
As of December 31, 1999, we had $11.7 million in cash and cash equivalents
adjusted for the receipt of $5.1 million in funding received on preferred stock
issued in January 2000. Our cash balances are currently invested in short-term
money market instruments. We used $2.1 million in cash from operations in the
three months ended December 31, 1999 consisting of a $1.9 million net loss for
the period plus working capital changes of $519,000 partially offset by non cash
expenses for depreciation and amortization of deferred stock compensation of
$83,000 and $183,000, respectively. Investing activities used $500,000 of cash
in the three month period while financing activities generated $6.9 million in
cash proforma for the January 2000 proceeds described above.
For the fiscal years ended September 30, 1999 and 1998, cash used in
operations totaled $3.6 million and $1.2 million, respectively. Our investing
activities used cash of $1.9 million in fiscal year 1999 and $1.0 million in
fiscal year 1998. Our investment activities consist primarily of purchases of
property and equipment and additions to patents and license agreements. Our
financing activities provided cash of $11.2 million in the fiscal year ended
September 30, 1999 and $3.6 million in fiscal year 1998 from the sale of
preferred stock.
We believe that our existing cash and cash equivalents together with the
net proceeds from this offering as well as commercial revenues from products and
services sold to customers will be sufficient to fund our operating expenses and
capital equipment requirements through at least December 31, 2001. We lease our
corporate facility under an operating lease which expires in 2008. Our future
capital uses and requirements depend on a number of factors, including our
success in developing markets for our services, our continued progress with
research and development, our sales, marketing and business development
expenses, the availability of government research grants, costs and timing of
obtaining new patent rights or defending and enforcing existing patent claims
and the status of competitive products and technological developments in the
market.
We have no credit facility or other committed sources of capital. To the
extent our capital resources are insufficient to meet future capital
requirements, we may need to raise additional capital through the sale of
additional equity or the issuance of debt securities. Such financing may not be
available on terms acceptable to us or at all. The sale of additional equity or
convertible debt securities may result in further dilution to our stockholders.
DISCLOSURE ABOUT MARKET RISK
Our interest income is sensitive to the changes in the general level of
U.S. interest rates particularly since the majority of our investments are in
short-term money market instruments. Due to the nature of our short-term
investments, we have concluded that there is no material market risk exposure.
INFLATION
We do not believe that inflation has had a material adverse impact on our
business or operating results during the periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" which provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. SFAS 133, as amended, is effective for fiscal years
beginning after June 15, 2000 and is not anticipated to have an impact on our
financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," or
SAB 101, which provides guidance on the recognition, presentation and disclosure
of revenue in financial statements filed with the SEC. SAB 101
25
<PAGE> 29
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosure related to revenue recognition policies. The Company's
revenue recognition policy is in compliance with the provisions of SAB 101.
YEAR 2000
The "Year 2000 Problem" arose because many existing computer programs are
coded using two digits rather than four digits to define the applicable year.
Therefore, these computer programs may recognize a year ending in "00" as the
Year 1900 rather than the Year 2000, which could result in a significant
disruption of operations and an inability to process certain transactions. In
November 1998, we assessed our internal computer systems and our non-information
technology systems and determined that, because our computer applications use
four digits to identify a year in the field date, we were internally compliant
with Year 2000 requirements. With respect to material non-information technology
systems, we determined that substantially all of these systems were provided by
third parties. We developed a strategic plan to estimate the potential risks
related to third parties with which we have significant relationships and
concluded that Year 2000 issues would not materially affect the continuation of
our normal daily operations. To date, our operations have suffered no
significant disruption from Year 2000 problems. We incurred no material
historical costs relating to Year 2000 compliance and we have not incurred any
material costs in resolving the Year 2000 problems of third parties with whom we
interact. We intend, however, to continue monitoring our internal computer
systems and those of third parties for Year 2000 problems. Year 2000 problems
that are as yet undiscovered may arise in the future and could have a
significant impact on our operations.
26
<PAGE> 30
BUSINESS
OVERVIEW
We are a pioneer and leading provider of cost-effective, high throughput
genomic services and information. Our business strategy is based on the belief
that applied genomics, the practical use and understanding of genetic
information and its relationship to disease, is the key to reducing the risk,
cost and lead-time of drug discovery and the development of personalized
medicine.
We believe our unified platform is the only technology that enables
automated genotyping, gene expression and protein analysis on a single system.
Our technology platform is also highly integrated, combining high throughput
microarray analyses, automated sample handling, high capacity bioinformatics and
statistical genetics. In November 1999 we launched our GenoVista Partnership
Program, the commercialization of our technologies. Our current customers are
Schering-Plough and Procter & Gamble Pharmaceuticals.
THE IMPORTANCE OF GENOMICS
Genetic information provides a basis for understanding biological and
physiological functions in organisms. This information is encoded in
deoxyribonucleic acid (DNA), which is the basis of the inherited characteristics
for these organisms. Each DNA molecule is comprised of a combination of four
chemicals, or nucleotide bases -- adenine, guanine, cytosine and
thymine -- which are most commonly referred to by their first letters. Each
nucleotide base is arranged along one of two strands in the DNA, each A pairing
with T and each G pairing with C. The order of the bases along a DNA strand is
called the DNA sequence and the entire DNA content of an organism is called its
genome. The study of the structure and function of a genome is called genomics.
Differences of one or more bases in the DNA sequence, referred to as genetic
variation, can modify how a gene functions by altering the proteins it produces
and thereby altering its effect on cell function. Genetic variations are a major
component of all major diseases, including cancer, diabetes and cardiovascular
disease.
In an effort to better understand genetic information, scientists have been
analyzing the human genome since the mid-1980s to determine the sequence of
nucleotide bases in DNA. The Human Genome Project and other major public and
private genetic research programs are identifying hundreds of millions of DNA
base sequences. The Human Genome Project is expected to produce a rough draft of
the human DNA sequence by mid-2000, with a completed draft expected within the
next few years. While the first phase of the genomics revolution has centered
around sequencing large regions of DNA within the human genome, we believe the
next phase will involve analyzing the genes themselves in order to understand
the extent of genetic variation from person to person.
The most common types of genetic variation are single nucleotide
polymorphisms, or SNPs. A SNP is a change in a single base pair along the DNA
sequence, such as replacing a T with a G along one strand and its complementary
A with a C along the other strand. It is estimated that there are 3 to 10
million SNPs inherited from each parent. Tens of thousands of SNPs will have to
be measured in each individual to determine which SNPs are medically relevant
and which SNPs are of no medical consequence. In order to better comprehend the
genetic basis of disease and its treatment, genetic variation among individuals
and its relation to biological function must be understood. A major worldwide
effort is underway to discover the genetic SNP variability which exists in the
population and in turn to use this basic SNP data as a starting point to
understand inherited personalized variation in disease risk and in therapeutic
response.
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THE DRUG DISCOVERY AND DEVELOPMENT PROCESS
The traditional drug discovery process is expensive, time consuming, risky
and labor intensive. Despite expenditures of billions of dollars, only a small
fraction of the thousands of compounds screened by pharmaceutical companies are
developed into commercial drugs. To compete successfully, pharmaceutical and
biotechnology companies are seeking more productive drug discovery methods which
will allow them to develop significantly higher numbers of drug compounds per
year.
In order to develop new medical treatments and diagnostics based on genetic
information, pharmaceutical companies will need to have access to information
establishing the relevant functional connections between genes and
pharmaceutical treatments. For example, genetic tests are now employed to screen
patients for compatibility with thioguanine, an antimetabolite used in treating
certain types of leukemia, and a genetic test for inherited hypercholesteremia
is now used in the treatment of cardiovascular disease. The study of genetic
material, or genomics, can now be applied to each stage of the drug discovery
and development process. These stages are described below:
- Target identification determines whether a particular gene is a good
target for further investigation. This stage is most often initiated
with genomics studies, in particular by DNA sequencing, genetic
mapping and analysis of ribonucleic acid (RNA). RNA is the nucleic
acid that serves as an intermediary for translating DNA sequence
information into proteins.
- Target validation demonstrates whether an identified target has an
effect on the course of a disease. Target validation employs a
variety of methods including RNA analysis, protein analysis and cell
biology. This stage requires investigating candidate targets under
many different experimental conditions to better understand and
select optimal drug targets.
- Primary screening identifies drug leads through large-scale testing
of collections, or libraries, of compounds against validated targets.
The goal is to find "hits," which are individual members of the
compound library that bind to, inhibit or activate a particular
target. High throughput genotyping, the study of DNA variation, and
gene expression, the analysis of gene activity, enable researchers to
screen hundreds of genes.
- Lead optimization identifies the drug leads that are likely to have
appropriate therapeutic properties by conducting successive rounds of
chemical alterations and biological tests. Similar to target
validation, a variety of methods are used in lead optimization,
including protein analysis, cell biology, chemical synthesis and
other high throughput experiments. This stage can also involve the
genotyping and gene expression of compounds for therapeutic activity
in animal models of disease.
- Preclinical development tests compounds in cell cultures and animals
to evaluate their safety, effectiveness, distribution throughout the
body and metabolization. Formulation tests determine the best method
of delivery as well as consistent quality in manufacturing.
Expression analysis can provide toxicity assessments by indicating
the behavior of specific toxicity marker genes.
- Clinical development demonstrates the safety and efficacy of drug
leads, or pharmaceutical compounds, through testing in humans.
Because clinical trials are the most expensive part of drug
development, pharmaceutical companies will, in the future, analyze
the genetic make-up of each patient to determine or predict
responsiveness or adverse reactions to particular drugs. Genotyping
experiments help identify each individual's likely response to a
drug, thus maximizing the productivity of the trial and reducing the
overall costs.
We believe that genomics is the key to reducing the risk, cost and
lead-time of drug discovery and the development of personalized medicine.
Pharmaceutical and biotechnology companies are likely to continue incorporating
genomics into each stage of drug development. These companies will require
rapid, large scale and systematic searches for panels of SNPs, coupled with the
lifestyle and clinical data of each person providing a sample. This will
facilitate discovery of the predictive rules which relate individual patient
data to disease risk and patient response to pharmaceutical therapy. The
complexity of
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the data required, the process of risk factor discovery and ultimately the
ability to deliver these discoveries into clinical trials will require access to
diverse technologies that have only recently become available. These
technologies include:
- high throughput genetic and molecular analysis;
- high capacity bioinformatics and advanced statistical methodologies;
- automated, high throughput sample handling; and
- large-scale sample libraries.
MARKET OPPORTUNITY
The opportunity for commercialization of our technologies is derived from
the identification of thousands of new genes through the sequencing of the human
genome. The market opportunity for genomic products and services is a function
of experimental complexity (the number of genes interrogated per experiment) and
the sample throughput rate (the number of patient samples genotyped or the
number of compounds profiled). In an effort to screen through the thousands of
genes identified by the human genome sequencing programs, the industry focus to
date has been on high density, low throughput technologies, allowing researchers
to sift out those genes that are potentially interesting. This filtering process
has been partially successful; pharmaceutical companies have been able to narrow
their lists of possible drug targets to hundreds of genes. Since it is
impractical to take hundreds of targets through the entire development pipeline,
the challenge of the next phase of functional genomics is to determine which
genes are the most viable candidates for commercialization. Genomic research
requires technologies that enable examination of candidate genes against an
extensive battery of experimental conditions to further optimize the selection
of the most promising gene.
Shown below in graphic form are the main areas of pharmaceutical drug
development and commercialization that can take advantage of genomic
technologies, enabling genotyping or gene expression analysis. The graph plots
each area's experimental processing requirements as a function of the number of
genes interrogated per assay, versus the number of samples analyzed per
instrument per 8-hour shift, or throughput. Genometrix can currently process
200,000 data points, representing either SNPs or gene expression information,
per instrument per 8-hour shift. The entire shaded region illustrates the
processing capabilities achievable by Genometrix in the near term utilizing its
current technologies. Our current commercial applications apply to
pharmaceutical genotyping and lead validation.
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Chart 1: Market segments plotted on a log graph comparing number of genes
interrogated to number of samples analyzed.
There are six market segments, representing various research areas addressed by
our technology and services, shown on the graph. These areas and their
respective locations on the graph are academic research (approximately 50-1,000
genes interrogated vs. 10-100 samples analyzed), genomics research
(approximately 1,000-50,000 genes interrogated vs. 10-500 samples analyzed),
pharmaceutical genotyping (approximately 30-1,000 genes interrogated vs.
1,000-5,000 samples analyzed), lead validation (approximately 1-400 genes
interrogated vs. 10,000-100,000 samples analyzed), DNA diagnostics
(approximately 50-1,000 genes interrogated vs. 100,000-1,000,000 samples
analyzed), and clinical genotyping (approximately 30-500 genes interrogated vs.
1,000,000 -- more than 10,000,000 samples analyzed). There is a clustering of
the last four segments in the upper left side of the chart.
A shaded region, indicating the area where our technology platform can be
applied, is drawn in the upper left side (approximately 50-900 genes
interrogated vs. 1,000-1,000,000 samples analyzed) and overlaps with the last
four market segments.
Drug discovery and development. Every new gene is a potential drug target.
We believe there is a need for services and databases that will help
pharmaceutical and biotechnology companies screen their candidate genes and
examine possible lead compounds in much greater detail for their validation and
discovery programs. Due to the amount of genomic information being created,
researchers must be able to rapidly execute experiments in the areas of target
discovery and validation, lead compound screening and validation, pre-clinical
testing and clinical genotyping.
Diagnostics. Our technology and data correlation tools will help increase
the industry's knowledge and understanding of the genome and its relation to
disease onset and drug response. We feel that this higher level of understanding
of the human genetic profile will enable us to participate in developing
diagnostic tests using genomic information. The predictive correlations that may
be identified by our services can be implemented as high throughput diagnostic
tests that are used by pharmaceutical companies, hospitals and clinicians.
Personalized Medicine. We foresee that the predictive value of SNPs and
gene expression profiles will be used by physicians to request an analysis of
their patients' genomes to assess risks of disease, likely responses to
medication and the best courses of therapy. This market is in its infancy, but
if our technology is adopted by the pharmaceutical and biotechnology industries
in their drug discovery and development processes, we believe we will be well
positioned to play a leading role in this personalized medicine market.
Given the market opportunities created by the drug development process, we
believe our technology is especially suited to help reduce the time and cost of
bringing a new drug to market while increasing the
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success rate. The specific areas of focus for commercialization of our
capabilities include target discovery and optimization, lead validation,
toxicity profiling and research and clinical diagnostics.
THE LIMITATIONS OF CURRENT TECHNOLOGIES
Current methods for analyzing gene expression and studying SNPs are
typically low throughput technologies that produce data of limited accuracy due
to human error and small sample sizes. These procedures typically generate
single data points per sample per experiment, such as the expression levels of a
single gene, or the identification of a single polymorphism. A significant
amount of work is involved in preparing a sample, processing it and generating
the data for eventual analysis. The resulting data is not easily reproduced due
to cost, time and sample availability. Since the biological samples are often of
limited quantity, researchers must be careful to use the samples sparingly if
they hope to generate more data in future experiments.
The existing commercial technologies are gel-based assays, enzymatic tests,
mass spectroscopy, bead-based methods and array-based systems. A number of other
technologies are currently in development.
Gel electrophoresis-based DNA sequencing is the conventional technology for
SNP analysis and, as one of the original methods, is widely adopted. A
fragmented DNA mixture is put into a gel matrix and an electric field is applied
to cause the DNA to migrate through the gel. The migration is dependent on
fragment length, so the various DNA molecules form a "ladder" in the gel. The
ladder pattern is detected either with a radioisotope or a fluorescent tag
attached to the DNA pieces. As the pattern is deciphered, a complete sequence of
the experimental DNA sample is generated. The resulting data is not always
entirely accurate as there are often variations in DNA migration through the
gel. The entire process is labor intensive and subject to high variability due
to sample processing, gel matrix variations and data acquisition and analysis.
A 5-prime nuclease assay, commonly referred to as TaqMan, is the
conventional method and accepted standard for low throughput measurement of gene
expression. TaqMan utilizes real time polymerase chain reaction (PCR) technology
and a dual labeled fluorescent probe. Cleavage of the probe during PCR results
in an increase in fluorescence intensity proportional to the amount of specific
DNA amplified. Real time detection assays are limited in the number of dyes used
in the assay, permitting the detection of only a single gene's expression level
in an individual experiment. Consequently, real time detection is considered to
be a relatively low throughput assay.
Cleavage based detection methods can be used for detecting specific DNA
sequences and have been developed for genotyping analysis. The method is
sensitive and does not require PCR amplification. The procedure requires
multiple custom reagents and multiple enzymatic events for final analysis. This
system is used for detection of a single SNP per reaction.
Mass spectroscopy technologies are now being applied to SNP analysis by
detecting quantities of a defined mass of a specific DNA with the pulse of a
laser beam. Although current mass-spectroscopy technology requires only small
amounts of a sample, the process is complex, requires time consuming sample
preparation and produces a low yield of data. Additionally, this technology is
not typically used to accurately quantify gene expression.
Bead-based technologies are relatively new in the area of SNP detection and
can be very high throughput. DNA is first bound to a sphere which is then
exposed to the labeled target DNA. The labeled target is detected by a method
known as fluorescence activated cell sorting, or FACs, or by attaching the bead
to a fiber-optic strand. With FACs, gene detection is limited by the number of
dyes that can be blended and identified, whereas the fiber-optic method requires
additional steps of sequential hybridization. Because the target is distributed
across a wider area on a FACs screen, this method is less sensitive than typical
microarrays.
Primer extension technology, such as genetic bit analysis (GBA), is used in
SNP detection. Primer extension technology can be adapted for high throughput
genotyping. GBA detects a SNP using a variety of methods including fluorescence,
optical density, electrophoresis, or mass spectrometry. This
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technology generates relatively low information content per sample. GBA is
limited to genotyping and is not applicable to gene expression profiling.
High-density microarrays permit the analysis of many genes for either gene
expression or genotyping information. They are typically used for exploratory
screening purposes in discovery areas of pharmaceutical drug development. When
researchers are unsure of which genes may be relevant to their research, the
high-density microarray offers a broad, global scan of thousands of genes. The
commercially available high-density microarrays are used on relatively small
numbers of samples and are not practical for analysis of thousands of biological
samples, a necessary component in compound screening, SNP correlations and
safety testing.
Current technologies are also limited by sample storage and tracking.
Traditional sample storage methods involve storage of liquid materials or frozen
tissue specimens and require costly, space-consuming low temperature cryogenic
facilities. Scaleability of these storage methods is difficult and would
necessitate larger facilities and more freezers. Additionally, sample tracking
and retrieval is problematic since employing a fully robotic system under
cryogenic conditions is costly and impractical.
The graph below plots each noted technology's processing capabilities as a
function of the number of genes interrogated per assay versus the number of
samples typically analyzed per instrument per 8-hour shift.
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Chart 2: Various technologies plotted on a graph comparing number of genes
interrogated to number of samples analyzed.
Six distinct genotyping or gene expression analysis technologies are plotted on
the graph to identify their main application area: Gel sequencing (approximately
100-1,000 genes interrogated vs. 10-500 samples analyzed), enzymatic assays
(approximately 10-100 genes interrogated vs. 10-500 samples analyzed), mass
spectrometry (approximately 10-500 genes interrogated vs. 500-800 samples
analyzed), bead detection (approximately 500-10,000 genes interrogated vs.
100-800 samples analyzed), high density arrays (approximately 1,000-50,000 genes
interrogated vs. 10-400 samples analyzed), and high throughput arrays (50-800
genes interrogated vs. 1,000-50,000 samples analyzed).
THE GENOMETRIX SOLUTION
At Genometrix, we believe our technology and services overcome certain
limitations of other technologies. We have developed a highly integrated
technology platform that combines high throughput microarray analyses, automated
sample handling, high capacity bioinformatics and statistical genetics. This
enables us to offer on-line, cost-effective, high throughput analysis services
that assist pharmaceutical and biotechnology companies in their efforts to
develop safer, more effective therapeutics.
We believe we are well positioned to become the leading provider of
cost-effective high throughput genomic services and information for the
following reasons:
Unified and Integrated Technology Platform
Our core technology provides a unique, single platform for performing
genotyping, gene expression and, in the future, protein experiments. We have
merged hardware, software and services into an integrated partnership program
for our customers. By providing common technology and bioinformatics tools, we
will enable our customers to utilize a single platform for diverse tasks across
multiple departments. We plan to compliment our genomic services by offering our
DNA repository, which will result in an integrated solution to complex genomics
inquiries. For example, a customer will be able to use our gene expression
services to discover which of their compounds have toxic profiles and with this
information, use our database service to discover which genotypes can tolerate
this compound.
Cost-Effective, High Throughput Services
Our proprietary DNA chip (microarray) processing techniques enable us to
provide cost-effective, high throughput genomic services to major pharmaceutical
and biotechnology companies. A microarray consists of an array of test sites
formed on a suitable structure. DNA or RNA probes of known binding
characteristics are attached to each of the test sites. The probes in each test
site differ from the probes in other test sites in a known manner. A sample
containing an unknown candidate molecule, such as a target molecular structure,
is added to the microarray. A signal is applied to the microarray so that
certain electrical, mechanical or optical projections of the test sites can be
detected, indicating that a molecular structure present in the sample substance
has bound to a certain probe in one or more of the test sites of the array. Our
proprietary capillary microarray manufacturing systems are capable of printing
microarrays within seconds. Furthermore, our microarray imagers based on our
patented DNA chip technology quantitatively image an entire plate of 96
microarrays within 60 seconds, compared to the hours required by traditional
systems. With proprietary systems and procedures, tens of thousands of genotypes
can be performed per instrument per 8-hour shift. Additionally, because our
processes are automated with robotics, the entire operational system is quickly
scaleable and human error is minimized. Consequently, we have made large-scale
genotyping and gene expression analysis a practical reality.
Interactive Bioinformatics Solutions
We have developed a fully integrated bioinformatics platform that can be
used by our customers for high capacity data analysis. Our VistaLogic
Information System software will enable users to customize their queries in
order to ask biologically important questions of the data and subsequently view
genotype and gene expression data with our visualization tools that facilitate
data mining. Customers will also be able to use our bioinformatics tools to
browse through our VistaClinic DNA Repository so as to select patient samples
with clinical profiles relevant to their research interests. The VistaLogic
Information System can accommodate multiple research areas within a single
pharmaceutical or biotechnology company. Additionally, integration of our
software with our manufacturing and operations group will enable sample
tracking, real-time sample status updates and automated quality control which
will in turn greatly improve data quality.
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Expanding DNA Repository
Within our VistaClinic DNA Repository and database, we are amassing
biological samples with attendant clinical records for DNA analysis. We intend
to continue obtaining these samples from a variety of sources both inside and
outside of the United States, such as public and private research organizations,
profit and nonprofit hospital systems and universities. We have built a
1000-square-foot fireproof vault for the automated storage and retrieval of
these DNA samples collected on our proprietary solid state format. These samples
are accompanied by detailed electronic clinical records from which all
information that could identify the patient has been deleted. The samples and
clinical information will be available in the future to our customers for
large-scale genotyping analysis. In addition to the services we plan to offer,
we plan to perform our own genomics analysis utilizing the repository and make
our data available to customers through subscriptions to our VistaClinic
database.
Strong Intellectual Property Position
Our founders are co-inventors on patents relating to electronic and optical
DNA chip technology, which are based upon work performed at the Massachusetts
Institute of Technology, Baylor College of Medicine and Houston Advanced
Research Center. We hold exclusive rights to all non-semiconductor aspects of
this patented DNA chip technology. The DNA chip patents relate to
microelectronic detection of DNA hybridization, electrokinetic hybridization,
optical CCD detection of DNA on substrates and DNA chip fabrication. As of March
1, 2000, five patents have issued in the United States and a European patent has
been granted relating to various aspects of our DNA chip technology. We believe
that the inventions disclosed in these patents also support patent rights
relating to automated workstations, rapid hybridization chemistries and
efficient DNA chip fabrication techniques.
THE GENOMETRIX STRATEGY
Our goal is to establish our technology platform as the industry standard
and to become the market leader in high throughput genomic services and
information for the pharmaceutical and biotechnology industries (business to
business), and subsequently for physicians in the clinical environment
(personalized medicine). Unlike most of our competitors who provide product
solutions to specific components of the drug discovery and development process,
we offer a unified genomic service solution that can be employed throughout the
pharmaceutical development process without customer investment in
instrumentation. The anticipated success of the Human Genome Project to produce
a draft of the human DNA sequence and the efforts of various genomic companies
to identify tens of thousands of SNPs will yield vital core data, which, if
properly analyzed, could significantly assist both drug discovery and patient
care. To exploit the sheer volume of identified SNPs and the breadth of
individual inherited variations, there is a need to develop and use tools and
processes that can correlate and analyze such data on a high volume, time
efficient basis. Our strategy has been to develop and deliver high throughput
services and information necessary for pharmaceutical and biotechnology
companies, and eventually, physicians, to better analyze and utilize such volume
of data. Key components of our strategy include the following:
Establish, build and maintain strong commercial relationships with our
pharmaceutical and biotechnology customers.
We plan to continue our efforts to develop commercial relationships with
leading pharmaceutical and biotechnology companies. For example, we have begun
offering commercial genotyping and gene expression services to Schering-Plough
Corporation and Procter & Gamble Pharmaceuticals under fee-for-service
arrangements. Additionally, we are in discussions with other large
pharmaceutical companies for evaluation of our technology and services. We
believe that it is critical to develop close relationships with our customers at
an early stage in order to educate them on how our technologies can accelerate
their product development cycles. A key factor in building and maintaining these
relationships is the assignment of a "Client Program Manager" to each account in
order to maximize the likelihood of project success. These M.S.- or Ph.D.-level
scientists help design and coordinate the projects for each account, serving as
the primary Genometrix contact person for technical inquiries and training on
our technology and software.
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Our Client Program Managers act internally to ensure timely processing of
samples and data and externally to ensure that our customers are sufficiently
trained on the intricacies of our technology.
Develop research and development collaborations with pharmaceutical,
biotechnology and academic institutions.
We intend to leverage our microarray technology, DNA repository and
automated high throughput processing capabilities to generate value added
genotyping and gene expression information for our customers in their search for
new drugs. Of primary focus is establishing and maintaining commercial
collaborations with pharmaceutical and biotechnology companies. These
collaborations can range from fee-for-service agreements to joint development
programs where we share in developing and commercializing intellectual property.
By adopting our genomic services platform with the data mined from our DNA
repository, a comprehensive solution is provided for utilization throughout the
drug development process, including validating lead drug candidates,
toxicological studies, clinical trials and research diagnostics. We expect the
expression profiling and genotyping correlations that stem from the use of our
databases will have milestone and royalty-based fee structures.
Expand our proprietary, solid-state DNA repository.
We plan to broadly expand the VistaClinic DNA Repository to include large,
diverse populations with multiple outcomes. This strategy will provide a
resource with sufficient detail and flexibility to accommodate customer needs
well into the future. We intend to obtain DNA samples and related clinical data
in two ways: we will obtain previously-collected samples from public and private
research and health care organizations, and we will undertake our own primary
collection efforts on-site at these organizations. Each sample will be stored in
our proprietary solid-state format in our DNA repository and will be utilized
for hundreds of experiments. Eventually, in excess of hundreds of thousands of
patients will be represented in the repository. Thus, we believe the number of
potential genotyping experiments that can be conducted using our unique DNA
repository could exceed one hundred million within the next few years.
Generate and license intellectual property from mining our DNA repository.
In addition to our service business, we have initiated our own DNA
discovery program to discover panels of genetic variation that can predict
personalized disease risk and/or pharmaceutical responsiveness. Initially, this
effort will be focused on cancer and cardiovascular disease. We anticipate that
the data mined from our DNA repository may result in new disease correlations,
which will be important in developing new diagnostic tests and in improving
algorithms for pharmaceutical delivery. We intend to seek patent protection for
our new discoveries and to license such rights to third parties where
appropriate.
Develop genotype-based diagnostics to expand the applications of our core
technology.
We are positioned to develop genomic-based diagnostics utilizing our DNA
repository in conjunction with our high throughput genomics platform. We believe
this will provide the opportunity to become a leading supplier of
microarray-based diagnostic instrumentation and pharmacogenomics services for
the rapid diagnosis and optimal selection of therapeutics for enhanced patient
management.
Establish genotyping and database services to facilitate personalized
medicine.
A unique component of our long-term corporate strategy is to offer
physicians cost-effective genotyping services in collaboration with health
maintenance organizations and/or pharmacy benefit managers to facilitate
personalized medicine. In 1998, physicians wrote approximately three billion
prescriptions. We believe this presents a significant opportunity which we
intend to capture by offering physicians a specialized Internet-based genomic
service that will assist them in selecting the optimal medication with low
predicted toxicity and high efficacy for their patients.
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TECHNOLOGY PLATFORM
Our microarray technology enables us to provide cost-effective, high
throughput genomic services to major pharmaceutical and biotechnology companies.
This platform is integrated with our bioinformatics capabilities as well as our
high throughput automation systems. Our integrated technology platform includes:
DNA Microarrays
Our founders were early developers of microarray technology. We have
created a unique platform for microarray design, fabrication and processing. Our
platform is compatible with standard 96-well plate geometry. Within seconds, DNA
arrays are created inside the "well" of a 96-well plate using a proprietary
automated capillary based arraying system. Thus, 96 experimental samples can be
easily tested against our arrays, permitting high throughput genotyping and gene
expression analysis. We provide customers and strategic partners with two
categories of arrays: standard and customized. Our custom microarrays are
created based on customer specifications and can be easily modified for
subsequent projects without significant delay and cost. Our flexible technology
design allows the same instruments and robotic workstations to be used for both
genotyping and gene expression.
Microarray Imagers
We have developed a proprietary imaging technology that scans a microarray
in a fraction of the time needed by conventional technology. Off-the-shelf
scanning imagers require 60 seconds to 5 minutes to scan one microarray.
Therefore, these scanners would require 1.5 to 8 hours to scan one plate of 96
microarrays. Using a proprietary imaging method, our microarray imager can scan
all 96 microarrays in 60 seconds.
Automated Processing
Our production line is automated to achieve sample throughputs of thousands
per day. Proprietary hardware has been configured for robotic manipulations,
from the initial quality control of our manufactured arrays to the ultimate step
of imaging. We have also focused on formatting arrays into standard dimensions
utilized in 96-well or 384-well plates to facilitate upstream and downstream
sample processing with commercially available instrumentation.
Novel Hybridization Chemistries
We have developed novel chemistries that significantly reduce the
hybridization time required for genotyping and gene expression to approximately
one hour. Conventional hybridization requires 12 to 48 hours in a temperature
and humidity controlled environment that is acceptable for low throughput
settings, but inadequate for high throughput production. Our reduced time and
relaxed temperature specifications increase throughput and reduce costs
substantially as water baths or humidity chambers are not required. Our research
is now focused on developing newer surface chemistries to further decrease
hybridization time, while increasing hybridization specificity and sensitivity.
Bioinformatics
We have developed proprietary bioinformatics software that permits users to
analyze data for thousands of samples with the aid of logical query tools and
data visualization features. Bioinformatics tools are critical components of a
high throughput facility that processes many unique biological samples. We
continue to refine and develop our software based on the needs of our customers
and strategic partners. We believe that the data generated by our core
technology platform provides users with unique and valuable information that can
be better understood with robust analytical tools developed by our team of
pharmacogenomics, epidemiology and software experts.
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Automated DNA Sample Storage
We have developed a novel platform for storing blood samples at room
temperature in a format that stabilizes DNA for up to 50 years after collection.
DNA samples are typically derived from blood or cheek swabs. Traditional
techniques for archiving tissue samples are inferior due to the difficulty of
automation and the instability of a liquid biological sample following repeated
thawing and sampling. To circumvent these problems, we have devised a
proprietary, large-scale, automated method for archiving and retrieving
biological samples. To access the genomic DNA contained in the sample, a small
"punch" of the solid phase substrate is collected using an automated device and
the sample is processed to determine the patient's genotype. For long-term
storage and security, we house our sample archive in a fireproof vault.
Protein Microarrays
Proteomics, or the detection of protein levels, is a major focus of our
research and development efforts. We believe we have an opportunity to
significantly impact the proteomics field as we have shown the success of a new
and improved assay which enhances the number of data points twelve-fold (with a
theoretical upper limit to 250 times more data) over conventional proteomics
enzyme linked immunoabsorbent assay (ELISA) technology. As currently done with
nucleic acids, our microarray platform can be configured for fabrication of
protein microarrays. Specifically, we can array multiple antibodies to create a
multiplex micro-ELISA assay for simultaneous detection of multiple proteins. As
a logical extension of gene expression studies, protein profiling should prove
valuable for comparing gene expression levels to protein levels.
SERVICES
The services and products we have developed provide, we believe, the only
microarray technology that offers a single, unified platform for genotyping,
gene expression and, in the future, proteomics applications. The products and
services that we have developed and plan to commercialize are designed to
promote access to genomic technologies and facilitate use by pharmaceutical and
biotechnology companies. Through fee-for-service agreements our clients can
easily access our high throughput microarray technology which is flexible,
customized and fully expandable. These programs have already been launched and
are described below. We plan to introduce new products and services that provide
subscription-based access to software and databases.
In November 1999, we launched the GenoVista Partnership Program, which
provides our customers with access to our core technology platform and offers
high throughput custom microarray fabrication and analysis services for
genotyping and gene expression profiling. Our first customer to access this
program was Schering-Plough Corporation, and in March 2000, Procter & Gamble
Pharmaceuticals became our second customer. We also provide access to our
technology to the University of Arizona Cancer Center, the University of Texas
M.D. Anderson Cancer Center and the U.S. National Center for Toxicological
Research.
Additional products are under development as extensions to our GenoVista
Partnership Program. Currently, we plan to develop and market a series of
standardized microarray products for genotyping and gene expression analysis.
These products will be released beginning in Spring 2000. Each series will be
focused on a specific disease or biological area and will let researchers
investigate critical genes in detail. In Spring 2000, we plan to launch a series
of arrays for examining polymorphisms in genes involved in drug metabolism. A
second series will focus on cancer related gene polymorphisms. In Summer 2000,
we expect to release arrays for analyzing the expression of growth factor and
cytokine genes as a means of examining tumor growth and progression. These will
be followed by a series of cell cycle and apoptosis (cell death) arrays that
will let researchers examine genes related to cell growth, differentiation and
death.
We expect to launch a version of the VistaClinic DNA Repository and
associated database in Fall 2000. Prior to that, we will provide beta versions
to selected existing customers for evaluation and external feedback. The beta
version of VistaClinic will provide users with access to our DNA repository
samples
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and their associated medical and clinical records for designing experiments. We
will provide access to the DNA repository and database on a subscription basis.
The following table summarizes our existing and soon to be offered
services:
[CHART]
VistaMorph Genotyping Service
Our VistaMorph Genotyping Service features our high throughput VistaMorph
microarray containing up to 250 genes per microarray. Customers may provide
their own tissue, DNA or blood samples, or in the future, may select samples
from our VistaClinic DNA Repository for genotyping. Customers would then choose
whether to use standard or custom microarrays for investigating their samples.
Standard arrays are pre-fabricated and contain SNPs of general interest, such as
those related to drug metabolism. For customers that have already identified
their own SNPs, we will design custom microarrays containing these
polymorphisms. For each array, the customers identify the SNPs of interest and
submit them to us through our VistaLogic Information System or on an electronic
spreadsheet. We design, fabricate and validate a set of custom microarrays and
PCR primers specific to the requested SNP. After the customers identify the
microarray, they submit the project request into the VistaLogic bioinformatics
system where it is logged in and the work order scheduled. We barcode all DNA
and blood samples, amplify the DNA, interrogate the sample with the VistaMorph
microarray and deliver the final data to our customers through the VistaLogic
service for final data analysis.
VistaExpress Gene Expression Service
Our VistaExpress Gene Expression Service enables researchers to efficiently
profile gene expression patterns across thousands of biological samples. Similar
in format to our VistaMorph services, customers provide their own RNA or tissue
culture samples, then choose the standard or custom arrays to interrogate their
samples. We are developing two series of standard VistaExpress microarrays.
Customers may also opt to fabricate custom arrays. Through our VistaLogic system
or an electronic spreadsheet, customers identify genes of interest. We then
design, fabricate and validate a set of custom microarrays. Upon receipt of the
customer RNA or cell sample, we process the biological material, interrogate the
sample with the VistaExpress microarray and deliver the final data back to the
customer through the VistaLogic service for final data analysis.
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VistaLogic Information System
Our VistaLogic Information System is an Internet-based application software
providing customers a user friendly interface with us. By simply pointing and
clicking, customers can select from a menu of genomic services we provide,
including high throughput genotyping and gene expression analyses. Customers
will be able to browse through the DNA repository to select patient samples with
clinical profiles relevant to their research interests. The VistaLogic software
runs directly on our customers' computers for high-speed data analysis and
accesses the Internet only when information is transferred. We also intend to
provide regular updates to the VistaLogic system and collect customer usage
information that will enable us to adapt the system and our services to meet
each customer's unique needs. The suite of software tools resides in a single
customer-server application that will be deployed at customer sites and permits
Internet-based connection to our databases via a secure encrypted network.
VistaLogic encompasses proprietary analytic and visualization tools, as well as
unique algorithms for large data set analysis. Using the proprietary algorithms
developed at Genometrix, customers will be able to determine associations using
the statistical power of thousands of samples. Our VistaLogic Laboratory
Information Management System (LIMS) ensures that all samples, processing
reagents, microarray controls, key robotic outputs and data are tracked. This
prevents the loss of samples and decreases the response time on the operations
floor if quality specifications are not met.
VistaClinic DNA Repository and Database
The VistaClinic DNA Repository and associated database is our collection of
DNA samples and their attendant clinical records. We plan to include diverse DNA
samples from across the country and the world. These samples will be accompanied
by detailed electronic clinical records that have been stripped of all
information that could lead to patient identification. The samples and
associated information will be available to our customers for large-scale
genotyping analysis. Customers will be able to search through the sample set
using our software query tools, select the most optimal subset of patients for
their investigations, design a genotyping study on-line and submit the analysis
request directly to Genometrix. In addition, we will perform our own genotyping
analysis of the samples and make our data available to customers who subscribe
to our VistaClinic database. We anticipate the launch of this subscription-based
program in Fall 2000.
SALES AND MARKETING
We employ a multi-phase sales strategy. Through the GenoVista Partnership
Program, we provide gene expression and genotyping services and develop custom
arrays on a fee-for-service basis. Thereafter, customers may access our
VistaClinic DNA Repository and genotyping database on a multi-year subscription
basis.
We have created flexible pilot and volume programs that provide customers
with access to our genotyping and/or gene expression services, as determined by
their specific needs. Customers are encouraged to work closely with our highly
skilled customer support staff to develop custom programs in which we fabricate
and validate custom microarrays that are used to analyze customer samples.
We are focused on selling access to our platform technology to our targeted
customer base of pharmaceutical and biotechnology companies, with the plan to
develop relationships which will lead to expanded use of our services. Our sales
and marketing team has extensive experience in the pharmaceutical and
biotechnology industries and advanced knowledge of molecular biology, gene
expression, genotyping and polymorphism analysis. The team consists of eight
persons, based in Houston, Boston and San Francisco. We plan to grow the sales
and marketing group to continue to focus on commercialization of our GenoVista
program and related products and services
CUSTOMERS AND COLLABORATIONS
Central to our business development is the establishment of several types
of collaborations with commercial customers, research and development partners
and external licensees. Our primary focus is
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establishing and maintaining commercial collaborations with pharmaceutical and
biotechnology companies. Such collaborations can range from fee-for-service
agreements to joint development programs where we share in developing and
commercializing intellectual property. The joint development programs are
initialized with research and development agreements that specify the sharing of
the intellectual property created in the course of the program. External
licensing collaborations include the licensing of certain of our intellectual
property in fields of use outside our planned business areas to third parties in
exchange for licensing fees and royalties. Overall, these collaborations are
important to the continued development and commercialization of our
multidisciplinary genomic services.
Customers
With the launch of our first genomic services in November 1999, the
GenoVista Partnership Program, we plan to continue to initiate partnership
agreements with pharmaceutical and biotechnology companies similar to those
described below.
Schering-Plough Corporation. In November 1999, we began offering
commercial genotyping and gene expression services to Schering-Plough, a leading
pharmaceutical company, through our GenoVista Partnership Program. This service
provides Schering-Plough with access to custom VistaArray services for analysis
of biological samples for gene expression and genotyping. Additionally, when
available, Schering-Plough will be a beta test-site for our VistaLogic
Information System, as well as the VistaClinic DNA Repository upon its release
to facilitate genotyping of patient samples.
Procter & Gamble Pharmaceuticals. In March 2000, we began working with
Procter & Gamble Pharmaceuticals through our GenoVista Partnership Program.
Procter & Gamble Pharmaceuticals will utilize our custom VistaArray services to
enhance their drug development programs with customized, high throughput gene
expression analysis.
Technology Licensing
We license our intellectual property that lies outside our core
commercialization interests to third parties who have demonstrated success in
commercializing new technologies.
Motorola. In 1998 and 1999, we sublicensed certain aspects of our
intellectual property, including electronic detection of DNA, electrokinetic
hybridization enhancement and surface chemistry technologies to Motorola for
developing and commercializing portable point of care, DNA-based diagnostic
systems. In connection with this license agreement, Motorola made an equity
investment of $10 million in our company. We have also initiated a research and
development agreement with Motorola for adapting certain chemistries to the
Motorola microarray format. In addition to licensing fees, we are entitled to
receive annual royalties, subject to minimums, for the duration of this license
agreement.
Research and Development Collaborations
Other collaborations with third parties for the purpose of developing new
intellectual property for which we have the option to secure exclusive licensing
rights include the following:
National Cancer Institute (NCI). In 1998, we entered a three-year program
funded by the NCI to develop new automation and microarray technology to enable
use of microarrays as diagnostic and discovery tools in a clinical setting. This
program also involves collaborations with the Baylor College of Medicine
(Molecular Physiology), M.D. Anderson Cancer Center (Thoracic Surgery) and the
University of Houston (Molecular Modeling). About half of this approximately
$3.5 million dollar grant has been awarded directly to Genometrix.
In 1998, we entered a program funded by the NCI and sponsored by the
University of Arizona to design and fabricate standardized DNA probe microarrays
and provide automated hybridization and detection tools. The initial one-year
term was extended to two years and provides Genometrix with $492,000 in funding.
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National Institute of Environmental Health Sciences (NIEHS). In 1998, we
were awarded a $1.8 million three-year grant from the NIEHS for the development
and validation of microarrays for population scale analysis of chemical
carcinogenesis and pharmaceutical toxicology. Under this program, we have
established a close collaboration with the National Center for Toxicological
Research (NCTR), which is the FDA laboratory focused on the study of adverse
drug reaction and the toxicity of environmental chemicals. NCTR provides
externally analyzed samples for technology validation, as well as expert advice
in the area of pharmacogenomics and chemical toxicology.
Massachusetts Institute of Technology. We have been a collaborator with
the Lincoln Laboratory of MIT in the area of DNA microarray technology since our
inception. Current collaborative efforts involve no grant funding, but are
directed towards several microarray applications and an advanced genotyping
technology project.
University of Texas M.D. Anderson Cancer Center. We have several
collaborative projects with the University of Texas M.D. Anderson Cancer Center
in conjunction with our funded programs under NIEHS and NCI grants. These
projects focus on the validation of our technologies in the area of cancer
diagnostics and genetic epidemiology. Projects include large scale sample
archiving technology, microarray technology for SNP analysis of inherited
disease risk factors, protein microarrays for diagnostics and risk analysis and
the development of DNA microarrays as a new class of mRNA-based blood test for
toxicology, radio responsiveness and inherited disease risk analysis.
INTELLECTUAL PROPERTY
Our core technology is protected by patents relating to electronic and
optical DNA chip technology and for methods of using DNA chip technology to
image microarrays. As of March 1, 2000, five U.S. patents have issued on various
aspects of this technology: U.S. Patent No. 5,532,128, U.S. Patent No.
5,653,939, U.S. Patent No. 5,670,322, U.S. Patent No. 5,846,708 and U.S. Patent
No. 5,891,630. These patents are co-owned by MIT, Houston Advanced Research
Center and Baylor College of Medicine, and are licensed to the Company as
described below. These patents will expire between 2011 and 2014.
In 1994, Genometrix received a license of technology related to such
patents, and such license was renewed and amended in 1996. Such exclusive rights
expire in 2006, at which time the exclusive rights will become non-exclusive
unless the licensor agrees to extend exclusivity. In order to maintain the
exclusive rights under the license through 2006, we are required to make minimum
sales of products and services using such technology. We are also required to
pay royalties on sales of products and services using such technology and on
such licenses of such technology.
In addition, we have filed patent applications in the areas of automated
solid-state biological storage devices and methods, methods of retrieving
solid-state biological samples and methods for manufacturing microarrays and for
performing room temperature hybridization chemistries. We have also filed patent
applications relating to scanning microarray fabrication technology, and have
received a notice from the United States Patent and Trademark Office that the
first of these applications has been allowed.
In addition to pursuing intellectual property rights in the United States,
we and our licensors routinely pursue patent protection in other countries,
including Japan and countries in Europe. One patent related to our licensed DNA
chip technology, EP 0543550 B1, was granted by the European Patent Office on
January 27, 1999. An opposition to this European patent grant was filed by
Clinical Microsensors, Inc. on October 27, 1999. A reply defending the European
grant is due April 17, 2000.
We intend to continue to file patent applications as we develop new
products and technologies. We believe our patent and licensing rights give us a
competitive position in the area of high throughput applied genomic services.
Our commercial success may also depend on obtaining patent protection for
discoveries mined from our DNA repository and on products, methods and services
based on such discoveries. We intend to apply for patent protection for such
discoveries, methods and services; however, complex legal and factual
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determinations and evolving laws make patent protection uncertain. As a result,
we cannot be sure that patents will issue from these or from any other of our
patent applications, or from patent applications licensed to us. Nor can we
guarantee that any patents that may issue from these patent applications will
have the breadth necessary to create an effective competitive barrier. In
addition, our patent rights may be challenged by third parties, and if so may be
found to be invalid or unenforceable. Moreover, the laws of some foreign
countries may not protect our proprietary rights to the same degree as does U.S.
law.
We attempt to protect our trade secrets by entering into confidentiality
agreements with third parties, employees and consultants, including
bioinformatic algorithms, as well as software and know-how for integrating
multiple robotic platforms with microarray technology to form our automated
genotyping workstations. Our employees and consultants are contractually
obligated to maintain the confidentiality of all company know-how and
intellectual property, and to refrain from unfairly competing with us both
during their term of employment and for a period of time thereafter, including
non-solicitation of our employees and customers. Our employees and consultants
are also obliged to assign to us all of their right, title and interest in any
discoveries, inventions, patents and copyrights arising from their work for us.
We cannot assure you that these agreements will be kept, or that, if challenged,
they would be upheld. In addition, we can not guarantee that a third party would
be prevented from independently discovering or inventing competing technologies,
or that a third party could not reverse engineer our trade secrets. If our
intellectual property is not protected from disclosure to or use by third
parties, our competitive market position may be adversely affected.
Although we are not a party to any material legal proceedings, in the
future, third parties may file suits asserting that our technologies or products
infringe on their intellectual property rights. We cannot predict whether third
parties will file suit to assert their intellectual property rights against us
or against our licensors, or whether such suits would harm our business. If we
are forced to defend against such a suit, whether the claims in suit are with or
without merit, or whether the claims in suit are resolved in favor of or against
us or our licensors, we may face costly litigation and diversion of management's
attention and resources. As a result of such disputes, we may have to develop
costly non-infringing technologies, or enter into licensing agreements. These
agreements, if necessary, may be unavailable on terms acceptable to us, or at
all, which could seriously harm our business and financial condition.
COMPETITION
The genomics service market is competitive and we expect the intensity of
the competition to increase. We currently compete with other companies providing
microarray services and access to SNP and expression databases. With the current
product mix, our products and services compete with alternative technologies
such as gel-based assays, enzymatic tests, mass spectroscopy, bead-based
methods, as well as array-based systems.
In the areas of genotyping and SNP analysis, we compete with a number of
companies offering services and/or products with alternative technologies. These
companies include Affymetrix Inc., Amersham Pharmacia Biotech Ltd., Hyseq, Inc.,
Illumina, Inc., Luminex Corporation, Nanogen, Inc., Orchid Biosciences, Inc., PE
Biosystems group, Rapigene, Inc., Sequenom, Inc., Qiagen Ltd., Third Wave
Technologies, Inc. and Visible Genetics, Inc.
In the areas of gene expression analysis, our principle competitors include
Affymetrix, Inc., Amersham Pharmacia Biotech Ltd., Incyte Pharmaceuticals, Inc.,
Invitrogen Inc. and PE Biosystems group.
Our principal competitors in the field of pharmacogenomics include Celera
Genomics group, CLONTECH Laboratories, Inc., CuraGen Corporation, Genaissance
Pharmaceuticals, Inc., GENSET Corporation, Incyte Pharmaceuticals, Inc.,
Millennium Pharmaceuticals, Inc., Myriad Genetics, Inc. and Variagenics, Inc.
In many instances, our competitors have, or may have, greater financial,
technical, research and other resources, or may have larger or more established
marketing, sales, distribution and service organizations
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than we do. Moreover, competitors may have greater name recognition and may
offer discounts as a competitive tactic. We cannot assure you that our
competitors will not succeed in developing or marketing technologies or products
that are more effective, commercially attractive or technologically advanced
than ours. Also, we may not have the financial resources, technical expertise or
marketing, distribution or support capabilities to compete successfully in the
future. Our success will depend in large part on our ability to maintain a
competitive position with our technologies.
GOVERNMENT REGULATION
As with any research involving humans, we are subject to laws and
regulations pertaining to the protection of human subjects and to genetic
privacy. For example, we are subject to the Policy for the Protection of Human
Subjects (45 CFR, Part 46), a body of regulations enforced by The Office for
Protection from Research Risks (OPRR) of the U.S. Department of Health and Human
Services (HHS), which applies to all federally funded research on humans.
There are several currently enacted federal statutes that seek to prevent
unauthorized or discriminatory use of individually identifiable DNA. The Genetic
Discrimination Act of 1995 prevents insurers from requiring applicants to submit
to genetic testing and provides that failure to submit to such tests cannot be
the basis for a denial of coverage.
Similarly, the Health Insurance Portability and Accountability Act of 1996
(HIPAA) (P.L. 104-191) prohibits discrimination in health insurance on the basis
of existing conditions, including genetic disorders. HIPAA protects individually
identifiable health information that is electronically maintained or transmitted
by a covered entity. Thus, a health plan cannot transmit to Genometrix any
patient information that, among other restrictions, is created or received by a
provider or health plan, that relates to the patient's past, present or future
health and that identifies the individual or could identify the individual.
Pursuant to HIPAA, the Secretary of HHS has promulgated proposed standards for
the confidentiality of individually identifiable health information. The
proposed rules create limitations to the disclosure and use of protected health
information and create rights for the subjects of that information. A key
component of our VistaClinic DNA Repository is the attendant clinical records
that we receive. Although researchers are not considered "covered entities" to
whom the proposed regulations directly apply, the regulations do specifically
address the use and disclosure of protected health information for both
federally and privately-funded research purposes.
A "covered entity" can use and disclose protected health information for
research without individual authorization, provided that the covered entity
receives documentation that the researcher's protocol has been reviewed by an
Institutional Review Board or equivalent body such as a privacy board. The board
must conclude that the researcher's protocol meets specified criteria designed
to protect the subject's privacy. Absent such a conclusion, protected
information may not be used for research purposes unless the covered entity has
obtained the individual's prior authorization. The required use of an IRB or
privacy board under HIPAA will place additional administrative and cost burdens
on Genometrix and will affect our ability to obtain individual health
information from covered entities. Such entities may not agree to disclose such
information to us without first obtaining assurances that the researcher has
complied fully with the requirements of the proposed regulations.
In addition to the above noted federal legislation, there is a variety of
genetic privacy and protection legislation currently pending in various stages
of review by congressional committees, as well as in the legislatures of several
states. Much of this legislation seeks to impose the same restraints on
employers nationwide that President Clinton's recent executive order imposes on
the federal government. The executive order limits the use of genetic test
results in deciding whether to hire, promote or extend particular benefits to
federal employees.
Although our services are not regulated by governmental agencies such as
the United States Food and Drug Administration, the FDA has announced its
interest in collaborating with academia, industry and government in the
development of microarray technologies to better define the biomarkers of toxic
response for susceptible populations. In particular, the FDA is interested in
working with other organizations to develop the capacity to utilize DNA-, RNA-
and bioinformatic-based technologies to
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better understand toxin-induced responses in in vitro and in vivo model systems
and to improve extrapolation of these systems to humans. The interest of the FDA
or other governmental organizations in our services may increase as the number
of pharmaceutical and biotechnology companies utilizing our technology
increases.
Because our DNA testing laboratory is designed for research purposes only
at this point, we are not currently regulated under the Clinical Laboratory
Improvement Act (CLIA). As we develop clinical testing, however, we will apply
for CLIA laboratory certification. CLIA is intended to ensure the quality and
reliability of clinical laboratories in the United States by mandating specific
standards in the areas of personnel qualifications, administration,
participation in proficiency testing, patient test management, quality control,
quality assurance and inspections. The regulations promulgated under CLIA
establish three levels of diagnostic tests, (i) "waived," (ii) "moderately
complex," and (iii) "highly complex," and the standards applicable to a clinical
laboratory depend on the level of the tests it performs. Although the levels of
CLIA diagnostic tests are not directly overlapping with genetic marker testing,
we cannot assure you that the CLIA regulations and future administrative
interpretations of CLIA will not have a materially adverse impact on us by
limiting the potential market for our DNA testing services.
In addition to laws regulating human subjects and genetic material, we are
subject to numerous environmental and safety laws and regulations, including
those governing the use and disposal of hazardous materials and to state health
and safety laws and regulations pertaining to medical research. Any violation of
and the cost of compliance with, these regulations could have a material adverse
effect on our business and operations.
Finally, while most of the initial commercialization of our business has
been within the United States, we anticipate that we will expand our services to
other countries. Laws and regulations pertaining to our genomic services are in
effect in many of the foreign countries in which we may do business. We cannot
assure you that we will obtain regulatory approvals in such countries or that we
will not be required to incur significant costs in obtaining or maintaining
foreign regulatory approvals.
EMPLOYEES
As of March 14, 2000, we employed a total of 97 persons in the following
areas, 22 of whom hold Ph.D degrees and 22 of whom hold other advanced degrees:
41 in research and development; 9 in sales and marketing; 30 in manufacturing;
and 17 in finance and administration. To support our anticipated future growth,
we expect to hire additional employees, particularly in the areas of sales and
marketing. None of our employees are represented by unions and we believe our
relations with our employees are good.
FACILITIES
We currently lease approximately 47,000 square feet of newly constructed
space at 2700 Research Forest Drive, The Woodlands, Texas. All of our genomics
services, research and development, DNA storage and retrieval are performed at
this site. Our facility includes a 1,000 square foot fireproof vault for the
automated storage and retrieval of DNA samples. We believe our current facility,
which was developed to our specifications, will be adequate to meet our
near-term space requirements. We also have an option to expand our occupancy in
our current facility to 70,000 square feet on commercially reasonable terms.
LEGAL PROCEEDINGS
We have licensed rights under a European patent that was granted on January
27, 1999 to Massachusetts Institute of Technology, Baylor College of Medicine
and Houston Advanced Research Center. The subject matter of this European patent
grant corresponds to the subject matter in three of the five U.S. patents
relating to DNA chip technology discussed under "Intellectual Property," above.
Clinical Microsensors, Inc. filed an opposition to this European patent grant on
October 27, 1999, and a reply defending the European grant is due April 17,
2000. We are not a party to this action, and we can not assure you that our
licensed rights to certain aspects of this DNA chip technology will not be
adversely affected by this European opposition proceeding.
We are not a party to any material legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning our directors
and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Mitchell D. Eggers................... 42 Chief Executive Officer, Director and Chairman of the
Board
Robert H. Ellis(1)................... 53 President, Director
Michael Hogan(1)..................... 48 Chief Scientific Officer, Director
David E. Jorden...................... 37 Vice President and Chief Financial Officer
Deval Lashkari....................... 33 Vice President of Business Development and Marketing
Aleksandar Milosavljevic............. 38 Vice President of Bioinformatics
Stephen Das.......................... 53 Vice President of Operations
C. Thomas Caskey(2)(3)............... 61 Director
Nicholas J. Naclerio................. 38 Director
Bruce Peacock(2)(3).................. 48 Director
J. Evans Attwell(1)(2)(3)............ 68 Director
</TABLE>
- ---------------
(1) will be elected concurrently with the completion of the offering
(2) will serve on our Audit Committee upon completion of this offering
(3) will serve on our Compensation Committee upon completion of this offering
Mitchell D. Eggers founded Genometrix in 1993. Mr. Eggers has served as
Chief Executive Officer, Director and Chairman of the Board since the Company's
inception. He also served as our President from May 1993 to July 1998. Prior to
founding Genometrix, he was on the staff of the Lincoln Laboratory at MIT where
he founded and directed a multidisciplinary biochip development program. He was
subsequently the founder and program manager of the first DNA chip consortium,
assembled in 1991. Mr. Eggers received a B.S., M.S. and Ph.D. in electrical
engineering from Texas A&M University and is currently completing an M.B.A. from
Rice University.
Robert H. Ellis has served as our President since July 1998 and will join
our board of directors concurrently with the completion of this offering. From
1986 until joining us, Mr. Ellis served as product manager and then as president
and general manager of Applied Biosystems Japan, a division of Perkin Elmer, a
manufacturer of biotechnology equipment. During his twelve year career at Perkin
Elmer, Mr. Ellis was promoted to business unit manager of Applied Markets and
Nucleic Acids. Prior to his joining Perkin Elmer, Mr. Ellis was a section
manager at Hewlett Packard where he led product development for analytical
chemistry systems. Mr. Ellis received a B.A. in chemistry from Hartwick College
and attended graduate school at Rensselaer Polytechnic Institute.
Michael Hogan has served as our Chief Scientific Officer since May 1998 and
has worked extensively with us since 1991 on joint research programs. Mr. Hogan
will join our board of directors concurrently with the completion of this
offering. From 1987 until joining us, Mr. Hogan was a tenured professor at
Baylor College of Medicine in Houston where he developed pioneering surface
chemistries that enhanced the rate and specificity of nucleic acid hybridization
on solid supports. Prior to his professorship at Baylor, Mr. Hogan was an
assistant professor at Princeton University and completed his post-doctoral
studies at Stanford University. Mr. Hogan received a B.A. in biology from
Dartmouth College and a Ph.D. in biophysics from Yale University.
David E. Jorden has served as our Vice President and Chief Financial
Officer since March 2000. From 1989 through 1996 and from 1998 until joining us,
Mr. Jorden was a principal at Fayez Sarofim & Co., an investment management
company, where he was engaged in equity security analysis and portfolio
management. From 1996 until 1998, Mr. Jorden co-founded and was a principal at
Cypress Asset Management, Inc., an independent investment advisory firm. Mr.
Jorden received a B.B.A. from the
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University of Texas and an M.M. from Kellogg Graduate School of Management at
Northwestern University. Mr. Jorden is a Chartered Financial Analyst and
Certified Public Accountant.
Deval Lashkari has served as our Vice President of Business Development and
Marketing since May 1999. From 1998 until joining us, Mr. Lashkari was director
of product development for Incyte Pharmaceuticals in its business development
and marketing groups where he developed new microarray-based genomic programs
for pharmaceutical customers. In 1996, he was an early employee and founding
scientist of Synteni, a microarray company later acquired by Incyte, where he
was a research director. Mr. Lashkari received a B.A. in genetics from the
University of California, Berkeley and a Ph.D. in genetics from Stanford
University.
Aleksandar Milosavljevic has served as Vice President of Bioinformatics
since November 1998 and directs our bioinformatics and database development
efforts. From 1995 until joining us, Mr. Milosavljevic led the bioinformatics
activities of CuraGen Corporation, a biotechology company. Mr. Milosavljevic was
also a member of the genomics group at Argonne National Laboratory from 1992
until 1995, managed the group from 1994 until 1995 and was responsible for
processing and cataloging the results of one million experiments on DNA chips
daily. Mr. Milosavljevic received a Dipl. Ing. in electrical engineering from
the University of Belgrade, Yugoslavia, an M.S. in computer science and
engineering from Santa Clara University and a Ph.D. in computer and information
sciences from the University of California, Santa Cruz.
Stephen Das has served as our Vice President of Operations since December
1999. From November 1998 until joining us, Mr. Das was vice president of
operations for MRG, a manufacturer of implantable drug delivery systems in
California. From 1994 to 1998, Mr. Das was vice president of manufacturing for
Sulzer Intermedics, a biotechnology company, where he was responsible for U.S.
manufacturing operations for implantable cardiac pacemakers. Mr. Das received a
B.S. in physics from the University of Central Florida.
C. Thomas Caskey joined our board of directors in February 2000. Mr. Caskey
has served as senior vice president of human genetics and vaccines discovery at
Merck Research Laboratories since 1995 and is a trustee and president of the
Merck Genome Research Institute, Inc. He is also an adjunct professor in the
department of molecular and human genetics, biochemistry and cell biology at
Baylor College of Medicine in Houston and in the department of molecular
genetics and microbiology at the University of Medicine and Dentistry of New
Jersey. Mr. Caskey received an M.D. degree from Duke University.
Nicholas J. Naclerio joined our board of directors in February 1999. Mr.
Naclerio has served as vice president and general manager of the BioChip Systems
business unit at Motorola, Inc. since June 1999. Mr. Naclerio joined Motorola in
November 1997, where he served as director of strategy for new enterprises
including biochip systems. From January 1990 until joining Motorola, Mr.
Naclerio held various positions at the Defense Advanced Research Projects Agency
including his last position as assistant director of the electronics technology
office. Mr. Naclerio received a Ph.D. in electrical engineering from the
University of Maryland.
Bruce A. Peacock served on our board of directors from June 1988 to June
1999 and rejoined our board of directors in February 2000. Mr. Peacock has
served as president, chief operating officer and director of Orthovita, Inc., a
biomaterials corporation since June 1999. From 1992 to 1999, Mr. Peacock was
chief operating officer at Cephalon, Inc., a biopharmacuetical company engaged
in drug discovery. Previously, Mr. Peacock was the chief financial officer for
Centocor, a biopharmaceutical company. Mr. Peacock received a B.A. degree in
business administration from Villanova University.
J. Evans Attwell will join our board of directors concurrently with the
completion of this offering. Mr. Attwell is currently of counsel to Vinson &
Elkins, L.L.P., a law firm headquartered in Houston, Texas; from 1965 to 1995,
Mr. Attwell was a partner at such firm, and its managing partner from 1981 to
1991. Mr. Attwell is currently a director of American General Corporation, Dain
Rauscher Incorporated, one of the underwriters of this offering, and Ocean
Energy, Inc. and a trustee of The Robert A. Welch
46
<PAGE> 50
Foundation. Mr. Attwell received a B.A. in history from Rice University and a
L.L.B. from the University of Texas.
Our executive officers are appointed by the board of directors and serve at
the discretion of the board. There are no family relationships between any
director or executive officer. Mr. Naclerio has a contractual right to serve on
the board of directors as the designated representative of Motorola, and
although Mr. Naclerio will continue to serve as a director after the offering,
such contractual right will terminate following the conversion of preferred
stock upon completion of this offering.
SCIENTIFIC ADVISORY BOARD
We have established a scientific advisory board made up of leaders in
fields related to genomics, proteomics and bioinformatics. These advisors assist
us in formulating our research, development and commercialization strategies.
Members are reimbursed for the reasonable expenses of attending meetings of the
scientific advisory board. We have also granted each member of our scientific
advisory board the option to purchase 6,000 shares of our common stock.
<TABLE>
<CAPTION>
ADVISOR INSTITUTION
- ------- -----------
<S> <C>
David S. Alberts, M.D. .............. Professor of Medicine and Pharmacology, Arizona Cancer
Center
Christopher Amos, Ph.D. ............. Professor of Epidemiology, M.D. Anderson Cancer Center
Nicholas P. Lang, M.D. .............. Professor of Internal Medicine, University of Arkansas
Medical Center
Yasufumi Murakami, Ph.D. ............ Professor of Genomics, Science University of Tokyo
Teruhisa Noguchi, Ph.D. ............. President and CEO, Tenox Institute, Japan
</TABLE>
BOARD COMPOSITION
We currently have four directors. Upon completion of this offering, our
board of directors will consist of seven members divided into three classes. As
a result, a portion of our board of directors will be elected each year. The
division of the three classes, the initial directors and their respective
election dates are as follows:
- The Class I directors will be C. Thomas Caskey and Michael Hogan and
their term will expire at the annual meeting of stockholders to be
held in 2001.
- The Class II directors will be Bruce Peacock, Robert H. Ellis and J.
Evans Attwell and their term will expire at the annual meeting of
stockholders to be held in 2002.
- The Class III directors will be Nicholas J. Naclerio and Mitchell D.
Eggers and their term will expire at the annual meeting of
stockholders to be held on 2003.
At each annual meeting of stockholders after the initial classification,
the successors to directors whose terms expire at the meeting, will be elected
to serve from the time of election by the stockholders until the third annual
meeting following election. In addition, the authorized number of directors may
be changed only by resolution of the board of directors. Any additional
directorships resulting from an increase in the number of directors will be
evenly distributed among the three classes so that, as nearly as possible, each
class will consist of one-third of the directors. This classification of the
board of directors may have the effect of delaying or preventing changes in our
control or management.
COMMITTEES OF THE BOARD OF DIRECTORS
Compensation Committee. Upon completion of this offering, our board of
directors will have a compensation committee composed of Bruce Peacock, C.
Thomas Caskey and J. Evans Attwell, which will make recommendations concerning
salaries and incentive compensation for our employees and consultants, establish
and approve salaries and incentive compensation for our executive officers and
administer our stock plans.
47
<PAGE> 51
Audit Committee. Upon completion of this offering, our board of directors
will have an audit committee composed of Bruce Peacock, C. Thomas Caskey and J.
Evans Attwell, which will review the result and scope of audits, the
independence of our auditors and other services provided by our independent
public accountants.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the compensation committee has at any time been one of our
officers or employees; however, Bruce Peacock had a consulting arrangement with
us until February 2000 which arrangement has terminated and is not being
renewed. None of our executive officers serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee. Prior to the formation of the compensation committee, the board of
directors as a whole made decisions relating to the compensation of our
executive officers.
COMPENSATION OF DIRECTORS
We reimburse our non-employee directors for all travel and other reasonable
expenses incurred in attending board of director meetings. Our non-employee
directors are eligible to receive nonqualified stock option grants under our
1994 Stock Plan and 2000 Employee, Director and Consultant Stock Option Plan. In
February 2000, C. Thomas Caskey and Bruce Peacock received non-qualified stock
options under our 1994 Stock Plan to purchase 20,000 shares of our common stock
at an exercise price of $10.00 per share. Options for 10,000 of these shares
were immediately exercisable and the remaining portion of these options shall
become exercisable in February 2001 provided that the directors are still
serving on the board of directors on such date.
LIMITATIONS OF LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation provides that no director will be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director and limits the liability of our directors to the
fullest extent permitted by Delaware law. Our certificate of incorporation and
By-laws also provide that we will indemnify and advance expenses to any of our
directors who by reason of his or her service as an officer or director, is
involved in legal proceedings of any nature.
We will repay certain expenses incurred by a director or an officer in
connection with any civil or criminal proceeding, specifically including actions
by us or in our name (derivative suits). Such expenses include, to the maximum
extent permitted by law, attorney's fees, judgments, civil or criminal fines,
settlement amounts and other expenses. A director or officer will not receive
indemnification if the director or officer is found not to have acted in good
faith and in a manner the director or officer reasonably believed to be in the
company's best interest.
Such limitation of liability and indemnification does not affect the
availability of equitable remedies. In addition, we have been advised that in
the opinion of the SEC, indemnification for liabilities arising under the
Securities Act is against public policy as expressed in the Securities Act and
is therefore unenforceable.
There is no pending litigation or proceeding involving any of our
directors, officers, employees or agents in which indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.
EXECUTIVE COMPENSATION
The following table presents summary information for the fiscal year ended
September 30, 1999 regarding the compensation of each of our Chief Executive
Officer and other four most highly-compensated individuals whose salary and
bonus for Fiscal Year 1999 were in excess of $100,000.
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<PAGE> 52
SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 1999
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------------------------------- --------------------------
OTHER SECURITIES ALL
ANNUAL COMPENSATION ANNUAL UNDERLYING OTHER
--------------------- COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) ($) (#) ($)
- --------------------------- --------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Mitchell D. Eggers............... $213,684 $55,000 $12,000(1) -- --
Chief Executive Officer
William Balch.................... $236,642(2) -- -- -- --
Vice President of Marketing and
Sales
Robert H. Ellis.................. $182,268 $50,000 -- -- --
President
Michael Hogan.................... $159,421 $42,500 -- -- --
Chief Scientific Officer
Aleksandar Milosavljevic......... $116,711 $27,393 -- 100,000 --
Vice President of
Bioinformatics
</TABLE>
- ---------------
(1) Represents payment of tuition for an MBA program in which Mr. Eggers is
enrolled.
(2) Includes a lump sum severance payment of $54,642 in connection with Mr.
Balch's voluntary termination of employment, on September 17, 1999.
OPTION GRANTS IN FISCAL YEAR 1999
The following table presents the only stock option granted during the
fiscal year ended September 30, 1999 to an individual listed in the Summary
Compensation Table. The option was granted under our 1994 Stock Plan.
The potential realizable value is calculated based on the ten year term of
the option at the time of grant. Stock price appreciation of 0%, 5% and 10% is
assumed pursuant to the rules promulgated by the SEC and does not represent our
estimate of future stock price performance. The potential realizable values at
0%, 5% and 10% appreciation are calculated by:
- multiplying the number of shares of common stock under the option by
the assumed public offering price of $ per share;
- assuming that the aggregate stock value derived from that calculation
compounds at the annual 0%, 5% or 10% rate shown in the table until
the expiration of the option; and
- subtracting from the result the aggregate option exercise price.
The percentage shown under "Percentage of Total Options Granted to
Employees in 1999" is based on an aggregate of 618,900 options granted to our
employees, under our 1994 Stock Plan in Fiscal Year 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZATION
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERMS
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR (PER SHARE) DATE 0% 5% 10%
- ---- ---------- ------------- ----------- ---------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Aleksandar Milosavljevic................. 100,000(1) 16.2% $2.36 11/1/2008 $ $ $
Vice President of Bioinformatics
</TABLE>
- ---------------
(1) The option was 20% exercisable upon grant. The remaining 80,000 vests
annually over four years from November 1, 1998.
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<PAGE> 53
In addition to the information presented above, we granted the following
executive officers fully-exercisable options to purchase shares of common stock
at an exercise price of $3.00 per share in the month of December 1999: Mitchell
D. Eggers, Chief Executive Officer and Chairman of the Board, 15,000 shares;
Robert H. Ellis, President, 20,000 shares; Michael Hogan, Chief Scientific
Officer, 15,000 shares; and Aleksandar Milosavljevic, Vice President of
Bioinformatics, 15,583 shares. Further, we also granted the following executive
officers options to purchase shares of common stock at $3.00 per share on March
9, 2000: David E. Jorden, Vice President and Chief Financial Officer, 500,000
shares, vesting over four years; and Deval Lashkari, Vice President of Business
Development and Marketing, 125,000 shares, vesting over 27 months.
1999 OPTION VALUES
The following table presents the number and value of securities underlying
unexercised options that are held by each of the individuals listed in the
Summary Compensation Table as of September 30, 1999.
Amounts shown in the column "Value of Unexercised In-the-Money Options at
September 30, 1999" are based on an assumed initial public offering price of
$ , without taking into account any taxes that may be payable in
connection with the exercise price payable for these shares.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mitchell D. Eggers......................... -- -- -- --
William Balch.............................. 283,333 --
Robert H. Ellis............................ 220,000 600,000
Michael Hogan.............................. 283,333 566,667
Aleksandar Milosavljevic................... 20,000 80,000
</TABLE>
EMPLOYMENT AGREEMENTS; TERMINATION OF EMPLOYMENT; CHANGE IN CONTROL ARRANGEMENTS
We have not entered into employment agreements with any of our executive
officers. We have entered into consulting agreements with each member of the
scientific advisory board which continue unless terminated on thirty days'
notice of either party or for reasonable cause by us. We have also entered into
a consulting agreement with Bruce Peacock, a member of our board of directors,
which expired on February 1, 2000. To date, Mr. Peacock has been issued 10,593
shares of our common stock under this agreement for services he provided in
exploring sources of funding for our business and will be issued an additional
10,593 shares earned pursuant to this agreement in April 2000.
We entered into a severance agreement with William Balch, our former Vice
President of Sales and Marketing, on the date of his voluntary termination,
September 17, 1999. Pursuant to this agreement, Mr. Balch received a lump sum
payment of $71,193 including a payment for unused vacation time and a payment
for the exercise price of his vested options.
EMPLOYEE BENEFIT PLANS
1994 Stock Plan and 2000 Stock Plan
Our 1994 Stock Plan and 2000 Stock Plan were approved by our board of
directors and by our stockholders in 1995 and 2000, respectively. Under both
plans, we may grant incentive stock options and nonqualified stock options.
Options to purchase common stock under both plans generally vest over a period
of three years. A total of 8,300,000 and 5,000,000 shares of common stock have
been reserved for issuance under the 1994 Stock Plan and the 2000 Stock Plan,
respectively. As of March 10, 2000, 3,568,583 shares have been issued upon
exercise of options granted under the 1994 Stock Plan, 4,187,463 shares may be
issued upon the exercise of options outstanding and 543,954 shares are available
for future
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<PAGE> 54
issuance under the 1994 Stock Plan. No options have been granted under the 2000
Stock Plan. Shares subject to stock options that have expired or otherwise
terminated without having been exercised in full again become available for
grant of awards under both plans.
Upon completion of this offering, both the 1994 Stock Plan and the 2000
Stock Plan will be administered by our Compensation Committee. The Compensation
Committee will determine the terms of options granted pursuant to this plan,
including:
- the exercise price and the number of shares subject to each option;
- the vesting schedule for options;
- the termination or cancellation provisions applicable to options; and
- the conditions relating to our right to reacquire shares subject to
options.
The maximum term of options granted under each plan is ten years.
401(k) Plan
We maintain a retirement and deferred savings plan for our employees that
is intended to qualify as a tax-qualified plan under the Internal Revenue Code.
The 401(k) Plan provides that each participant may contribute up to 15% of the
employee's pre-tax compensation to the savings plan, subject to applicable
limitations under the law. We match 25% of every dollar contributed by an
employee up to a total contribution of 0.75% of the employee's monthly salary.
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<PAGE> 55
CERTAIN RELATED TRANSACTIONS
Stock Purchases. The following executive officers, directors or holders of
more than 5% of our voting securities purchased or received securities with a
value of $60,000 or more on the dates set forth below within the last three
years:
<TABLE>
<CAPTION>
SHARES OF CONVERTIBLE PREFERRED STOCK
----------------------------------------------------
PURCHASER SERIES C SERIES D SERIES E SERIES F
- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C>
DIRECTORS AND OFFICERS
David E. Jorden.......................... 50,000 85,000
Nicholas J. Naclerio..................... 706,714(1) 2,666,667(1)
FIVE PERCENT STOCKHOLDERS
Motorola, Inc. .......................... 706,714 2,666,667
1303 East Algonquin Road
11th Floor
Schaumburg, IL 60196
Fayez Sarofim............................ 106,000 886,550(2)
2907 Two Houston Center
Houston, TX 77010
Price Per Share.......................... $2.36 $2.83 $3.00 $3.00
Date(s) of Purchase...................... 9/3/98 12/28/98 7/6/99- 8/31/99-
1/13/00 1/31/00
</TABLE>
- ---------------
(1) Represents 706,714 shares of Series D Convertible Preferred Stock and
2,666,667 shares of Series E Convertible Preferred Stock held by Motorola, a
more than 5% stockholder. Mr. Naclerio is the designated representative of
Motorola on our board of directors. Mr. Naclerio disclaims beneficial
ownership of all such shares.
(2) Includes 443,275 shares held by FSI No. 2 Corporation. Fayez Sarofim is the
controlling stockholder of The Sarofim Group, Inc. which indirectly owns
more than 80% of the outstanding capital stock of FSI No. 2 Corporation.
Until February 29, 2000, David E. Jorden, our Vice President and Chief
Financial Officer, was a principal of Fayez Sarofim & Co.
Warrants. In addition to the stock purchases listed above, on August 31
and December 29, 1999, respectively, David E. Jorden, our Vice President and
Chief Financial Officer, purchased common stock warrants for 12,000 and 5,000
shares, respectively. These warrants were included in the units he purchased in
the first and second rounds of the Series F financing, respectively, for an
aggregate consideration of $255,000. Mr. Jorden also holds an immediately
exercisable call option for 7,500 of certain founders' shares issued in
connection with his investment in the Series F financing. Mr. Fayez Sarofim, a
more than 5% stockholder, purchased 66,433 and 22,222 of such common stock
warrants as part of units in the first and second rounds of the Series F
financing for an aggregate consideration of $1,329,825. FSI No. 2 Corporation,
an affiliate of Mr. Sarofim, also purchased 66,433 and 22,222 common stock
warrants as part of the Series F units for an aggregate consideration of
$1,329,825. In addition, Mr. Sarofim and FSI No. 2 Corporation each hold an
immediately exercisable call option for 33,333 shares issued in connection with
their investments in the Series F financing. Fayez Sarofim is the controlling
stockholder of The Sarofim Group, Inc. which indirectly owns more than 80% of
the outstanding capital stock of FSI No. 2 Corporation.
52
<PAGE> 56
Agreements and Transactions.
We have entered into the following related-party agreements and
transactions with our executive officers, directors and more than 5%
stockholders during the last three fiscal years.
1. The following six agreements relate to transactions with Motorola, Inc.,
a more than 5% stockholder. Nicholas J. Naclerio, one of our directors, is also
an officer of Motorola, Inc.
- On December 28, 1998, we entered into a Stock Purchase Agreement with
Motorola, Inc., pursuant to which Motorola purchased 706,714 shares
of our Series D Convertible Preferred Stock for an aggregate purchase
price of $2,000,000.
- On December 28, 1998, we entered into a License and Option Agreement
with Motorola pursuant to which we licensed certain owned patents and
patent applications in exchange for royalties and a license option
fee.
- On December 28, 1998, we entered into a Voting and Right of First
Refusal Agreement with Motorola pursuant to which Motorola has
certain first refusal rights on common stock owned by Mitchell D.
Eggers, our Chief Executive Officer, director and Chairman of the
Board.
- On July 6, 1999, we entered into a Stock Purchase Agreement with
Motorola pursuant to which Motorola purchased 1,666,667 shares of our
Series E Convertible Preferred Stock on July 6, 1999 and 1,000,000
shares of our Series E Convertible Preferred Stock on January 13,
2000 for an aggregate purchase price of $8,000,000.
- On July 6, 1999, we entered into a License and Research Agreement
with Motorola pursuant to which Motorola licensed additional rights
under certain of our patents and patent applications in exchange for
royalties and a licensing fee.
- On July 6, 1999, we entered into an Amended and Restated Registration
Rights Agreement with Motorola, pursuant to which Motorola has
certain demand, piggy-back and shelf-registration rights.
2. On September 3, 1998, we entered into an Amended and Restated
Registration Rights Agreement with our founders (including Mitchell D. Eggers
and Michael Hogan, each an executive officer and a director) and the holders of
Series A, Series B and Series C Preferred Stock, as well as the purchasers of
certain convertible notes in 1994 and 1996 and subsequent purchasers of Series F
Preferred Stock. Fayez Sarofim and Kenneth Nill, both more than 5% stockholders,
are parties to this agreement.
3. On July 4, 1994, we entered into a Stockholders' Agreement with Mitchell
D. Eggers, our Chief Executive Officer, Chairman of the Board and Director,
Kenneth Nill, a more than 5% stockholder, and certain other parties. This
agreement was amended in August 1997 and September 1998 and provides for certain
rights of first refusal and for their election to the Board of Directors. This
agreement will terminate upon completion of the offering except for certain
market-standoff provisions.
4. On July 1, 1998, we entered into a consulting agreement with Bruce
Peacock, one of our directors, pursuant to which Mr. Peacock has been issued
10,593 shares for services rendered in connection with his consulting agreement.
Mr. Peacock will be issued an additional 10,593 shares in April 2000 pursuant to
this agreement. This agreement terminated on February 1, 2000 and is not being
renewed.
5. On September 17, 1999 we entered into a Severance Agreement with William
Balch pursuant to which Mr. Balch received a lump sum severance payment due to
his voluntary resignation as our Vice President of Marketing and Sales in the
amount of $71,193 including a payment for unused vacation time and a payment for
the exercise price of his vested options.
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<PAGE> 57
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of January 31, 2000 and as adjusted to reflect
the sale of the shares of common stock in this offering, by:
- each executive officer named in the Summary Compensation Table;
- each of our directors;
- all of our current directors and executive officers as a group; and
- each person or group of affiliated persons known by us to own
beneficially more than five percent of our common stock.
Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting or investment power with respect to the securities. Shares
of common stock that may be acquired by an individual or group within 60 days of
January 31, 2000 pursuant to the exercise of options or warrants are deemed to
be outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person shown in the table.
Percentage of ownership is based on 20,606,147 shares of common stock
outstanding on January 31, 2000, which assumes the conversion of all outstanding
shares of preferred stock into common stock and shares of common
stock outstanding after the completion of this offering.
Except as indicated in footnotes to this table, we believe that the
stockholders named in this table have sole voting and investment power with
respect to all shares of common stock shown to be beneficially owned by them
based on information provided to us by such stockholders. Unless otherwise
indicated, the address for each director and executive officer listed is: c/o
Genometrix Incorporated, 2700 Research Forest Drive, The Woodlands, TX 77381.
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<PAGE> 58
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED AS OF JANUARY 31, 2000
<TABLE>
<CAPTION>
SHARES ISSUABLE
UNDER OPTIONS
OR WARRANTS PERCENTAGE OF
EXERCISABLE COMMON STOCK
NUMBER OF WITHIN BENEFICIALLY OWNED
SHARES 60 DAYS OF -------------------
BENEFICIALLY JANUARY 31, BEFORE AFTER
BENEFICIAL OWNER OWNED 2000 TOTAL OFFERING OFFERING
- ---------------- ------------ --------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS
Mitchell D. Eggers........ 5,912,300(1)(2) 16,000(3) 5,928,300(1)(2)(3) 28.7%
Robert H. Ellis........... 1,000 219,000 220,000 1.1%
William Balch............. 500,000 283,333 783,333 3.7%
Michael Hogan............. 975,000(4)(5) 298,333 1,273,333(4)(5) 6.1%
Aleksandar
Milosavljevic........... -- 55,583 55,583 *
C. Thomas Caskey.......... -- 10,000 10,000 *
Bruce Peacock............. 10,593 10,000 20,593 *
Nicholas J. Naclerio...... 3,373,381(6) -- 3,373,381(6) 16.4%
J. Evans Attwell.......... 88,895 17,779(7) 106,674
All current directors and
executive officers as a
group (12 persons)...... 10,996,169 927,028 11,923,197 55.4%
---------- ------- ---------- ==== ====
FIVE PERCENT OR MORE
STOCKHOLDERS
Motorola, Inc. ........... 3,373,381 -- 16.4%
1303 East Algonquin Road
Schaumburg, IL 60196
Kenneth Nill.............. 1,292,700(8) -- 1,292,700(8) 6.3%
16 Bennington Road
Lexington, MA 02173
Fayez Sarofim............. 992,550(9) 177,310(10)(11) 1,169,860(9)(10)(11) 5.6%
2907 Two Houston Center
Houston, TX 77010
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1% of our outstanding shares.
(1) Includes 5,000 shares held by Mr. Eggers' spouse. Mr. Eggers disclaims
beneficial ownership of such shares.
(2) Includes 100,000 shares subject to an immediately exercisable call option
held by certain other investors.
(3) Includes a warrant, held by Mr. Egger's spouse, to purchase 1,000 shares of
common stock. Mr. Egger's disclaims beneficial ownership of the shares
underlying such warrant.
(4) Includes 75,000 shares held by Mr. Hogan's daughter.
(5) Includes 13,336 shares subject to an immediately exercisable call option
held by certain other investors.
(6) Includes 443,275 shares held by FSI No. 2 Corporation. Fayez Sarofim is the
controlling stockholder of The Sarofim Group, Inc. which indirectly owns
more than 80% of the outstanding capital stock of FSI No. 2 Corporation.
(7) Does not include an immediately exercisable call option to purchase 6,668
of common stock from another investor.
(8) Includes 19,153 shares subject to an immediately exercisable call option
held by another investor.
(9) Includes 443,275 shares held by FSI No. 2 Corporation. Fayez Sarofim is the
controlling stockholder of The Sarofim Group, Inc. which indirectly owns
more than 80% of the outstanding capital stock of FSI No. 2 Corporation.
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<PAGE> 59
(10) Includes warrants to purchase 88,655 shares of common stock held by FSI No.
2 Corporation. Fayez Sarofim is the controlling stockholder of The Sarofim
Group, Inc. which indirectly owns more than 80% of the outstanding capital
stock of FSI No. 2 Corporation.
(11) Does not include an immediately exercisable call option to purchase 33,333
shares from Mr. Eggers held by each of Fayez Sarofim and FSI No. 2
Corporation.
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<PAGE> 60
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, we will be authorized to issue 75,000,000
shares of common stock, $.01 par value per share, and 6,000,000 shares of
preferred stock, $.01 par value per share, and there will be shares of
common stock and no shares of preferred stock outstanding. As of March 10, 2000,
we had 11,780,176 shares of common stock outstanding held of record by 35
stockholders, 8,941,674 shares of preferred stock outstanding held of record by
89 stockholders and there were outstanding options to purchase 4,187,463 shares
of common stock and outstanding warrants to purchase 919,544 shares of common
stock and warrants to purchase 235,710 shares of Series B Convertible preferred
stock which will be automatically converted into warrants to purchase an
equivalent number of common shares at the same exercise price upon completion of
the offering.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders and do not have
cumulative voting rights. Subject to preferences that may be applicable to any
outstanding shares of preferred stock, holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
our board of directors out of funds legally available for dividend payments. All
outstanding shares of common stock are fully paid and nonassessable and the
holders of common stock have no preferences or rights of conversion, exchange or
pre-emption.
PREFERRED STOCK
The preferred stock, if issued, would have priority over the common stock
with respect to dividends and other distributions, including the distribution of
assets upon liquidation. Our board of directors has the authority, without
further stockholder authorization, to issue from time to time shares of
preferred stock in one or more series and to fix the terms, limitations,
relative rights and preferences and variations of each series. Although we have
no present plans to issue any shares of preferred stock, the issuance of shares
of preferred stock, or the issuance of rights to purchase such shares, could
decrease the amount of earnings and assets available for distribution to the
holders of common stock, could adversely affect the rights and powers, including
voting rights, of the common stock and could have the effect of delaying,
deterring or preventing a change in control of Genometrix or an unsolicited
acquisition proposal.
OPTIONS
As of March 10, 2000, options to purchase a total of 4,187,463 shares of
common stock were outstanding at a weighted average exercise price of $1.95 per
share under our 1994 Stock Plan. No options have been granted under our 2000
Employee, Director and Consultant Stock Option Plan. Options to purchase an
additional 543,954 shares of common stock may be granted under the 1994 Stock
Plan and options to purchase 5,000,000 shares of common stock may be granted
under the 2000 Plan.
WARRANTS
We have outstanding warrants to purchase a total of 919,544 shares of our
common stock at a weighted average exercise price of $2.57 per share which may
be exercised prior to the completion of this offering. If not exercised on or
prior to the completion of this offering, these warrants will expire. In
addition, we have outstanding warrants to purchase a total of 235,710 shares of
our Series B Convertible Preferred Stock at an exercise price of $1.10 per share
issued in connection with certain notes, and that are exercisable for one year
after completion of the offering. The warrants contain anti-dilution provisions
providing for adjustments of the exercise price and the number of shares
underlying the warrants upon the occurrence of certain events, including any
recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transactions. All of the warrants are currently
exercisable.
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<PAGE> 61
REGISTRATION RIGHTS
The holders of the following shares of our common stock are entitled to
certain registration rights with respect to those shares. These registration
rights are subject to certain conditions and limitations, including the right of
the underwriters of an offering to limit the number of shares included in any
such registration under certain circumstances. All expenses incurred in
connection with registrations effected in connection with the following rights
will be borne by us, except underwriters' discounts and commissions in
connection with an underwritten offering.
Demand Rights. Beginning 180 days after completion of this offering, the
holders of at least 50% of the 3,373,381 shares of common stock to be issued
upon the conversion of the Series D and Series E Convertible Preferred Stock
with anticipated net proceeds to the holders of at least five million dollars
may request that we effect a registration statement of such stock. Upon such
request, we are obligated to use our best efforts to register such shares.
Stockholders with these registration rights who are not part of an initial
registration demand are entitled to notice and are entitled to include their
shares of common stock in the registration.
Piggyback Rights. If at any time after this offering we propose to
register any of our equity securities under the Securities Act, the holders of
9,195,388 shares of common stock and 919,544 shares of common stock issuable
upon the exercise of outstanding warrants are entitled to notice of such
registration and are entitled to include their common stock in the registration.
Shelf Registration Rights. In addition, holders of at least 30% of the
3,373,381 shares of common stock to be issued upon conversion of the Series D
and Series E Convertible Preferred may request that we register such shares on
Form S-3, provided that we are eligible to use this form. There is no limit to
the number of registrations on Form S-3 that we may be required to effect,
except that we will not be required to effect such a registration unless the
aggregate offering price of the shares to be registered, based on the then
current market price, is at least one million dollars. Stockholders with these
registration rights who are not part of an initial registration demand are
entitled to notice and are entitled to include their shares of common stock in
the registration.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The provisions of Delaware law and of our certificate of incorporation and
By-Laws to be effective upon completion of the offering discussed below could
discourage or make it more difficult to accomplish a proxy contest or other
change in our management or the acquisition of control by a holder of a
substantial amount of our voting stock. It is possible that these provisions
could make it more difficult to accomplish, or could deter, transactions that
stockholders may otherwise consider to be in their best interests or the best
interests of Genometrix.
Delaware Statutory Business Combinations Provision. We are subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporations
Law. In general, Section 203 prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is, or the
transaction in which the person became an interested stockholder was, approved
in a prescribed manner or another prescribed exception applies. For purposes of
Section 203, a "business combination" is defined broadly to include a merger,
asset sale or other transaction resulting in a financial benefit to the
interested stockholder, and, subject to certain exceptions, an "interested
stockholder" is a person who, together with his or her affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
Classified Board of Directors. Upon completion of this offering, our board
of directors will be divided into three classes as nearly equal in number as
possible. Each year the stockholders will elect the members of one of the three
classes to a three-year term of office. All directors elected to our classified
board of directors will serve until the election and qualification of their
respective successors or their earlier resignation or removal. The board of
directors is authorized to create new directorships and to fill such
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<PAGE> 62
positions so created and is permitted to specify the class to which any such new
position is assigned. The person filling such position would serve for the term
applicable to that class. The board of directors (or its remaining members, even
if less than a quorum) is also empowered to fill vacancies on the board of
directors occurring for any reason for the remainder of the term of the class of
directors in which the vacancy occurred. Members of the board of directors may
only be removed for cause. These provisions are likely to increase the time
required for stockholders to change the composition of the board of directors.
For example, in general, at least two annual meetings will be necessary for
stockholders to effect a change in a majority of the members of the board of
directors.
Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors. Our By-Laws provide that, for nominations to the
board of directors or for other business to be properly brought by a stockholder
before a meeting of stockholders, the stockholder must first have given timely
notice of the proposal in writing to our Secretary. For an annual meeting, a
stockholder's notice generally must be delivered not less than 45 days nor more
than 75 days prior to the anniversary of the mailing date of the proxy statement
for the previous year's annual meeting. For a special meeting, the notice must
generally be delivered by the later of 90 days prior to the special meeting or
ten days following the day on which public announcement of the meeting is first
made. Detailed requirements as to the form of the notice and information
required in the notice are specified in the By-Laws. If it is determined that
business was not properly brought before a meeting in accordance with our By-Law
provisions, such business will not be conducted at the meeting.
Special Meetings of Stockholders. Special meetings of the stockholders may
be called only by our board of directors pursuant to a resolution adopted by a
majority of the total number of directors.
No Stockholder Action by Written Consent. Our restated certificate of
incorporation to be effective upon completion of the offering does not permit
our stockholders to act by written consent. As a result, any action to be
effected by our stockholders must be effected at a duly called annual or special
meeting of the stockholders.
Super-Majority Stockholder Vote required for Certain Actions. The Delaware
General Corporation Law provides generally that the affirmative vote of a
majority of the shares entitled to vote on any matter is required to amend a
corporation's certificate of incorporation or bylaws, unless the corporation's
certificate of incorporation or bylaws, as the case may be, requires a greater
percentage. Our certificate of incorporation requires the affirmative vote of
the holders of at least 70% of our outstanding voting stock to amend or repeal
any of the provisions discussed in this section of this prospectus entitled
"Delaware Law and Certain Charter and By-law Provisions" or to reduce the number
of authorized shares of common stock or preferred stock. This 70% stockholder
vote would be in addition to any separate class vote that might in the future be
required pursuant to the terms of any preferred stock that might then be
outstanding. A 70% vote is also required for any amendment to, or repeal of, our
bylaws by the stockholders. Our bylaws may be amended or repealed by a simple
majority vote of the board of directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock will be .
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<PAGE> 63
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect market prices prevailing from time to time. Furthermore,
because only a limited number of shares will be available for sale shortly after
this offering due to existing contractual and legal restrictions on resale as
described below, there may be sales of substantial amounts of our common stock
in the public market after the restrictions lapse. This may adversely affect the
prevailing market price and our ability to raise equity capital in the future.
Upon completion of this offering, we will have shares of common
stock outstanding, assuming no exercise of options and warrants outstanding as
of and the conversion of all outstanding shares of preferred stock. Of
these shares, the shares sold in this offering will be freely
transferable without restriction or registration under the Securities Act,
except for any shares purchased by one of our existing "affiliates," as that
term is defined in Rule 144 under the Securities Act. The remaining
shares of common stock existing are "restricted shares" as defined in Rule 144.
Restricted shares may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144 or 701 of the
Securities Act. As a result of the contractual 180-day lock-up period described
below and the provisions of Rules 144 and 701, these shares will be available
for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- ----
<S> <C>
......................... On the date of this prospectus.
......................... After 90 days from the date of this prospectus.
......................... After 180 days from the date of this prospectus (subject, in
some cases, to volume limitations).
......................... At various times after 180 days from the date of this
prospectus (subject, in some cases, to volume limitations).
</TABLE>
Lock-Up Agreements. Motorola and our directors and executive officers and
the majority of our stockholders and option holders have each agreed not to
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock, for a period of 180 days after the date of this
prospectus, without the prior written consent of Lehman Brothers subject to
limited exceptions. Lehman Brothers, however, may in its sole discretion, at any
time without notice, release all or any portion of the shares subject to lock-up
agreements.
Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after this offering, a person, or persons whose shares are aggregated, who
owns shares that were purchased from us, or any affiliate, at least one year
previously, is entitled to sell within any three-month period a number of shares
that does not exceed the greater of 1% of our then-outstanding shares of common
stock, which will equal approximately shares immediately after this
offering, or the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a notice
of the sale on Form 144. Sales under Rule 144 are also subject to manner of sale
provisions, notice requirements and the availability of current public
information about us. Any person, or persons whose shares are aggregated who is
not deemed to have been one of our affiliates at any time during the three
months preceding a sale and who owns shares within the definition of "restricted
securities" under Rule 144 that were purchased from us, or any affiliate, at
least two years previously, would be entitled to sell shares under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements.
Rule 701. Subject to limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from us by our employees,
directors, officers or consultants prior to the date we become subject to the
reporting requirements of the Securities Exchange Act of 1934, or the Exchange
Act, under written compensatory
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<PAGE> 64
benefit plans or written contracts relating to the compensation of these
persons. In addition, the Securities and Exchange Commission has indicated that
Rule 701 will apply to typical stock options granted by an issuer before it
becomes subject to the reporting requirements of the Exchange Act, along with
the shares acquired upon exercise of the options, including exercises after the
date of this prospectus. Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this prospectus, may be sold by
persons other than affiliates subject only to the manner of sale provisions of
Rule 144 and by affiliates under Rule 144 without compliance with its minimum
holding period requirements.
Stock Options. As of March 10, 2000, options to purchase a total of
4,187,463 shares of common stock under our 1994 Stock Plan were outstanding and
exercisable. of the shares subject to options are subject to lock-up
agreements. No options have been granted under our 2000 Employee, Director and
Consultant Stock Option Plan. An additional 543,954 shares of common stock were
available for future option grants under the 1994 Stock Plan and options to
purchase 5,000,000 shares of common stock may be granted under the 2000 Plan.
Upon completion of this offering, we intend to file a registration
statement under the Securities Act covering all shares of common stock subject
to outstanding options or issuable pursuant to our 1994 Stock Plan and our 2000
Employee, Director and Consultant Stock Option Plan. Subject to Rule 144 volume
limitations applicable to affiliates, shares registered under any registration
statements will be available for sale in the open market, beginning 90 days
after the date of this prospectus, except to the extent that the shares are
subject to vesting restrictions with us or the contractual restrictions
described above.
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<PAGE> 65
UNDERWRITING
Under the underwriting agreement, which will be filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below, for whom Lehman Brothers Inc., Chase Securities Inc., Dain Rauscher
Incorporated and Thomas Weisel Partners LLC are acting as representatives, have
agreed to purchase from us the respective number of shares of common stock shown
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Lehman Brothers Inc. .......................................
Chase Securities Inc. ......................................
Dain Rauscher Incorporated..................................
Thomas Weisel Partners LLC..................................
Total.....................................................
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement and that if any of the shares of common
stock are purchased by the underwriters under the underwriting agreement, then
all of the shares of common stock which the underwriters have agreed to purchase
under the underwriting agreement must be purchased. The conditions contained in
the underwriting agreement include the requirement that the representations and
warranties made by us to the underwriters are true and that there is no material
change in the financial markets and that we deliver to the underwriters
customary closing documents.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by us. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
FULL
PAID BY GENOMETRIX INCORPORATED NO EXERCISE EXERCISE
- ------------------------------- ----------- --------
<S> <C> <C>
Per Share...................................................
Total.......................................................
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus and to dealers, who may include
the underwriters, at the public offering price less a selling commission not in
excess of $ per share. The underwriters may allow, and the dealers may
reallow, a concession not in excess of $ per share to brokers and dealers.
After the offering, the underwriters may change the offering price and other
selling terms.
We have granted the underwriters an option to purchase up to an aggregate
of additional shares of common stock, exercisable to cover
over-allotments, if any, at the public offering price less the underwriting
discounts and commissions shown on the cover page of this prospectus. The
underwriters may exercise this option at any time until 30 days after the date
of the underwriting agreement. If this option is exercised, each underwriter
will be committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of common stock
proportionate to the underwriter's initial commitment as indicated in the
preceding table and we will be obligated, under the over-allotment option, to
sell the shares of common stock to the underwriters.
Holders of the majority of our shares have agreed that, without the prior
consent of Lehman Brothers, such holders will not directly or indirectly offer,
sell or otherwise dispose of any shares of common stock or any securities which
may be converted into or exchanged for any such shares for the period ending 180
days after the date of this prospectus. All of our executive officers, directors
and certain other stockholders have agreed under lock-up agreements that,
without the prior consent of Lehman Brothers, they will not, directly or
indirectly, offer, sell, or otherwise dispose of any shares of common stock or
any
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<PAGE> 66
securities which may be converted into or exchanged for any such shares for the
period ending 180 days after the date of this prospectus. Please see "Shares
Eligible for Future Sale."
Prior to the offering, there has been no public market for the shares of
common stock. The initial public offering price has been negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions:
- our historical performance and capital structure;
- estimates of our business potential and earning prospects;
- an overall assessment of our management; and
- the consideration of the above factors in relation to market
valuation of companies in related businesses.
We have applied to the Nasdaq National Market for listing approval under
the symbol "GNMX".
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners has been named as a lead or co-manager on 138 filed
public offerings of equity securities, of which 102 have been completed, and has
acted as a syndicate member in an additional 75 public offerings of equity
securities. Thomas Weisel Partners does not have any material relationship with
us or any of our officers, directors or other controlling persons, except with
respect to its contractual relationship with us pursuant to the underwriting
agreement entered into in connection with this offering.
Mr. J. Evans Attwell, who has consented to be a director upon completion of
this offering, is also a director of Dain Rauscher Incorporated, one of the
representatives of the underwriters. Mr. J. Evans Attwell also owns stock of
Dain Rauscher which he purchased in the open market and restricted stock and
options which he received as part of his compensation as a director of Dain
Rauscher.
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act of 1933 and liabilities arising from
breaches of the representations and warranties contained in the underwriting
agreement and to contribute to payments that the underwriters may be required to
make for these liabilities.
We estimate that the total expenses of the offering excluding underwriting
discounts and commissions, will be approximately .
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representative are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create a
short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option. The underwriters have informed us that they do not intend to confirm
sales to discretionary accounts that exceed 5% of the total number of shares of
common stock offered by them.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
common stock in the open market to reduce the underwriters' short position or to
stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
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<PAGE> 67
In general, purchase of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
At our request, the underwriters have reserved up to % of the shares
of the common stock offered by this prospectus for sale to our officers,
directors, employees, consultants and their family members and to our business
associates at the initial public offering price set forth on the cover page of
this prospectus. The consultants that may participate in this directed share
program provide us with a variety of services, including engineering,
programming, finance and administration, recruiting, production and sales and
marketing services. These persons must commit to purchase no later than the
close of business on the date following the date of this prospectus. The number
of shares available for sale to the general public will be reduced to the extent
these persons purchase the reserved shares.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada where the
sale is made.
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter in this offering and will be
facilitating electronic distribution of information through the Internet,
intranet and other proprietary electronic technology.
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<PAGE> 68
LEGAL MATTERS
The validity of the issuance of the common stock offered by us in this
offering will be passed upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., Boston, Massachusetts. Legal matters in connection with this
offering will be passed upon for the underwriters by Bingham Dana LLP, Boston,
Massachusetts.
EXPERTS
The financial statements of Genometrix Incorporated as of September 30,
1998 and 1999 and for each of the three years in the period ended September 30,
1999 and for the period from May 28, 1993 (inception) through September 30,
1999, included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
The statements in this prospectus under the captions "Risk Factors -- we
may become involved in lawsuits to protect or enforce our patents . . .," "Risk
Factors -- the rights we rely upon to protect our intellectual property may not
be adequate . . .," "Risk Factors -- our success will depend partly on our
ability to operate without infringing on or misappropriating the proprietary
rights of others . . .," and "Business -- Intellectual Property," insofar as
they constitute summaries of patent law, have been included in this prospectus
in reliance on the review of Fish & Richardson, P.C. of San Diego, California,
given the authority of such firm as experts in patent and intellectual property
law.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act, with respect to the common stock offered by this prospectus.
This prospectus, which is part of the registration statement, omits certain
information, exhibits, schedules and undertakings set forth in the registration
statement. For further information pertaining to us and our common stock,
reference is made to the registration statement and the exhibits and schedules
to the registration statement. Statements contained in this prospectus as to the
contents or provisions of any documents referred to in this prospectus are not
necessarily complete, and in each instance where a copy of the document has been
filed as an exhibit to the registration statement, reference is made to the
exhibit for a more complete description of the matters involved.
You may read and copy all or any portion of the registration statement
without charge at the office of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of the registration statement may be obtained from the SEC at
prescribed rates from the Public Reference Section of the SEC at such address
and at the SEC's regional offices located at 7 World Trade Center, 13th Floor,
New York, New York 10048 and at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. In addition, registration statements and certain
other filings made with the SEC electronically are publicly available through
the SEC's Web site at http://www.sec.gov. The registration statement, including
all exhibits and amendments to the registration statement, has been filed
electronically with the SEC.
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GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of PricewaterhouseCoopers LLP, Independent
Accountants............................................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-7
Notes to Financial Statements............................... F-8
</TABLE>
<PAGE> 70
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Genometrix Incorporated:
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' equity and cash flows present fairly, in all
material respects, the financial position of Genometrix Incorporated (a
development stage company) at September 30, 1998 and 1999, and the results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1999 and for the period from May 28, 1993 (inception)
through September 30, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Houston, Texas
November 19, 1999
F-2
<PAGE> 71
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, PRO FORMA
------------------------- DECEMBER 31, DECEMBER 31,
1998 1999 1999 1999
----------- ----------- ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 1,683,715 $ 7,369,452 $ 6,545,328 $14,044,841
Accounts receivable.................... 409,527 250,179 577,992 577,992
Unbilled revenue....................... 191,911 133,334 133,334 133,334
Other current assets................... 11,731 106,941 49,906 49,906
----------- ----------- ----------- -----------
Total current assets................ 2,296,884 7,859,906 7,306,560 14,806,073
Property and equipment, net.............. 972,774 2,492,253 2,868,539 2,868,539
Intangible assets, net................... -- 262,736 302,864 302,864
Other assets............................. 9,206 105,900 105,900 105,900
----------- ----------- ----------- -----------
Total assets........................ $ 3,278,864 $10,720,795 $10,583,863 $18,083,376
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Convertible notes payable.............. $ -- $ 300,000 $ 300,000 $ --
Accounts payable....................... 484,680 322,626 366,831 366,831
Accrued liabilities.................... 96,728 788,882 485,847 485,847
Accrued interest payable............... -- 121,864 132,134 --
----------- ----------- ----------- -----------
Total current liabilities........... 581,408 1,533,372 1,284,812 852,678
Convertible notes payable................ 300,000 -- -- --
Accrued interest payable................. 81,295 -- -- --
Other liabilities........................ 73,557 18,337 18,337 18,337
Commitments and contingencies
Stockholders' equity:
Preferred stock........................ 1,297 5,204 5,801 --
Common stock, $.0001 par value,
36,000,000 shares authorized;
11,952,880, 12,463,473, 12,463,473
and 22,717,531 (unaudited) shares
issued at September 30, 1998 and
1999, December 31, 1999 and pro
forma December 31, 1999,
respectively and 11,152,880,
11,663,473, 11,663,473 and
21,917,531 (unaudited) shares
outstanding at September 30, 1998
and 1999, December 31, 1999 and pro
forma December 31, 1999,
respectively........................ 1,195 1,246 1,246 2,271
Additional paid-in capital............. 5,505,262 16,797,794 19,031,664 26,968,087
Deficit accumulated during the
development stage................... (3,265,070) (7,635,078) (9,507,381) (9,507,381)
Deferred stock-based compensation...... -- -- (250,536) (250,536)
Treasury stock, 800,000 shares at
cost................................ (80) (80) (80) (80)
----------- ----------- ----------- -----------
Total stockholders' equity.......... 2,242,604 9,169,086 9,280,714 17,212,361
----------- ----------- ----------- -----------
Total liabilities and stockholders'
equity............................ $ 3,278,864 $10,720,795 $10,583,863 $18,083,376
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 72
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
MAY 28, 1993
YEAR ENDED SEPTEMBER 30, (INCEPTION) TO
----------------------------------------- SEPTEMBER 30,
1997 1998 1999 1999
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Revenues:
Grant and contract research revenue....... $ 969,869 $ 1,467,291 $ 1,637,259 $ 5,626,715
Service revenue........................... 34,398 76,750 13,890 208,371
----------- ----------- ----------- -----------
1,004,267 1,544,041 1,651,149 5,835,086
----------- ----------- ----------- -----------
Costs and Expenses:
General and administrative (exclusive of
$54,786 related to amortization of
deferred stock-based compensation for
the three months ended December 31,
1999)................................... 533,442 1,412,162 3,513,953 6,937,780
Research and development (exclusive of
$127,835 related to amortization of
deferred stock-based compensation for
the three months ended December 31,
1999)................................... 634,852 1,434,505 2,603,101 5,958,379
Amortization of deferred stock-based
compensation expense.................... -- -- -- --
----------- ----------- ----------- -----------
1,168,294 2,846,667 6,117,054 12,896,159
----------- ----------- ----------- -----------
Net operating loss.......................... (164,027) (1,302,626) (4,465,905) (7,061,073)
Interest expense............................ (139,873) (417,237) -- (675,918)
Interest income............................. 35 5,204 95,897 101,913
----------- ----------- ----------- -----------
Net loss.................................... (303,865) (1,714,659) (4,370,008) (7,635,078)
Dividend related to beneficial conversion
feature of preferred stock................ -- -- -- --
----------- ----------- ----------- -----------
Net loss attributable to common
stockholders.............................. $ (303,865) $(1,714,659) $(4,370,008) $(7,635,078)
=========== =========== =========== ===========
Net loss per common share, basic and
diluted................................... $ (0.03) $ (0.16) $ (0.39)
=========== =========== ===========
Weighted-average common shares outstanding,
basic and diluted......................... 10,416,175 10,629,145 11,109,262
=========== =========== ===========
Pro forma net loss per common share
(unaudited)............................... $ (0.21)
===========
Pro forma weighted-average common shares
outstanding (unaudited)................... 21,224,113
===========
<CAPTION>
THREE MONTHS ENDED MAY 28, 1993
DECEMBER 31, (INCEPTION) TO
-------------------------- DECEMBER 31,
1998 1999 1999
----------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues:
Grant and contract research revenue....... $ 617,883 $ 234,011 $ 5,860,726
Service revenue........................... -- 255,000 463,371
----------- ----------- ------------
617,883 489,011 6,324,097
----------- ----------- ------------
Costs and Expenses:
General and administrative (exclusive of
$54,786 related to amortization of
deferred stock-based compensation for
the three months ended December 31,
1999)................................... 668,658 1,299,489 8,237,269
Research and development (exclusive of
$127,835 related to amortization of
deferred stock-based compensation for
the three months ended December 31,
1999)................................... 548,662 914,634 6,873,013
Amortization of deferred stock-based
compensation expense.................... -- 182,621 182,621
----------- ----------- ------------
1,217,320 2,396,744 15,292,903
----------- ----------- ------------
Net operating loss.......................... (599,437) (1,907,733) (8,968,806)
Interest expense............................ (8,740) (21,914) (697,832)
Interest income............................. 813 57,344 159,257
----------- ----------- ------------
Net loss.................................... (607,364) (1,872,303) (9,507,381)
Dividend related to beneficial conversion
feature of preferred stock................ -- (1,344,008) (1,344,008)
----------- ----------- ------------
Net loss attributable to common
stockholders.............................. $ (607,364) $(3,216,311) $(10,851,389)
=========== =========== ============
Net loss per common share, basic and
diluted................................... $ (.06) $ (0.28)
=========== ===========
Weighted-average common shares outstanding,
basic and diluted......................... 10,892,979 11,663,833
=========== ===========
Pro forma net loss per common share
(unaudited)............................... $ (0.08)
===========
Pro forma weighted-average common shares
outstanding (unaudited)................... 21,778,684
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 73
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE
------------------ ------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE
--------- ------ ---------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock at $.00025 per share... -- $ -- 8,000,000 $ 800 $ 1,200 $ --
Net loss for the year ended September 30,
1993.......................................... -- -- -- -- -- (1,368)
--------- ------ ---------- ------ ----------- ------------
Balance at September 30, 1993................... -- -- 8,000,000 800 1,200 (1,368)
Issuance of common stock warrants............... -- -- -- -- 100 --
Net loss for the year ended September 30,
1994.......................................... -- -- -- -- -- (163,144)
--------- ------ ---------- ------ ----------- ------------
Balance at September 30, 1994................... -- -- 8,000,000 800 1,300 (164,512)
Exercise of stock option........................ -- -- 2,300,000 230 345 --
Net loss for the year ended September 30,
1995.......................................... -- -- -- -- -- (393,570)
--------- ------ ---------- ------ ----------- ------------
Balance at September 30, 1995................... -- -- 10,300,000 1,030 1,645 (558,082)
Net loss for the year ended September 30,
1996.......................................... -- -- -- -- -- (688,464)
--------- ------ ---------- ------ ----------- ------------
Balance at September 30, 1996................... -- -- 10,300,000 1,030 1,645 (1,246,546)
Issuance of Series A Preferred Stock at $15 per
share, net of issuance costs.................. 39,868 40 -- -- 541,851 --
Issuance of Series A Preferred Stock at $15 per
share upon conversion of notes payable and
accrued interest.............................. 67,193 67 -- -- 1,007,828 --
Exercise of stock options....................... -- -- 482,360 48 4,775 --
Issuance of common stock in connection with
license agreement............................. -- -- 950,000 95 -- --
Issuance of common stock warrants............... -- -- -- -- 300 --
Gift of treasury stock.......................... -- -- -- -- 80 --
Net loss for the year ended September 30,
1997.......................................... -- -- -- -- -- (303,865)
--------- ------ ---------- ------ ----------- ------------
Balance at September 30, 1997................... 107,061 107 11,732,360 1,173 1,556,479 (1,550,411)
Issuance of Series B Preferred Stock at $22 per
share, net of issuance costs.................. 50,943 51 -- -- 1,029,043 --
Issuance of Series B Preferred Stock for
financial advisory services in connection with
the sale of related stock..................... 701 1 -- -- (1) --
Issuance of Series C Preferred Stock at $2.36
per share, net of issuance costs.............. 1,129,247 1,129 -- -- 2,536,792 --
Issuance of Series C Preferred Stock for
financial advisory services in connection with
the sale of related stock..................... 8,564 9 -- -- (9) --
Interest related to convertible notes payable to
be paid in preferred stock.................... -- -- -- -- 381,285 --
<CAPTION>
TREASURY STOCK
DEFERRED -----------------
COMPENSATION SHARES AMOUNT TOTAL
------------ -------- ------ -----------
<S> <C> <C> <C> <C>
Issuance of common stock at $.00025 per share... $ -- -- $ -- $ 2,000
Net loss for the year ended September 30,
1993.......................................... -- -- -- (1,368)
--------- -------- ---- -----------
Balance at September 30, 1993................... -- -- -- 632
Issuance of common stock warrants............... -- -- -- 100
Net loss for the year ended September 30,
1994.......................................... -- -- -- (163,144)
--------- -------- ---- -----------
Balance at September 30, 1994................... -- -- -- (162,412)
Exercise of stock option........................ -- -- -- 575
Net loss for the year ended September 30,
1995.......................................... -- -- -- (393,570)
--------- -------- ---- -----------
Balance at September 30, 1995................... -- -- -- (555,407)
Net loss for the year ended September 30,
1996.......................................... -- -- -- (688,464)
--------- -------- ---- -----------
Balance at September 30, 1996................... -- -- -- (1,243,871)
Issuance of Series A Preferred Stock at $15 per
share, net of issuance costs.................. -- -- -- 541,891
Issuance of Series A Preferred Stock at $15 per
share upon conversion of notes payable and
accrued interest.............................. -- -- -- 1,007,895
Exercise of stock options....................... -- -- -- 4,823
Issuance of common stock in connection with
license agreement............................. -- -- -- 95
Issuance of common stock warrants............... -- -- -- 300
Gift of treasury stock.......................... -- (800,000) (80) --
Net loss for the year ended September 30,
1997.......................................... -- -- -- (303,865)
--------- -------- ---- -----------
Balance at September 30, 1997................... -- (800,000) (80) 7,268
Issuance of Series B Preferred Stock at $22 per
share, net of issuance costs.................. -- -- -- 1,029,094
Issuance of Series B Preferred Stock for
financial advisory services in connection with
the sale of related stock..................... -- -- -- --
Issuance of Series C Preferred Stock at $2.36
per share, net of issuance costs.............. -- -- -- 2,537,921
Issuance of Series C Preferred Stock for
financial advisory services in connection with
the sale of related stock..................... -- -- -- --
Interest related to convertible notes payable to
be paid in preferred stock.................... -- -- -- 381,285
</TABLE>
F-5
<PAGE> 74
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE
------------------ ------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE
--------- ------ ---------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Exercise of stock options....................... -- -- 169,520 17 1,678 --
Issuance of common stock for financial advisory
services in connection with the issuance of
Series C Preferred Stock...................... -- -- 51,000 5 (5) --
Net loss for the year ended September 30,
1998.......................................... -- -- -- -- -- (1,714,659)
--------- ------ ---------- ------ ----------- ------------
Balance at September 30, 1998................... 1,296,516 1,297 11,952,880 1,195 5,505,262 (3,265,070)
Issuance of Series C Preferred Stock for
financial advisory services in connection with
the sale of related stock..................... 36,000 36 -- -- (36) --
Issuance of Series D Preferred Stock at $2.83
per share, net of issuance costs.............. 706,714 707 -- -- 1,965,186 --
Issuance of Series E Preferred Stock at $3.00
per share, net of issuance costs.............. 1,666,667 1,666 -- -- 4,966,573 --
Issuance of Series F Preferred Stock and common
warrants at $3.00 per share, net of issuance
costs......................................... 1,481,670 1,481 -- -- 4,283,006 --
Interest related to convertible notes payable to
be paid in preferred stock.................... -- -- -- -- 40,536 --
Exercise of stock options....................... -- -- 500,000 50 4,950 --
Issuance of common stock in connection with a
consulting agreement.......................... -- -- 10,593 1 25,848 --
Issuance of options to scientific advisors...... -- -- -- -- 6,486 --
Net loss for the year ended September 30,
1999.......................................... -- -- -- -- -- (4,370,008)
Issuance of Series F Preferred Stock for
financial advisory services in connection with
the sale of related stock..................... 16,667 17 -- -- (17) --
--------- ------ ---------- ------ ----------- ------------
Balance at September 30, 1999................... 5,204,234 5,204 12,463,473 1,246 16,797,794 (7,635,078)
Issuance of Series F Preferred Stock and common
stock warrants at $3.00 per share
(unaudited)................................... 597,000 597 -- -- 1,790,403 --
Beneficial conversion feature related to
issuance of Series F Convertible Preferred
Stock (unaudited)............................. -- -- -- -- 1,344,008 --
Amortization of beneficial conversion feature of
Series F Convertible Preferred Stock.......... -- -- -- -- (1,344,008) --
Interest related to convertible notes payable to
be paid in preferred stock (unaudited)........ -- -- -- -- 10,310 --
Deferred stock-based compensation (unaudited)... -- -- -- -- 433,157 --
Amortization of deferred stock-based
compensation.................................. -- -- -- -- -- --
Net loss for the three months ended December 31,
1999 (unaudited).............................. -- -- -- -- -- (1,872,303)
--------- ------ ---------- ------ ----------- ------------
Balance at December 31, 1999 (unaudited)........ 5,801,234 $5,801 12,463,473 $1,246 $19,031,664 $ (9,507,381)
========= ====== ========== ====== =========== ============
<CAPTION>
TREASURY STOCK
DEFERRED -----------------
COMPENSATION SHARES AMOUNT TOTAL
------------ -------- ------ -----------
<S> <C> <C> <C> <C>
Exercise of stock options....................... -- -- -- 1,695
Issuance of common stock for financial advisory
services in connection with the issuance of
Series C Preferred Stock...................... -- -- -- --
Net loss for the year ended September 30,
1998.......................................... -- -- -- (1,714,659)
--------- -------- ---- -----------
Balance at September 30, 1998................... (800,000) (80) 2,242,604
Issuance of Series C Preferred Stock for
financial advisory services in connection with
the sale of related stock..................... -- -- -- --
Issuance of Series D Preferred Stock at $2.83
per share, net of issuance costs.............. -- -- -- 1,965,893
Issuance of Series E Preferred Stock at $3.00
per share, net of issuance costs.............. -- -- -- 4,968,239
Issuance of Series F Preferred Stock and common
warrants at $3.00 per share, net of issuance
costs......................................... -- -- -- 4,284,487
Interest related to convertible notes payable to
be paid in preferred stock.................... -- -- -- 40,536
Exercise of stock options....................... -- -- -- 5,000
Issuance of common stock in connection with a
consulting agreement.......................... -- -- -- 25,849
Issuance of options to scientific advisors...... -- -- -- 6,486
Net loss for the year ended September 30,
1999.......................................... -- -- -- (4,370,008)
Issuance of Series F Preferred Stock for
financial advisory services in connection with
the sale of related stock..................... -- -- -- --
--------- -------- ---- -----------
Balance at September 30, 1999................... -- (800,000) (80) 9,169,086
Issuance of Series F Preferred Stock and common
stock warrants at $3.00 per share
(unaudited)................................... -- -- -- 1,791,000
Beneficial conversion feature related to
issuance of Series F Convertible Preferred
Stock (unaudited)............................. -- -- -- 1,344,008
Amortization of beneficial conversion feature of
Series F Convertible Preferred Stock.......... -- -- -- (1,344,008)
Interest related to convertible notes payable to
be paid in preferred stock (unaudited)........ -- -- -- 10,310
Deferred stock-based compensation (unaudited)... (433,157) -- -- --
Amortization of deferred stock-based
compensation.................................. 182,621 -- -- 182,621
Net loss for the three months ended December 31,
1999 (unaudited).............................. -- -- -- (1,872,303)
--------- -------- ---- -----------
Balance at December 31, 1999 (unaudited)........ $(250,536) (800,000) $(80) $(9,280,714)
========= ======== ==== ===========
</TABLE>
F-6
<PAGE> 75
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
MAY 28, 1993 THREE MONTHS ENDED MAY 28, 1993
YEAR ENDED SEPTEMBER 30, (INCEPTION) TO DECEMBER 31, (INCEPTION) TO
------------------------------------- SEPTEMBER 30, ------------------------ DECEMBER 31,
1997 1998 1999 1999 1998 1999 1999
--------- ----------- ----------- -------------- ---------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss..................... $(303,865) $(1,714,659) $(4,370,008) $(7,635,078) $ (607,364) $(1,872,303) $(9,507,381)
--------- ----------- ----------- ----------- ---------- ----------- -----------
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization............. 29,394 49,588 127,552 247,029 22,717 83,402 330,431
Issuance of common stock in
connection with license
agreement................ 95 -- -- 95 -- -- 95
Amortization of deferred
stock-based compensation
expense.................. -- -- -- -- -- 182,621 182,621
Non cash interest
expense.................. -- 381,285 40,536 421,821 10,310 432,131
Issuance of common stock
for consulting
services................. -- -- 25,849 25,849 -- -- 25,849
Issuance of options to
scientific advisors...... -- -- 6,486 6,486 -- -- 6,486
Increase (decrease) in cash
relating to change in:
Accounts receivable...... (172,129) (143,423) 159,348 (250,179) 292,487 (327,814) (577,993)
Unbilled revenue......... -- (191,911) 58,577 (133,334) (242,439) -- (133,334)
Other current assets..... 480 (1,812) (95,210) (106,941) 3,519 57,035 (49,906)
Other assets............. 3,352 -- (96,694) (105,900) -- -- (105,900)
Accounts payable......... 56,982 347,452 (162,054) 322,626 (21,029) 44,209 366,835
Accrued liabilities...... (11,181) 64,517 692,154 788,882 41,594 (303,038) 485,844
Accrued interest
payable................ 134,867 35,618 40,569 329,759 8,531 10,270 340,029
Other liabilities........ -- (33,851) (55,220) 18,337 (16,926) -- 18,337
--------- ----------- ----------- ----------- ---------- ----------- -----------
Total adjustments........ 41,860 507,463 741,893 1,564,530 88,454 (243,005) 1,321,525
--------- ----------- ----------- ----------- ---------- ----------- -----------
Net cash used in
operating activities... (262,005) (1,207,196) (3,628,115) (6,070,548) (518,910) (2,115,308) (8,185,856)
--------- ----------- ----------- ----------- ---------- ----------- -----------
Cash flows from investing
activities:
Additions to patents and
license agreements......... -- -- (266,070) (266,070) -- (52,669) (318,739)
Capital expenditures....... (20,550) (976,084) (1,643,697) (2,735,948) (520,013) (447,147) (3,183,095)
--------- ----------- ----------- ----------- ---------- ----------- -----------
Net cash used in
investing activities... (20,550) (976,084) (1,909,767) (3,002,018) (520,013) (499,816) (3,501,834)
--------- ----------- ----------- ----------- ---------- ----------- -----------
Cash flows from financing
activities:
Proceeds from short-term
borrowing................ 76,050 -- -- 76,050 -- -- 76,050
Payment of short-term
borrowing................ (76,050) -- -- (76,050) -- -- (76,050)
Proceeds from issuance of
long-term debt........... -- -- -- 1,100,000 -- -- 1,100,000
Proceeds from issuance of
preferred stock, net of
issuance costs........... 541,891 3,567,015 11,218,619 15,327,525 2,000,001 1,791,000 17,118,525
Proceeds from issuance of
common stock............. 4,823 1,695 5,000 14,093 -- -- 14,093
Proceeds from issuance of
common stock warrants.... 300 -- -- 400 -- -- 400
--------- ----------- ----------- ----------- ---------- ----------- -----------
Net cash provided by
financing activities... 547,014 3,568,710 11,223,619 16,442,018 2,000,001 1,791,000 18,233,018
--------- ----------- ----------- ----------- ---------- ----------- -----------
Net increase (decrease) in
cash and cash
equivalents................ 264,459 1,385,430 5,685,737 7,369,452 961,078 (824,124) 6,545,328
Cash and cash equivalents at
beginning of period........ 33,826 298,285 1,683,715 -- 1,683,715 7,369,452 --
--------- ----------- ----------- ----------- ---------- ----------- -----------
Cash and cash equivalents at
end of period.............. $ 298,285 $ 1,683,715 $ 7,369,452 $ 7,369,452 $2,644,793 $ 6,545,328 $ 6,545,328
========= =========== =========== =========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 76
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Genometrix Incorporated (the "Company") was founded in 1993 to provide
on-line, high-throughput genomic services to assist pharmaceutical and
biotechnology companies in their efforts to develop safer, personalized
therapeutic drugs. The Company has operated as a development stage company since
its inception by devoting substantially all of its efforts to financial
planning, raising capital, research and development and commercializing its
offered services. As discussed in Note 11, the Company changed its name on March
10, 2000 to Genometrix Genomics Incorporated.
Following is a summary of the Company's significant accounting policies.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include all
highly liquid investments purchased with a maturity date of three months or
less.
Property and Equipment
Property and equipment are recorded at cost. Depreciation of property and
equipment is provided using the straight-line method over the estimated useful
lives of the depreciable assets, which range from three years for office and
computer equipment to seven years for furniture and lab equipment. Additions or
improvements that increase the value or extend the life of an asset are
capitalized. Expenditures for normal maintenance and repairs are expensed as
incurred. Disposals are removed from the accounts at cost less accumulated
depreciation, and any gain or loss from disposition is reflected in operations.
Interest costs related to construction of assets for internal use are
capitalized. Capitalized interest is amortized over the estimated useful lives
of the related assets.
Intangible Assets
Intangible assets include patents and patent license agreements and are
amortized using the straight-line method over their estimated useful lives of
five years.
Impairment of Long-Lived Assets
The Company periodically assesses the carrying value of its long-lived
assets and certain identifiable intangible assets when events or circumstances
indicate that the carrying value of such assets may not be recoverable.
Recoverability is assessed by comparison of an asset's carrying value to the
undiscounted future cash flows expected to be generated by that asset. In the
event that the Company determines that an asset's carrying value is not
recoverable, the amount of impairment is measured based on the fair value of the
asset. No impairment losses have been recorded through September 30, 1999.
Income Taxes
The Company uses the liability method of accounting for income taxes. Under
this method, deferred income taxes are recorded to reflect the tax consequences
on future years of temporary differences between the tax basis of assets and
liabilities and their financial amounts at year end. A valuation allowance is
provided, if necessary, to reduce any resulting deferred tax assets to their net
realizable value.
Segment Reporting
Statement of Financial Accounting Standards No. 131, "Disclosure About
Segments of an Enterprise and Related Information" requires that segments be
identified based on a management approach.
F-8
<PAGE> 77
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Accordingly, management of the Company has determined that the Company operates
in one business segment. All long-lived assets are located in the United States.
Revenue Recognition
Research grant and contract revenue is recognized in income as the related
work is performed and realization is assured. Fee-for-service revenue is
recognized as services are performed in accordance with the specific provisions
of each contract and realization is assured. Payments received in advance of
performance are deferred and recognized systematically as the related services
are rendered.
Research and Development
Costs of research and development for government and Company-sponsored
projects are expensed as incurred. These costs consist of direct costs
associated with specific projects.
Stock-Based Compensation
The Company accounts for stock-based compensation to employees and members
of the Board of Directors in accordance with the provisions of Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees".
Compensation expense is recorded to the extent that the fair value of the
underlying stock exceeds the purchase or exercise price on the date of grant.
Any deferred compensation expense is recognized over the applicable vesting
period.
Transactions with non-employees in which equity instruments are issued in
consideration for goods or services are accounted for in accordance with the
fair value basis set forth by Statement of Financial Accounting Standards No.
123 ("SFAS No. 123") "Accounting for Stock-Based Compensation".
Net Loss per Share
Net loss per share is calculated in accordance with the provisions of
Statement of Financial Accounting Standards No. 128 "Earnings per Share". Basic
net loss per share is calculated by dividing the net loss for the period by the
weighted-average number of common shares outstanding during the period. Because
of their anti-dilutive effect, securities consisting of common shares issuable
upon the exercise of stock options and warrants and shares issuable upon the
conversion of convertible debt and convertible preferred stock have been
excluded from the calculation of historical diluted net loss per share.
Net loss attributable to common stockholders reflects dividends deemed to
have been recognized as a result of the beneficial conversion feature derived
from the Series F Convertible Preferred Stock issued during the three months
ended December 31, 1999 (Note 11).
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the 1997 and 1998 and from May 28, 1993 (inception) to
September 30, 1999 financial statements have been reclassified to conform to the
current year presentation.
F-9
<PAGE> 78
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Interim Financial Information
The interim financial statements as of December 31, 1999, for the three
months ended December 31, 1998 and 1999 and for the period from May 28, 1993
(inception) to December 31, 1999 are unaudited and have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company's management, the unaudited interim financial
statements contain all adjustments, all of which are of a normal recurring
nature, that are considered necessary for a fair presentation. The results of
operations for the interim periods are not necessarily indicative of the results
for the entire fiscal year.
Unaudited Pro Forma Information
If the Company's initial public offering as described in Note 11 is
consummated, all preferred stock outstanding, convertible notes payable and
accrued interest will automatically convert into common stock. The pro forma
balance sheet at December 31, 1999 has been adjusted for the assumed conversion
of preferred stock outstanding as of December 31, 1999 into 7,229,579 shares of
common stock, the conversion of notes payable and accrued interest into 392,840
shares of common stock and the exercise of 777,125 common stock warrants
outstanding as of December 31, 1999. The common stock warrants would have
otherwise expired upon completion of the initial public offering. The pro forma
balance sheet also reflects: (i) the issuance of 1,000,000 shares of Series E
Convertible Preferred Stock on January 13, 2000 and 712,095 shares of Series F
Convertible Preferred Stock on January 31, 2000 for aggregate proceeds of
$5,136,285 and their assumed conversion into 1,712,095 shares of common stock;
and (ii) the issuance and assumed exercise of 142,419 common stock warrants
granted in January 2000.
The calculation of pro forma net loss per share includes shares issuable
upon the conversion of convertible preferred stock and notes payable and the
exercise of common stock warrants using the as-if converted method from the
beginning of each period presented. The interest expense on convertible notes
payable and the dividend related to the beneficial conversion feature have also
been removed for purposes of calculating pro forma net loss attributable to
common stockholders for the three months ended December 31, 1999. There was no
pro-forma interest expense adjustment made for the year ended September 30, 1999
because all interest incurred during that period was capitalized. A
reconciliation of pro forma net loss and pro forma shares used in the
calculations is as follows:
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
Net loss attributable to common stockholders................ $(4,370,008) $(3,216,311)
Dividend related to beneficial conversion feature of
preferred stock........................................... -- 1,344,008
Interest related to convertible notes payable and accrued
interest.................................................. -- 21,914
----------- -----------
Pro forma net loss attributable to common stockholders...... $(4,370,008) $(1,850,389)
=========== ===========
Weighted-average shares used in calculating basic and
diluted net loss per share................................ 11,109,262 11,663,833
Adjustment to reflect the weighted-average effect of assumed
conversion of preferred stock and convertible notes and
the exercise of warrants (unaudited)...................... 10,114,851 10,114,851
----------- -----------
Weighted-average shares used in pro forma basic and diluted
net loss per share (unaudited)............................ 21,224,113 21,778,684
=========== ===========
</TABLE>
F-10
<PAGE> 79
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
No. 133 requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of relationship that exists. The
Company, to date, has not engaged in derivative or hedging activities.
In December 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101") which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. The Company's
revenue recognition policy is in compliance with the provisions of SAB 101.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1998 1999
--------- ----------
<S> <C> <C>
Office and computer equipment............................... $ 139,493 $ 377,793
Lab equipment............................................... 262,172 344,083
Office furniture............................................ 61,044 102,529
--------- ----------
462,709 824,405
Less accumulated depreciation............................... (119,477) (243,695)
Equipment work in process................................... 629,542 1,911,543
--------- ----------
$ 972,774 $2,492,253
========= ==========
</TABLE>
The Company constructed one major array imaging instrument for use in its
operations during fiscal year 1999 and is in the process of constructing two
others. There was no interest capitalized during fiscal years 1997 and 1998. In
1999, approximately $104,000 of interest cost was capitalized.
3. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1998 1999
------- --------
<S> <C> <C>
Bonus....................................................... $ -- $344,734
Payroll..................................................... 51,370 161,560
Commissions................................................. -- 150,000
Vacation.................................................... 27,337 78,882
Other....................................................... 18,021 53,706
------- --------
$96,728 $788,882
======= ========
</TABLE>
F-11
<PAGE> 80
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. CONVERTIBLE NOTES AND ACCRUED INTEREST PAYABLE:
Long-term debt consists of uncollateralized convertible notes payable
bearing interest at prime (8.49% and 8.25% at September 30, 1998 and 1999,
respectively) plus 2%. The notes and related interest are payable in a single
installment on July 6, 2001. Under the terms of the note agreements, the notes
and any interest accrued thereon were to become convertible into convertible
preferred stock at the option of the note holders only upon the closing of a
financing transaction with aggregate gross proceeds of at least $750,000 (the
"Financing"). Upon the occurrence of the Financing, the note agreements provided
for the notes and accrued interest to be convertible into convertible preferred
stock at a price per share equal to 50% of the price per share paid by the
purchasers in the Financing.
Upon the issuance of the Series B Convertible Preferred Stock in February
1998, the notes and accrued interest became convertible into Series B
Convertible Preferred Stock at a price per share of $11. The Company recognized
additional interest expense related to the beneficial conversion feature of the
notes totaling approximately $381,000 and $41,000 for the years ended September
30, 1998 and 1999, respectively. This resulted in an effective annual interest
rate of 115% and 20% for the years ended September 30, 1998 and 1999,
respectively. The notes will automatically convert to shares of common stock
upon the completion of an initial public offering as described in Note 11.
Among other provisions, the note agreements contain a covenant that
requires the Company to submit audited financial statements to the note holders
within 120 days of year-end. The Company is currently not in compliance with
this requirement, and the note holders have not granted a waiver. The note
agreements provide that the note holders may call the notes in the event of a
covenant violation; accordingly, the notes payable and related accrued interest
have been classified as current in the September 30, 1999 and December 31, 1999
balance sheets.
5. FEDERAL INCOME TAXES:
Due to the Company's loss position, there was no provision for income taxes
for the years ended September 30, 1997, 1998 or 1999.
The tax effects of temporary differences and loss carryforwards that give
rise to deferred tax assets and liabilities and the valuation allowance were as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Property and equipment.................................... $ 16,376 $ --
Organization costs........................................ 266,887 207,579
Net operating losses...................................... 805,940 2,366,743
----------- -----------
Total deferred tax assets............................... 1,089,203 2,574,322
Property and equipment.................................... -- (2,402)
----------- -----------
Total deferred tax liabilities.......................... -- (2,402)
Net deferred tax asset.................................... 1,089,203 2,571,920
Valuation allowance....................................... (1,089,203) (2,571,920)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
Based upon the weight of available evidence, which includes the Company's
historical operating performance and the reported cumulative net losses in all
prior years, the Company has provided a full valuation allowance against its net
deferred tax assets as the company does not consider it more likely than
F-12
<PAGE> 81
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
not that the deferred tax asset will be realized. The valuation allowance
increased by $102,519, $581,979 and $1,482,717 during 1997, 1998 and 1999,
respectively.
The Company has federal net operating loss carryforwards which, if not
utilized, will expire as follows:
<TABLE>
<S> <C>
2009..................................................... $ 39,553
2010..................................................... 379,182
2011..................................................... 307,835
2012..................................................... 235,882
2018..................................................... 1,407,959
2019..................................................... 4,590,597
----------
$6,961,008
==========
</TABLE>
Utilization of the net operating losses may be subject to a substantial
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses before utilization.
6. STOCKHOLDERS' EQUITY:
Common Stock
In February 1997 the Board of Directors authorized a stock split whereby
each share of the then outstanding common stock was exchanged for 10,000 shares
of common stock. The Board of Directors authorized an additional stock split in
May 1998 whereby each share of outstanding common stock was exchanged for 10
shares of common stock. Common stock, additional paid-in capital and all options
and warrants to convert to common stock have been retroactively restated for all
periods presented to reflect these changes in the capital structure. Common
stock reserved for warrants outstanding and the conversion of preferred stock
totaled 657,725 shares and 6,632,578 shares, respectively, at September 30,
1999.
Preferred Stock
The Company is authorized to issue 13,000,000 shares of Preferred Stock.
The following table summarizes information regarding the various designations of
Preferred Stock at September 30, 1998
and 1999:
<TABLE>
<CAPTION>
SHARES ISSUED AND
OUTSTANDING
SEPTEMBER 30,
PAR SHARES --------------------- LIQUIDATION
VALUE AUTHORIZED 1998 1999 PREFERENCE
------ ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Series A Convertible Preferred Stock.......... $0.001 125,000 107,061 107,061 $ 1,806,654
Series B Convertible Preferred Stock.......... 0.001 200,000 51,644 51,644 1,238,423
Series C Convertible Preferred Stock.......... 0.001 1,200,000 1,137,811 1,173,811 2,950,257
Series D Convertible Preferred Stock.......... 0.001 706,714 -- 706,714 2,090,001
Series E Convertible Preferred Stock.......... 0.001 2,666,667 -- 1,666,667 5,075,001
Series F Convertible Preferred Stock.......... 0.001 4,000,000 -- 1,498,337 4,517,486
Preferred Stock (undesignated)................ 0.001 4,101,619 -- -- --
---------- --------- --------- -----------
13,000,000 1,296,516 5,204,234 $17,677,822
========== ========= ========= ===========
</TABLE>
Each share of Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock is convertible into ten shares of common stock. Each share of
Series C Convertible Preferred Stock, Series D
F-13
<PAGE> 82
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Convertible Preferred Stock, Series E Convertible Preferred Stock and Series F
Convertible Preferred Stock is convertible into one share of common stock. All
Preferred Stock is non-cumulative and voting. No cash dividends were paid for
the fiscal years ended September 30, 1997, 1998 and 1999.
All shares of preferred stock will automatically convert to common stock
upon completion of an initial public offering as discussed in Note 11.
Stock Purchase Warrants
The Company issued warrants for the purchase of common stock in connection
with the issuance of various series of preferred stock, the conversion of
certain convertible notes payable and in connection with related financial
advisory agreements. The following table summarizes warrants outstanding as of
September 30, 1999:
<TABLE>
<CAPTION>
NUMBER OF
STOCK SHARES EXERCISE EXPIRATION
GRANT DATE CLASSIFICATION EXERCISABLE PRICE DATES
- ---------- -------------- ----------- -------- --------------
<S> <C> <C> <C> <C>
August 1997...................... Common 234,040 $1.50 August 2000
March 1998....................... Common 26,210 $2.20 August 2002
September 1998................... Common 31,141 $2.36 September 2002
August 1999...................... Common 299,667 $3.00 August 2001
August 1999...................... Common 66,667 $3.00 August 2003
-------
657,725
=======
</TABLE>
All of the above warrants will expire upon the dates noted above or upon
the completion of an initial public offering as described in Note 11. During the
year ended September 30, 1999 84,000 preferred stock warrants and 16,800 common
stock warrants expired.
Stock Plan
In February 1995 the Company established the 1994 Stock Plan, which
provides for the issuance of up to 6,500,000 shares of common stock to
employees, directors and certain consultants of the Company. Shares may be
issued as incentive stock options, non-qualified stock options or purchase
opportunities. The exercise price of incentive stock options granted under the
plan is to be greater than or equal to the fair value of the common stock at the
date of grant. The incentive stock options are exercisable over a period not to
exceed ten years from the date of grant. The option price and purchase price of
non-qualified stock options and purchase opportunities are to be not less than
the par value of the common stock at the date of grant. The non-qualified stock
options and purchase opportunities are exercisable as determined by each stock
option agreement. Options granted under the 1994 Stock Plan vest over periods up
to five years.
F-14
<PAGE> 83
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of changes in common stock options is as follows:
<TABLE>
<CAPTION>
STOCK SHARES ISSUABLE WEIGHTED
OPTIONS UNDER AVERAGE
AVAILABLE OUTSTANDING EXERCISE PRICE
FOR ISSUE OPTIONS PER SHARE
---------- --------------- --------------
<S> <C> <C> <C>
Balance at Inception, May 28, 1993 and at
September 30, 1993
Options authorized........................ 2,800,000 -- $ --
Options granted........................... (500,000) 500,000 .00025
---------- ---------- -------
Balance at September 30, 1994............... 2,300,000 500,000 .00025
Options granted........................... (1,800,000) 1,800,000 .00025
Options exercised......................... -- (2,300,000) .00025
---------- ---------- -------
Balance at September 30, 1995 and 1996...... 500,000 -- --
Options granted........................... (1,212,000) 1,212,000 .01
Options exercised......................... -- (482,360) .01
Shares reacquired......................... 800,000 -- .01
---------- ---------- -------
Balance at September 30, 1997............... 88,000 729,640 .01
Options authorized........................ 3,700,000
Options granted........................... (2,625,000) 2,625,000 .50
Options exercised......................... -- (169,520) .01
---------- ---------- -------
Balance at September 30, 1998............... 1,163,000 3,185,120 .04
Options granted........................... (646,900) 646,900 2.75
Options exercised......................... -- (500,000) .01
Options expired and forfeited............. 580,667 (580,667) .54
---------- ---------- -------
Balance at September 30, 1999............... 1,096,767 2,751,353 $ 1.01
========== ========== =======
</TABLE>
At September 30, 1999, outstanding options that were fully vested
totaled 909,453. Total shares issuable under outstanding options vest as
follows:
<TABLE>
<CAPTION>
TOTAL
OPTIONS
SEPTEMBER 30, VESTED
- ------------- ---------
<S> <C>
2000.............................................. 1,623,753
2001.............................................. 2,338,053
2002.............................................. 2,726,353
2003.............................................. 2,751,353
2004.............................................. 2,751,353
</TABLE>
F-15
<PAGE> 84
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of options outstanding at September 30, 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE NUMBER REMAINING
OUTSTANDING PRICE EXERCISABLE TERM
----------- -------- ----------- ---------------
<S> <C> <C> <C>
60,120 $0.01 60,120 Less than 8
2,055,333 $0.50 807,733 8.0 - 8.9 years
155,000 $2.36 40,000 9.0 - 9.9 years
326,900 $2.83 2,000 9.0 - 9.9 years
154,000 $3.00 -- 10.0 years
</TABLE>
The pro forma disclosures as if the Company had used the fair value method
of accounting as required by SFAS No. 123 are presented below:
<TABLE>
<CAPTION>
NET LOSS ATTRIBUTABLE BASIC AND DILUTED
TO COMMON STOCKHOLDERS NET LOSS PER SHARE
-------------------------- ------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
1997.............................. $ (303,865) $ (306,489) $(0.03) $(0.03)
1998.............................. $(1,714,659) $(1,740,593) $(0.16) $(0.16)
1999.............................. $(4,370,008) $(4,522,053) $(0.39) $(0.41)
</TABLE>
Under SFAS No. 123, compensation cost is measured at the grant date based
on the fair value of the awards and is recognized over the service period, which
is usually the vesting period. The fair value of the options granted was
estimated at the date granted as the difference between the present value of the
future exercise price and the current stock value. The present value of the
future exercise price was estimated assuming the options will be exercised
approximately 5 years after the grant date, the declaration of no dividends,
utilizing a risk free interest rate of 5.27% and utilizing a volatility rate of
60%.
The weighted average fair value of options granted during the fiscal years
ended September 30, 1997, 1998 and 1999 was $.002, $.12 and $1.55 respectively,
which would have resulted in compensation expense of $2,624, $25,934 and
$152,045, respectively.
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future effects because it does not apply to awards prior to 1995
and additional stock option awards in future years are anticipated.
7. LICENSE AND RESEARCH AGREEMENTS:
In May 1994, the Company entered into a license agreement with the
Massachusetts Institute of Technology (the "Licensor") for the purpose of
undertaking development to manufacture, use and sell certain licensed products.
Under the terms of the agreement, the Company shall pay the Licensor royalties
equal to four percent of the net sales of the licensed products and licensed
processes. If the Company elects to sublicense this patent technology to a
non-affiliated entity, the Company must pay to the Licensor 50% of any
sublicense fees or royalty fees received. This agreement is effective until May
2004, unless the Company ceases to be a party to a certain collaboration
agreement or is unable to achieve certain required net sales, as described in
the agreement, in which event certain licenses in the agreement shall become
nonexclusive. In January 1997, the Company issued 950,000 shares of common stock
at par value, which approximated fair value, to the Licensor in accordance with
royalty terms included in the agreement. Royalty expense totaled $95, $4,407 and
$11,688 in fiscal years 1997, 1998 and 1999, respectively.
F-16
<PAGE> 85
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In July 1999, in connection with the issuance of Series E Convertible
Preferred Stock to Motorola, Inc. ("Motorola"), the Company entered into a
License and Research Agreement with Motorola. Pursuant to the agreement, the
Company granted Motorola a perpetual, royalty-bearing, worldwide license to
certain intellectual property of the Company. The agreement requires Motorola to
pay a royalty on sales of certain products that are derived under this license
agreement. There was no royalty income for the year ended September 30, 1999.
Minimum royalties receivable for the calendar years ended 2000, 2001, 2002 and
thereafter are $100,000, $150,000 and $250,000, respectively, so long as the
exclusive license under MIT is maintained. In addition, Motorola agreed to
provide $250,000 of funding to the Company in return for research and
development work as defined in the agreement. The Company recognized $83,333 in
revenue from this agreement during the fiscal year ended September 30, 1999.
8. CONCENTRATION OF CREDIT RISK:
The Company maintains its cash & cash equivalents with several financial
institutions. Periodically, cash balances may exceed the federally insured
limit. Management periodically assesses the financial condition of the
institution and believes that any possible credit risk is minimal. Cash
equivalents are invested in money market funds with a financial institution.
The Company has historically derived most of its revenue from several
domestic federal granting authorities. The percentage of grant revenue derived
from grant proceeds for the periods ended September 30, 1997, 1998, 1999 and
since inception were as follows:
<TABLE>
<CAPTION>
MAY 28, 1993,
(INCEPTION) TO
SEPTEMBER 30,
1997 1998 1999 1999
---- ---- ---- --------------
<S> <C> <C> <C> <C>
Department of Commerce........................ 65% 34% 2% 38%
National Cancer Institute..................... 5 42 56 29
National Aeronautics and Space
Administration.............................. 23 10 -- 16
National Institute of Environmental Health
Sciences.................................... -- 9 26 10
Massachusetts Institute of Technology......... -- -- 16 4
Other......................................... 7 5 -- 3
--- --- --- ---
100% 100% 100% 100%
=== === === ===
</TABLE>
9. COMMITMENTS AND CONTINGENCIES:
Employee Benefit Plan
In October 1995, the Company adopted a defined contribution profit sharing
401(k) plan covering substantially all full time employees who have attained the
age of twenty-one. Under the terms of the plan, employees who have completed at
least one month of service may contribute up to 15% of their annual salary to
the plan, subject to certain IRS limitations. The Company will match 25% of such
contributions up to 0.75% of each employee's monthly salary. The Company
contributed $2,617, $3,112 and $13,853 in matching contributions to the plan for
the fiscal years ended September 30, 1997, 1998 and 1999, respectively.
F-17
<PAGE> 86
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Operating Lease Commitments
The Company leases its facility in The Woodlands, Texas, and certain
equipment under operating leases with terms ranging from two to eight years.
Future minimum lease payments under noncancelable operating leases having an
initial term in excess of one year as of September 30, 1999, were as follows:
<TABLE>
<S> <C>
2000..................................................... $ 614,000
2001..................................................... 765,000
2002..................................................... 775,000
2003..................................................... 780,000
2004..................................................... 792,000
Thereafter............................................... 2,668,000
----------
Total minimum lease payments............................. $6,394,000
==========
</TABLE>
Rental expense totaled approximately $134,000, $188,000 and $198,000 in
fiscal years 1997, 1998 and 1999, respectively.
Government Grants
The Company is subject to review by governmental agencies to assure
compliance with various laws and regulations and the provisions of certain
contracts and grants. In February 1997, the Department of Commerce ("DOC")
reviewed the Company's compliance with the "Genosensor Technology Development"
project. In connection with this review the Company has recorded other
liabilities totaling approximately $74,000 and $18,000 as of September 30, 1998
and 1999, respectively. These amounts represent federal funds passed through
from the DOC in excess of allowable costs. Other potential contingencies may be
identified as a result of future reviews.
License Agreement
In August 1999, the Company entered into a license agreement with
Xenometrix, Inc. to use and sell certain licensed products and services. Under
the terms of the agreement, the Company shall pay Xenometrix a royalty of 3% of
the net sales of licensed products and services within 60 days of each calendar
quarter. The agreement is effective, unless earlier terminated, until the
expiration or disallowance of the last claim of a patent or patent application
included in the license agreement in September 2016. No royalties have been paid
under the agreement as of September 30, 1999.
F-18
<PAGE> 87
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. SUPPLEMENTAL INFORMATION FOR STATEMENT OF CASH FLOWS:
<TABLE>
<CAPTION>
MAY 28, 1993
YEAR ENDED SEPTEMBER 30, (INCEPTION) TO
------------------------------- SEPTEMBER 30,
1997 1998 1999 1999
-------- ------- -------- --------------
<S> <C> <C> <C> <C>
Interest paid................................. $ 5,006 $ -- $ 3,391 $ 8,397
Noncash operating activities:
Conversion of accrued interest to Series A
Convertible Preferred Stock.............. $207,895 $ -- $ -- $207,895
Noncash investing activities:
Interest capitalized on equipment
work-in-process.......................... $ -- $ -- $103,719 $103,719
Noncash financing activities:
Conversion of long-term debt to Series A
Convertible Preferred Stock.............. $800,000 $ -- $ -- $800,000
Gift of treasury stock...................... $ 80 $ -- $ -- $ 80
</TABLE>
11. SUBSEQUENT EVENTS (UNAUDITED):
Sales of Preferred Stock and Common Stock Warrants
On December 29, 1999 the Company issued 597,000 shares of Series F
Convertible Preferred Stock and 119,400 common stock warrants for aggregate
proceeds of $1,791,000. In connection with the December 29, 1999 issuance of
Series F Convertible Preferred Stock, certain common stockholders of the Company
issued 150,000 call options on their personal common stock of the Company at an
exercise price of $3.00 per share to the purchasers of the Preferred Stock. On
January 31, 2000, the Company issued an additional 712,095 shares of Series F
Convertible Preferred Stock and 142,419 common stock warrants for aggregate
proceeds of $2,136,285.
In connection with the December 1999 and January 2000 Series F Convertible
Preferred Stock issuances, the Company recognized dividends relating to the
beneficial conversion features of the Preferred Stock of approximately
$1,344,000 and $1,816,000 in December 1999 and January 2000, respectively. The
dividend recognized on the beneficial conversion feature was calculated in
accordance with Emerging Issues Task Force No. 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features", as the difference between the
fair value of the Company's common stock on the dates of issue and the
conversion price, but limited by the gross proceeds received from the issuance
of the convertible preferred stock.
Pursuant to the July 1999 Stock Purchase Agreement with Motorola and as a
result of the Company raising in excess of $6,000,000 by December 31, 1999, on
January 13, 2000, Motorola purchased the remaining 1,000,000 shares of Series E
Convertible Preferred Stock for an aggregate purchase price of $3,000,000. The
Company recognized an expense of approximately $3,709,000 attributable to the
beneficial conversion feature of the Series E Convertible Preferred Stock.
Because of the Company's strategic licensing and research and development
agreement with Motorola, the beneficial conversion feature was calculated at
fair value in accordance with Emerging Issues Task Force No. 96-18: "Accounting
for Equity Instruments that are Issued to Other than Employees for Acquiring or
in Connection with Selling Goods or Services," and was not limited by the
proceeds from the Series E issuance.
Issuance of Stock Options
In December 1999 the Company granted 616,680 options for the purchase of
common stock to certain employees and directors of the Company at an exercise
price of $3.00 per share. The Company
F-19
<PAGE> 88
GENOMETRIX INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
recorded deferred compensation of approximately $433,000 upon the granting of
these options, approximately $183,000 of which was recognized as compensation
expense during the three months ended December 31, 1999.
In March 2000 the Company granted 945,800 options for the purchase of
common stock to certain employees and directors of the Company at exercise
prices of $3.00 and $10.00 per share. The Company anticipates recording
approximately $12,300,000 of deferred compensation relating to these options for
the three months ending March 31, 2000.
On March 9, 2000 the Board of Directors and stockholders adopted the 2000
Employee, Director and Consultant Stock Option Plan with authority to grant
options to purchase an aggregate of 5,000,000 shares of common stock.
Reorganization and Initial Public Offering
On March 10, 2000 the Company changed its name to Genometrix Genomics
Incorporated and executed a reverse triangular merger which resulted in
Genometrix Genomics Incorporated becoming a wholly-owned subsidiary of
Genometrix Incorporated, a Delaware Corporation formed on March 10, 2000.
On March 9, 2000 the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission for the
initial sale of common stock to the public. If the offering is completed under
the terms presently contemplated, all shares of outstanding convertible
preferred stock will convert to shares of common stock under the terms described
in Note 6. In addition, all convertible notes and related accrued interest
payable will convert to shares of common stock under the terms described in Note
4.
F-20
<PAGE> 89
[INSIDE BACK COVER]
INSIDE BACK COVER
Title of Page: "GenoVista Partnership Program"
Graphics: Pictures and images are attached to the three broad application areas
for our technology (VistaMorph, VistaClinic, VistaExpress, and VistaPro). All
three are connected via arrows to a common VistaArray microarray and lead into
the VistaLogic Information System.
Text: Description of the universal platform represented by Genometrix'
technology including the service programs offered by Genometrix and the utility
of the VistaLogic Information System.
<PAGE> 90
Shares
GENOMETRIX INCORPORATED LOGO
Common Stock
---------------------------
PROSPECTUS
[Date]
---------------------------
LEHMAN BROTHERS
CHASE H&Q
DAIN RAUSCHER WESSELS
THOMAS WEISEL PARTNERS LLC
FIDELITY CAPITAL MARKETS
a division of National Financial Services Corporation
<PAGE> 91
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated expenses,
all of which we will pay, in connection with the issuance and distribution of
the securities being registered:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $31,680
Nasdaq National Market Listing Fee.......................... $95,000
NASD Filing Fee............................................. $12,500
Printing and Engraving Fees................................. *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Blue Sky Fees and Expenses.................................. 10,000
Transfer Agent and Registrar Fees........................... 10,000
Miscellaneous............................................... 20,000
-------
Total..................................................... $
=======
</TABLE>
- ---------------
* to be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our certificate of incorporation provides that we shall indemnify, to the
fullest extent authorized by the Delaware General Corporation Law, each person
who is involved in any litigation or other proceeding because such person is or
was a director or officer of Genometrix, or is or was serving as an officer or
director of another entity at our request, against all expense, loss or
liability reasonably incurred or suffered in connection therewith. Our By-Laws
provide that the right to indemnification includes the right to be paid expenses
incurred in defending any proceeding in advance of its final disposition,
provided, however, that such advance payment will only be made upon delivery to
us of an undertaking, by or on behalf of the director or officer, to repay all
amounts so advanced if it is ultimately determined that such director is not
entitled to indemnification. If we do not pay a proper claim for indemnification
in full within 60 days after we receive a written claim for such
indemnification, our By-Laws authorize the claimant to bring an action against
us and prescribe what constitutes a defense to such action.
Section 145 of the Delaware General Corporation Law permits a corporation
to indemnify any director or officer of the corporation against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any action, suit or
proceeding brought by reason of the fact that such person is or was a director
or officer of the corporation, if such person acted in good faith and in a
manner that such person reasonably believed to be in, or not opposed to, the
best interests of the corporation, and, with respect to any criminal action or
proceeding, if such person had no reason to believe his or her conduct was
unlawful. In a derivative action, (i.e., one brought by or on behalf of the
corporation), indemnification may be provided only for expenses actually and
reasonably incurred by any director or officer in connection with the defense or
settlement of such an action or suit if such person acted in good faith and in a
manner that he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation, except that no indemnification shall be provided
if such person shall have been adjudged to be liable to the corporation, unless
and only to the extent that the court in which the action or suit was brought
shall determine that the defendant is fairly and reasonably entitled to
indemnity for such expenses despite such adjudication of liability.
II-1
<PAGE> 92
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law,
Article Ninth of our certificate of incorporation eliminates the liability of a
director to us or our stockholders for monetary damages for such a breach of
fiduciary duty as a director, except for liabilities arising:
- from any breach of the director's duty of loyalty to us or our
stockholders;
- from acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law; and
- from any transaction from which the director derived an improper
personal benefit.
We carry insurance policies insuring our directors and officers against
certain liabilities that they may incur in their capacity as directors and
officers.
Additionally, reference is made to the Underwriting Agreement filed as
Exhibit 1.1 hereto, which provides for indemnification by the underwriters of
Genometrix, our directors and officers who sign the Registration Statement and
persons who control Genometrix, under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this Registration Statement, we
have sold the following securities that were not registered under the Securities
Act.
(a) Issuances of Capital Stock and Warrants
The sale and issuance of the securities described in paragraphs (1) through
(21) below were deemed to be exempt from registration under the Securities Act
by virtue of Section 4(2) or Regulation D promulgated thereunder and the
issuances in paragraph (22) were deemed exempt pursuant to Rule 701 under the
Securities Act. Items (1) through (10) have been adjusted for a 10 for 1 stock
split of our common stock on May 25, 1998.
(1) On August 29, 1997, we sold a total of 398,680 shares of Series A
Convertible Preferred Stock and issued warrants to purchase 79,730 shares
of our common stock at an exercise price of $1.50 per share to eleven
purchasers for an aggregate consideration of $598,020.
(2) On August 29, 1997, we issued two warrants to purchase a total of
84,000 shares of Series A Convertible Preferred Stock at an exercise price
of $1.50 per share to two persons in consideration for conversion of
outstanding notes issued by us pursuant to a Note and Warrant Purchase
Agreement dated July 6, 1994 and which expired in July 1999.
(3) On August 29, 1997, we issued four warrants to purchase a total
of 71,540 shares of our common stock at an exercise price of $1.50 per
share to two persons in consideration for conversion of outstanding notes
issued by us pursuant to a Note and Warrant Purchase Agreement dated July
6, 1994 of which 16,800 warrants expired in July 1999.
(4) On August 29, 1997, we issued a total of 273,710 shares of Series
A Convertible Preferred Stock to two persons in consideration for
conversion outstanding notes issued by us pursuant to a Note and Warrant
Purchase Agreement dated July 6, 1994.
(5) On August 29, 1997, we issued 398,220 shares of our Series A
Convertible Preferred Stock to one person in consideration for conversion
of outstanding notes issued by us pursuant to a Note Purchase Agreement
dated May 17, 1995.
(6) On August 29, 1997, we issued one warrant to purchase 79,640
shares of our common stock at an exercise price of $1.50 per share to one
person in consideration for conversion of outstanding notes issued by us
pursuant to a Note Purchase Agreement dated May 17, 1995.
II-2
<PAGE> 93
(7) On August 29, 1997, we issued a warrant to purchase 19,930 shares
of our common stock at an exercise price of $1.50 per share to one person
as compensation for services under an Investment Agreement dated August 29,
1997.
(8) On March 26, 1998, we sold a total of 509,430 shares of our
Series B Convertible Preferred Stock to 28 purchasers for an aggregate
consideration of $1,120,746.
(9) On March 26, 1998, we issued a total of 7,010 shares of our
Series B Convertible Preferred Stock to two persons as compensation for
services under an Amended and Restated Financial Advisory Agreement dated
January 16, 1998.
(10) On March 26, 1998, we issued warrants to purchase a total of
26,210 shares of our common stock at an exercise price of $2.20 per share
to three persons as compensation for services under an Amended and Restated
Financial Advisory Agreement dated January 16, 1998.
(11) On September 3, 1998, we sold 1,129,247 shares of our Series C
Convertible Preferred Stock to forty-one purchasers for an aggregate
consideration of $2,665,023.
(12) On September 3, 1998, we issued a total of 44,564 shares of our
Series C Convertible Preferred Stock to two persons as compensation for
services under an Amended and Restated Financial Advisory Agreement dated
January 16, 1998.
(13) On September 3, 1998, we issued warrants for a total of 31,141
shares of our common stock at an exercise price of $2.36 per share to two
persons as compensation for services under an Amended and Restated
Financial Advisory Agreement dated January 16, 1998.
(14) On December 28, 1998, we sold 706,714 shares of our Series D
Convertible Preferred Stock to one purchaser for an aggregate consideration
of $2,000,000.
(15) On July 6, 1999, we sold 1,666,667 shares of our Series E
Convertible Preferred Stock to one purchaser for an aggregate consideration
of $5,000,000.
(16) On August 31, 1999, we sold a total of 1,481,670 shares our
Series F Convertible Preferred Stock and issued warrants to purchase a
total of 296,334 shares of our common stock at an exercise price of $3.00
per share to twelve purchasers for an aggregate consideration of
$4,445,010.
(17) On August 31, 1999 we issued warrants to purchase a total of
70,000 shares of our common stock at an exercise price of $3.00 per share
to one person as compensation for services under an Amended and Restated
Financial Advisory Agreement dated January 16, 1998.
(18) On August 31, 1999, we issued 16,667 shares of our Series F
Convertible Preferred Stock to one person as compensation for services
under an Amended and Restated Financial Advisory Agreement dated January
16, 1998.
(19) On December 29, 1999, we sold a total of 597,000 shares our
Series F Convertible Preferred Stock and issued warrants to purchase a
total of 119,400 shares of our common stock to fourteen purchasers for an
aggregate consideration of $1,791,000.
(20) On January 13, 2000 we sold 1,000,000 shares of our Series E
Convertible Preferred Stock to one purchaser for an aggregate consideration
of $3,000,000.
(21) On January 31, 2000, we sold a total of 712,095 shares of our
Series F Convertible Preferred Stock and issued warrants to purchase a
total of 142,419 shares of our common stock at an exercise price of $3.00
per share to twenty-five purchasers for an aggregate consideration of
$2,136,285.
II-3
<PAGE> 94
(22) The following table sets forth information regarding grants of
stock options under the 1994 Stock Plan:
<TABLE>
<CAPTION>
NUMBER OF RANGE OF
DATES SHARES EXERCISE PRICES
- ----- --------- ------------------
<S> <C> <C>
October 1, 1996 through September 30, 1997............ 1,212,000 $ .01
October 1, 1997 through September 30, 1998............ 2,625,000 $ .50
October 1, 1998 through September 30, 1999............ 646,900 $2.36 - $3.00
</TABLE>
(b) Certain Grants and Exercises of Stock Options
The sale and issuance of the securities described below were deemed to be
exempt from registration under the Securities Act in reliance on Rule 701
promulgated under Section 3(b) of the Securities Act, as transactions by an
issuer not involving a public offering or transactions pursuant to compensatory
benefit plans and contracts relating to compensation as provided under Rule 701.
Pursuant to our 1994 Stock Plan, as of March 10, 2000 we have issued
options to purchase an aggregate of 8,346,380 shares of common stock. Of these
options:
- options to purchase 590,334 shares of common stock have been canceled
or lapsed without being exercised;
- options to purchase 3,568,583 shares of common stock have been
exercised; and
- options to purchase a total of 4,187,463 shares of common stock are
currently outstanding, at a weighted average exercise price of $1.95
per share.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant
*3.2 Amended and Restated Certificate of Incorporation of the
Registrant to be effective upon completion of this offering
3.3 By-Laws of the Registrant
*3.4 Amended and Restated By-Laws of the Registrant to be
effective upon completion of this offering
*4.1 Form of Common Stock Certificate
4.2 Form of Warrant issued pursuant to a Note and Warrant
Purchase Agreement dated January 24, 1996 and list of
holders
*5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. with respect to the legality of securities being
registered
10.1 The Registrant's 1994 Stock Plan
10.2 The Registrant's 2000 Employee, Director and Consultant
Stock Option Plan
-10.3 Patent License Agreement between the Registrant and
Massachusetts Institute of Technology dated May 27,1994
-10.4 Patent License Agreement between the Registrant and
Massachusetts Institute of Technology dated April 1, 1996
-10.5 Exclusive License Agreement between the Registrant and
Baylor College of Medicine dated May 31, 1998
-10.6 License Agreement between the Registrant and Xenometrix,
Inc. dated August 27, 1999
</TABLE>
II-4
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
-10.7 License and Option Agreement between the Registrant and
Motorola, Inc. dated December 28, 1998
-10.8 License and Research Agreement between the Registrant and
Motorola, Inc. dated July 6, 1999
*10.9 Genomic Services Agreement between the Registrant and the
Procter and Gamble Company dated March , 2000
10.10 First Amended and Restated Registration Rights Agreement
between the Registrant and Motorola, Inc. dated July 6, 1999
10.11 Amended and Restated Registration Rights Agreement among the
Registrant, Investors and list of additional signatories
dated September 3, 1998
10.12 Note and Warrant Purchase Agreement between the Registrant
and Palmetto Partners, Ltd. dated January 24, 1996
10.13 Note and Warrant Purchase Agreement between the Registrant
and Donald and Dianne Kendall dated January 24, 1996
10.14 Lease Agreement between the Registrant and Technology Center
I Building dated September 17, 1999
23.1 Consent of PricewaterhouseCoopers LLP
*23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. (see Exhibit 5.1)
23.3 Consent of Fish & Richardson P.C.
23.4 Consent of Robert H. Ellis
23.5 Consent of Michael Hogan
23.6 Consent of J. Evans Attwell
24.1 Powers of Attorney (See page II-6)
*27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
- - Portions of this Exhibit have been omitted and filed separately with the
Commission pending a request for confidential treatment.
(b) FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules are omitted because the information is
included in our financial statements or notes to those financial statements.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of
II-5
<PAGE> 96
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-6
<PAGE> 97
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in The Woodlands,
Texas on March 15, 2000.
GENOMETRIX INCORPORATED
By: /s/ MITCHELL D. EGGERS
------------------------------------
Mitchell D. Eggers
Chief Executive Officer, Director
and
Chairman of the Board
POWER OF ATTORNEY
We the undersigned officers and directors of Genometrix Incorporated,
hereby severally constitute and appoint Mitchell D. Eggers and Robert H. Ellis,
and each of them singly (with full power to each of them to act alone), our true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution in each of them for him and in his name, place and stead, and in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement (or any other Registration Statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as full to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them or their or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities held on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MITCHELL D. EGGERS Chief Executive Officer and March 15, 2000
- --------------------------------------------------- Director (principal executive
Mitchell D. Eggers officer)
/s/ ROBERT H. ELLIS President March 15, 2000
- ---------------------------------------------------
Robert H. Ellis
/s/ DAVID E. JORDEN Vice President and Chief March 15, 2000
- --------------------------------------------------- Financial Officer (principal
David E. Jorden financial and accounting
officer)
/s/ C. THOMAS CASKEY Director March 15, 2000
- ---------------------------------------------------
C. Thomas Caskey
</TABLE>
II-7
<PAGE> 98
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ NICHOLAS J. NACLERIO Director March 15, 2000
- ---------------------------------------------------
Nicholas J. Naclerio
/s/ BRUCE PEACOCK Director March 15, 2000
- ---------------------------------------------------
Bruce Peacock
</TABLE>
II-8
<PAGE> 99
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant
*3.2 Amended and Restated Certificate of Incorporation of the
Registrant to be effective upon completion of this offering
3.3 By-Laws of the Registrant
*3.4 Amended and Restated By-Laws of the Registrant to be
effective upon completion of this offering
*4.1 Form of Common Stock Certificate
4.2 Form of Warrant issued pursuant to a Note and Warrant
Purchase Agreement dated January 24, 1996 and list of
holders
*5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. with respect to the legality of securities being
registered
10.1 The Registrant's 1994 Stock Plan
10.2 The Registrant's 2000 Employee, Director and Consultant
Stock Option Plan
-10.3 Patent License Agreement between the Registrant and
Massachusetts Institute of Technology dated May 27,1994
-10.4 Patent License Agreement between the Registrant and
Massachusetts Institute of Technology dated April 1, 1996
-10.5 Exclusive License Agreement between the Registrant and
Baylor College of Medicine dated May 31, 1998
-10.6 License Agreement between the Registrant and Xenometrix,
Inc. dated August 27, 1999
-10.7 License and Option Agreement between the Registrant and
Motorola, Inc. dated December 28, 1998
-10.8 License and Research Agreement between the Registrant and
Motorola, Inc. dated July 6, 1999
*10.9 Genomic Services Agreement between the Registrant and the
Procter and Gamble Company dated March , 2000
10.10 First Amended and Restated Registration Rights Agreement
between the Registrant and Motorola, Inc. dated July 6, 1999
10.11 Amended and Restated Registration Rights Agreement among the
Registrant and Investors dated September 3, 1998
10.12 Note and Warrant Purchase Agreement between the Registrant
and Palmetto Partners, Ltd. dated January 24, 1996
10.13 Note and Warrant Purchase Agreement between the Registrant
and Donald and Dianne Kendall dated January 24, 1996
10.14 Lease Agreement between the Registrant and Technology Center
I Building dated September 17, 1999
23.1 Consent of PricewaterhouseCoopers LLP
*23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. (see Exhibit 5.1)
23.3 Consent of Fish & Richardson P.C.
</TABLE>
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
23.4 Consent of Robert H. Ellis
23.5 Consent of Michael Hogan
23.6 Consent of J. Evans Attwell
24.1 Powers of Attorney (See page II-6)
*27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
- - Portions of this Exhibit have been omitted and filed separately with the
Commission pending a request for confidential treatment.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
GENOMETRIX INCORPORATED
Genometrix Incorporated, a Delaware corporation, hereby certifies as
follows:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is
GENOMETRIX INCORPORATED
SECOND: The address, including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington, County of New Castle; and the name of the registered
agent of the Corporation in the State of Delaware is Corporation Service
Company.
THIRD: The nature of the business to be conducted and the purposes of
the Corporation are:
Research, development and manufacturing of bioelectronic devices and
instrumentation;
To purchase or otherwise acquire, invest in, own, lease, mortgage,
pledge, sell, assign and transfer or otherwise dispose of, trade and deal in and
with real property and personal property of every kind, class and description
(including, without limitation, goods, wares and merchandise of every kind,
class and description), to manufacture goods, wares and merchandise of every
kind, class and description, both on its own account and for others;
To make and perform agreements and contracts of every kind and
description; and
Generally to engage in any lawful act or activity or carry on any
business for which corporations may be organized under the Delaware General
Corporation Law or any successor statute.
FOURTH:
A. DESIGNATION AND NUMBER OF SHARES.
The total number of shares of all classes of capital stock which the
Corporation has the authority to issue is forty nine million (49,000,000)
shares, consisting of thirty six million (36,000,000) shares of Common Stock,
par value $.0001 per share (the "Common Stock"), and thirteen million
(13,000,000) shares of Preferred Stock, par value $.001 per share (the
"Preferred Stock"), of which one hundred twenty-five thousand (125,000) shares
are designated as Series A Convertible Preferred Stock, par value $.001 per
share (the "Series A Preferred Stock"), two hundred thousand (200,000) shares
are designated
<PAGE> 2
as Series B Convertible Preferred Stock, par value $.001 per share (the "Series
B Preferred Stock"), one million two hundred thousand (1,200,000) shares are
designated as Series C Convertible Preferred Stock, par value $.001 per share
(the "Series C Preferred Stock"), and eleven million four hundred seventy-five
thousand (11,475,000) shares are undesignated Preferred Stock.
The relative powers, designations, preferences, special rights,
restrictions and other matters relating to such Common Stock, Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock are as set forth
below in this Article FOURTH.
B. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
Preferred Stock.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held. There shall be no cumulative voting.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject, however, to the liquidation rights of the holders of
Preferred Stock as set forth in this Article FOURTH.
C. SERIES A PREFERRED STOCK.
1. VOTING. Except as may be otherwise required by law, the holders of
Series A Preferred Stock shall vote together with all other classes and series
of stock of the Corporation, and not as a separate class, on all actions to be
taken by the stockholders of the Corporation and shall have such additional
voting rights as provided in this Article FOURTH or provided by law. Each share
of Series A Preferred Stock shall entitle the holder thereof to such number of
votes per share on each such action as shall equal the number of shares of
Common Stock (including fractions of a share) into which each share of such
Series A Preferred Stock is then convertible on the record date for the
determination of the stockholders entitled to vote on such matters, or, if no
such record date is established, in accordance with Delaware Law. Except as
otherwise required by law, in any case where this Article FOURTH requires the
affirmative vote of the holders of record of a proportion of any class of
capital stock, the written consent (which may be in the form of a written
consent action pursuant to the Delaware General Corporation Law or in another
form evidencing such consent) of the holders of record of such proportion of the
shares of such class of capital stock shall be deemed equivalent to such a vote.
2. DIVIDENDS. Dividends may be declared and paid on the Series A
Preferred Stock from funds lawfully available therefor as and when determined by
the Board of Directors. No dividends shall be declared and set aside for or paid
upon any shares of Common Stock, except dividends of shares of Common Stock,
unless the Board of Directors shall contemporaneously
2
<PAGE> 3
declare and pay a dividend upon the then outstanding shares of Series A
Preferred Stock in the same amount per share of Series A Preferred Stock as
would be declared payable on the number of shares of Common Stock into which
each share of Series A Preferred Stock could then be converted, such number to
be determined as of the record date for the determination of holders of the
Corporation's Common Stock entitled to receive such dividends, and plus the
amount of the Accruing Dividends (as defined below) as of such date, to the
extent then unpaid. The holders of the Series A Preferred Stock shall also be
entitled to receive, out of funds legally available therefor, when and if
declared by the Board of Directors, dividends at the rate per annum of Ninety
Cents ($.90) per share (as adjusted for Series A Recapitalization Events) (the
"Accruing Dividends"). Only for purposes of the application of the provisions of
Paragraph C.3.(a)(1) of this Article FOURTH, the Accruing Dividends shall accrue
from day to day, whether or not earned or declared. Except as provided in the
immediately preceding sentences, the Accruing Dividends shall not accrue and
shall not be cumulative and the holders of the Series A Preferred Stock shall
have no right thereto except if and to the extent the Board of Directors, in its
discretion, shall declare such Accruing Dividends.
3. LIQUIDATION.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets legally
available for distribution to stockholders shall be distributed to the
holders of record of shares of Preferred Stock and Common Stock as
follows:
(1) The amount of fifteen dollars ($15.00) for each
share of Series A Preferred Stock then outstanding, plus the
Accruing Dividends unpaid thereon (whether or not declared),
computed to the date payment thereof is made available, the
amount of twenty-two dollars ($22.00) for each share of Series
B Preferred Stock then outstanding, plus the Series B Accruing
Dividends (as defined below) unpaid thereon (whether or not
declared), computed to the date payment thereof is made
available, and the respective amount for each share of any
other series of Preferred Stock then outstanding equal to the
original purchase price per share therefor (subject to
adjustment for applicable Recapitalization Events), plus any
accruing dividends unpaid thereon (whether or not declared),
computed to the date payment thereof is made available, in
accordance with the terms of such series of Preferred Stock;
and
(2) After distribution of the full amounts described
in clause (1) immediately above, equal amounts for each
outstanding share of Common Stock.
If, upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be
distributed among the holders of Preferred Stock shall be insufficient
to permit payment in full to the holders of the Preferred Stock of the
full preferential amounts as provided in clause (1), then the entire
assets of the Corporation to be so distributed shall be distributed
ratably among the holders of the Preferred Stock entitled to receive a
distribution under such clause in accordance with the applicable
preferential amount set forth in such clause. The amounts distributable
as aforesaid shall be adjusted for Series A Recapitalization Events.
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(b) Written notice of such liquidation, dissolution or winding
up, stating a payment date and the place where said payments shall be
made, shall be given by depositing such notice in the mail, first
class, postage prepaid, or by sending such notice by telex or telecopy
to non-U.S. residents, not less than twenty (20) days prior to the
payment date stated therein, to the holders of record of the Series A
Preferred Stock, such notice to be addressed to each such holder at its
address as shown on the records of the Corporation.
4. CONVERSIONS. The holders of shares of Series A Preferred Stock shall
have the following conversion rights:
(a) RIGHT TO CONVERT. Subject to the terms and conditions of
this Paragraph 4, the holder of any share or shares of Series A
Preferred Stock shall have the right, at its option at any time, to
convert any such shares of Series A Preferred Stock (except that upon
any liquidation of the Corporation the right of conversion shall
terminate at the close of business on the business day fixed for
payment of the amount distributable on the Series A Preferred Stock)
into such number of fully paid and non-assessable shares of Common
Stock (subject to Subparagraph (c) below) as is obtained by (1)
multiplying the number of shares of Series A Preferred Stock so to be
converted by fifteen dollars ($15.00) and (2) dividing the result by
the Series A Conversion Price (as defined below), as in effect at the
time of conversion into Common Stock, which result shall be rounded to
the nearest one-hundredth of a share. Such rights of conversion into
Common Stock shall be exercised by the holder thereof by giving written
notice that the holder elects to convert a stated number of shares of
Series A Preferred Stock into Common Stock and by surrender of a
certificate or certificates for the shares so to be converted to the
Corporation at its principal office (or such other office or agency of
the Corporation as the Corporation may designate by notice in writing
to the holders of the Series A Preferred Stock) at any time during its
usual business hours on the date set forth in such notice, together
with a statement of the name or names (with address) in which the
certificate or certificates for shares of Common Stock shall be issued.
(b) ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED.
Promptly after the receipt of the written notice referred to in
Subparagraph 4(a) and surrender of the certificate or certificates for
the share or shares of Series A Preferred Stock to be converted, the
Corporation shall issue and deliver, or cause to be issued and
delivered, to the holder, registered in such name or names as such
holder may direct, a certificate or certificates for the number of
whole shares of Common Stock issuable upon the conversion of such share
or shares of Series A Preferred Stock. To the extent permitted by law,
such conversion into Common Stock shall be deemed to have been effected
and the Series A Conversion Price shall be determined as of the close
of business on the date on which such written notice shall have been
received by the Corporation and the certificate or certificates for
such share or shares shall have been surrendered as aforesaid, and at
such time the rights of the holder of such share or shares of Series A
Preferred Stock shall cease, and the person or persons in whose name or
names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares represented thereby.
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(c) FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No
fractional shares shall be issued upon conversion of Series A Preferred
Stock into Common Stock and no payment or adjustment shall be made upon
any conversion on account of any cash dividends on the Common Stock
issued upon such conversion. In case the number of shares of Series A
Preferred Stock represented by the certificate or certificates
surrendered pursuant to Subparagraph 4(a) exceeds the number of shares
converted, the Corporation shall, upon such conversion, execute and
deliver to the holder, at the expense of the Corporation a new
certificate or certificates for the number of shares of Series A
Preferred Stock represented by the certificate or certificates
surrendered which are not to be converted. If any fractional share of
Common Stock would, except for the provisions of the first sentence of
this Subparagraph 4(c), be delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share, shall pay to
the holder surrendering the shares of Series A Preferred Stock for
conversion an amount in cash equal to the current market price of such
fractional share as determined in good faith by the Board of Directors
of the Corporation.
(d) DEFINITIONS.
(1) "Series A Conversion Price" as used in this
Article FOURTH shall mean the price at which shares of the
Common Stock shall be deliverable upon conversion of the
Series A Preferred Stock. The initial Series A Conversion
Price shall be one dollar and fifty cents ($1.50), but the
Series A Conversion Price shall be subject to adjustment from
time to time as provided in this Paragraph 4.
(2) "Additional Shares of Common Stock" as used in
this Article FOURTH shall mean all shares of Common Stock
issued (or, pursuant to Subparagraph (e) immediately below,
deemed to be issued) by the Corporation after August 30, 1997,
other than shares of Common Stock issued or issuable:
(A) upon conversion of shares of Series A
Preferred Stock;
(B) as a dividend or distribution on Series
A Preferred Stock;
(C) as a result of any combination,
consolidation, subdivision, stock dividend,
stock-split or reverse stock-split of or on shares of
Common Stock provided for in Subparagraphs 4(f) and
(g) below,
(D) to directors, officers, employees or
consultants of the Corporation in connection with
their service as directors of the Corporation, their
employment by the Corporation or their service as
consultants or officers to the Corporation or
pursuant to the exercise of options, warrants or
other rights to purchase Common Stock granted to
directors, officers, employees or consultants of the
Corporation in connection with their service as
directors of the Corporation, their employment by the
Corporation or their service as consultants or
officers of the Corporation:
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(E) upon conversion or exchange of
Convertible Securities issued or sold prior to August
30, 1997 or of Convertible Securities issued or sold
upon exercise of Options issued or sold prior to
August 30, 1997;
(F) upon the exercise of Options issued or
sold prior to August 30, 1997; and
(G) solely in consideration for the
acquisition of (i) all or substantially all of the
assets of another corporation or (ii) the acquisition
(whether by merger or otherwise) by the Corporation
of another corporation resulting in the ownership by
the Corporation of not less than a majority in
interest of the voting power of such corporation.
(3) "Recapitalization Events" as used in this Article
FOURTH shall mean stock-splits, reverse stock-splits, stock
dividends, recapitalizations, reclassifications and similar
events.
(4) "Options" shall mean any warrants or other rights
to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or security convertible
into or exchangeable for Common Stock.
(5) "Convertible Securities" shall mean any stock or
security convertible into or exchangeable for Common Stock or
for any stock or security convertible into or exchangeable for
Common Stock.
(e) RATCHET ADJUSTMENT OF PRICE UPON ISSUANCE OF COMMON
STOCK.
(1) RATCHET ANTI-DILUTION ADJUSTMENT.
(A) If and whenever, during the Ratchet
Period (as defined below), the Corporation shall
issue or sell any Additional Shares of Common Stock
in a Financing for a consideration per share less
than the Series A Conversion Price in effect
immediately prior to the time of such issue or sale,
then, upon such issue or sale, the Series A
Conversion Price shall be reduced to a price equal to
the consideration per share of such Additional Shares
of Common Stock so issued or sold or deemed to have
been so issued or sold.
(B) As used herein, "Ratchet Period" shall
mean that period commencing on the date of the first
issuance of Series A Preferred Stock and ending on
the date one hundred and eighty (180) days
thereafter. Notwithstanding the foregoing, if such
Financing is consummated with an entity with which
negotiations by the Corporation for a Financing
commenced before or during such one hundred and
eighty (180) day period, then the Ratchet Period for
such Financing shall be three hundred and sixty-five
(365) days after the date of the first issuance of
Series A Preferred Stock.
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(C) As used in this Subparagraph (e)(1)(C),
a "Financing" shall mean a financing or a series of
financing in an integrated transaction pursuant to
which the Corporation receives aggregate gross cash
proceeds which equal or exceed Five Hundred Thousand
Dollars ($500,000) for the issuance of Common Stock,
Options or Convertible Securities. The term
"Financing" shall not include the following: a joint
venture, research and development, licensing,
technology transfer, corporate partner, collaborative
agreement or equipment financing.
(2) For purposes of this Subparagraph 4(e), the
following Subparagraphs (A) to (F) shall also be applicable:
(A) ISSUANCE OF OPTIONS. In case during the
Ratchet Period the Corporation shall in any manner
issue or sell Options, whether or not such Options or
the rights to exchange or convert any Convertible
Securities issuable upon exercise of such Options are
immediately exercisable, and the price per share for
which Common Stock is issuable upon the exercise of
such Options or upon the conversion or exchange of
such Convertible Securities shall be less than the
Series A Conversion Price in effect immediately prior
to the time of such issue or sale, then the total
maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion
or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of
such Options shall be deemed to be outstanding and to
have been issued for such price per share as of the
date of the issue or sale of such Options and shall
be Additional Shares of Common Stock, provided in no
event shall such shares be treated as Additional
Shares of Common Stock if such shares are excluded
from the definition of Additional Shares of Common
Stock set forth above. The price per share for which
Common Stock is issuable upon the exercise of such
Options or upon the conversion or exchange of such
Convertible Securities shall be determined by
dividing (i) the total amount, if any, received or
receivable by the Corporation a consideration for the
issue or sale of such Options, plus the minimum
aggregate amount of additional consideration (as set
forth in the instrument relating thereto without
regard to any provisions contained therein for a
subsequent adjustment of such amount), if any,
payable to the Corporation upon the exercise of all
such Options, plus, in the case of such Options which
relate to Convertible Securities, the minimum
aggregate amount of additional consideration (as set
forth in the instrument relating thereto without
regard to any provisions contained therein for a
subsequent adjustment of such amount), if any,
payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares
of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all
such Convertible Securities issuable upon the
exercise of such Options (as set forth in the
instrument relating thereto without regard to any
provisions contained therein for a subsequent
adjustment of such number). Except as
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otherwise provided in Subparagraph (C) below, if an
adjustment of the Series A Conversion Price shall
result from the issuance or sale of such Option, then
no further adjustment of the Series A Conversion
Price shall be made upon the actual issuance of such
shares of Common Stock or of such Convertible
Securities upon exercise of such Options or upon the
actual issuance of such shares of Common Stock upon
conversion or exchange of such Convertible
Securities.
(B) ISSUANCE OF CONVERTIBLE SECURITIES. In
case during the Ratchet Period the Corporation shall
in any manner issue or sell any Convertible
Securities, whether or not the rights to exchange or
convert any such Convertible Securities are
immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion
or exchange shall be less than the Series A
Conversion Price in effect immediately prior to the
time of such issue or sale, then the total maximum
number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible
Securities shall be deemed to be outstanding and to
have been issued for such price per share as of the
date of the issue or sale of such Convertible
Securities and shall be Additional Shares of Common
Stock, provided in no event shall such shares be
treated as Additional Shares of Common Stock if such
shares are excluded from the definition of Additional
Shares of Common Stock set forth above. The price per
share for which Common Stock is issuable upon such
conversion or exchange shall be determined by
dividing (i) the total amount received or receivable
by the Corporation as consideration for the issue or
sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration (as set
forth in the instrument relating thereto without
regard to any provisions contained therein for a
subsequent adjustment of such amount), if any,
payable to the Corporation upon the conversion or
exchange thereof, by (ii) the total maximum number of
shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities (as
set forth in the instrument relating thereto without
regard to any provisions contained therein for a
subsequent adjustment of such number). Except as
otherwise provided in Subparagraph (C), if an
adjustment of the Series A Conversion Price shall
result from the issuance or sale of such Convertible
Securities, then (x) no further adjustment of the
Series A Conversion Price shall be made upon the
actual issuance of such shares of Common Stock upon
conversion or exchange of such Convertible Securities
and (y) if any such issuance or sale of such
Convertible Securities is made upon exercise of any
Options to purchase any such Convertible Securities
for which adjustments of the Series A Conversion
Price have been or are to be made pursuant to other
provisions of this Subparagraph (e), no further
adjustment of the Conversion Price shall be made by
reason of such issuance or sale.
(C) CHANGE IN OPTION PRICE OR CONVERSION
RATE. If the purchase price provided for in any
Option referred to above , the
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additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities
referred above or the rate at which Convertible
Securities referred to above are convertible into or
exchangeable for Common Stock shall change at any
time (excluding changes under or by reason of
provisions designed to protect against dilution), the
Series A Conversion Price in effect at the time of
such event shall forthwith be readjusted to the
Series A Conversion Price which would have been in
effect at such if time if those Options or
Convertible Securities which are then still
outstanding provided for such changed purchase price,
additional consideration, conversion rate or exchange
rate, as the case may be, at the time such Options or
Convertible Securities were initially granted, issued
or sold. Notwithstanding any of the foregoing, no
adjustment of the Series A Conversion Price shall
result in a Series A Conversion Price greater than
the Series A Conversion Price as in effect
immediately preceding such original adjustment (as
otherwise adjusted for Recapitalization Events as
provided in Subparagraphs (t) and (g) below).
(D) STOCK DIVIDENDS. In case the Corporation
shall declare a dividend or make any other
distribution upon any stock of the Corporation
payable in Common Stock (except for dividends or
distributions upon the Common Stock), Options or
Convertible Securities, then any Common Stock,
Options or Convertible Securities, as the case may
be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or
sold for the fair value of such Common Stock, Options
or Convertible Securities, as the case may be, as
determined in good faith by the Board of Directors of
the Corporation.
(E) CONSIDERATION FOR STOCK. In case any
shares of Common Stock, Options or Convertible
Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be
the amount received by the Corporation therefor,
without deduction therefrom of any expenses incurred
or any underwriting commissions or concessions paid
or allowed by the Corporation in connection therewith
or any amounts set-off for amounts paid or payable to
the purchaser(s) for accrued interest, accrued
dividends or otherwise. In case any shares of Common
Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash,
the amount of the consideration other than cash
received by the Corporation shall be deemed to be the
fair value of such consideration as determined in
good faith by the Board of Directors of the
Corporation, without deduction of any expenses
incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in
connection therewith or any amounts set-off for
amounts paid or payable to the purchaser(s) for
accrued interest, accrued dividends or otherwise. In
case any Options shall be issued in connection with
the issue and sale of other securities of the
Corporation, together comprising one integral
transaction in which no specific consideration is
allocated to
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such Options by the parties thereto, such Options
shall be deemed to have been issued for such
consideration as determined in good faith by the
Board of Directors of the Corporation.
(F) RECORD DATE. In case the Corporation
shall take a record of the holders of its Common
Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in
Common Stock, Options or Convertible Securities or
(ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record
date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such
dividend or the making of such other distribution or
the date of the granting of such right of
subscription or purchase, as the case may be.
(f) SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Corporation shall at any time subdivide (by a stock split, stock
dividend or otherwise) its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price for the Series A
Preferred Stock in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding
shares of Common Stock shall be combined into a small number of shares
(including, without limitation, by a reverse stock split), the
Conversion Price for the Series A Preferred Stock in effect immediately
prior to such combination shall be proportionately increased.
(g) REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization or reclassification of the capital stock of the
Corporation shall be effected in such a way that holders of Common
Stock shall be entitled to receive stock-, securities or assets with
respect to or in exchange for Common Stock, then, as a condition of
such reorganization or reclassification, lawful and adequate provisions
shall be made whereby each holder of a share or shares of Series A
Preferred Stock shall thereupon have the right to receive, upon the
basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable upon the
conversion of such share or shares of Series A Preferred Stock, such
shares of stock, securities of assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such
Common Stock equal to the number of shares of such Common Stock
immediately theretofore receivable upon such conversion had such
reorganization or reclassification not taken place, and in any such
case appropriate provisions shall be made with respect to the rights
and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the
Conversion Price for the Series A Preferred Stock) shall thereafter be
applicable, in as nearing an equivalent manner as may be practicable,
in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of such conversion rights.
(h) NOTICE OF ADJUSTMENT. If there shall be any adjustment of
a Conversion Price, then and in each such case the Corporation shall
give written notice thereof, by depositing such notice in the mail,
first class, postage prepaid, or sending such notice by telex or
telecopy to non-U.S. residents, addressed to each holder of shares of
Series A Preferred Stock at the address of such holder as shown on the
books of the Corporation,
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which notice shall state the Conversion Price for the Series A
Preferred Stock resulting from such adjustment, setting forth in
reasonable detail the method upon which such calculation is based.
(i) STOCK TO BE RESERVED. The Corporation will at all times
reserve and keep available out of its authorized Common Stock, solely
for the purpose of issuance upon the conversion of the Series A
Preferred Stock as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of all outstanding
shares of Series A Preferred Stock. The Corporation covenants that all
shares of Common Stock which shall be so issued shall be duly and
validly issued and fully paid and non-assessable and free from all
taxes, liens and charges with respect to the issue thereof.
(j) NO REISSUANCE OF SERIES A PREFERRED STOCK. Shares of
Series A Preferred Stock which are converted into shares of Common
Stock as provided herein shall not be reissued.
(k) MANDATORY CONVERSION UPON A PUBLIC OFFERING. If at any
time the Corporation shall effect an underwritten public offering of
shares of Common Stock pursuant to a registration statement filed with
the Securities and Exchange Commission, then effective upon the closing
of the sale of such shares by the Corporation pursuant to such public
offering, all outstanding shares of Series A Preferred Stock shall be
deemed automatically converted into shares of Common Stock (an
"Automatic Conversion Event") without further action by the holders of
such shares. On or after the date of an occurrence of an Automatic
Conversion Event, and in any event within ten (10) days after receipt
of notice, by mail, postage prepaid from the Corporation of the
occurrence of such event, each holder of record of shares of Series A
Preferred Stock shall surrender such holder's certificates evidencing
such shares at the principal office of the Corporation or at such other
place as the Corporation shall designate, and shall thereupon be
entitled to receive certificates evidencing the number of shares of
Common Stock into which such shares of Series A Preferred Stock are
converted. Notwithstanding the provisions of Subparagraph 4(b) above,
on the date of the occurrence of an Automatic Conversion Event, each
holder of record of the shares of Series A Preferred Stock shall be
deemed to be the holder of record of the Common Stock issuable upon
such conversion and no shares of Series A Preferred Stock shall be
considered outstanding, notwithstanding that the certificates
representing such shares of Series A Preferred Stock shall not have
been surrendered at the office of the Corporation, that notice from the
Corporation shall not have been received by any holder of record of
shares of Series A Preferred Stock, or that the certificates evidencing
such shares of Common Stock shall not then be actually delivered to
such holder, provided, however, that the Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless certificates evidencing such
shares of the Series A Preferred Stock being converted are either
delivered to the Corporation or its transfer agent, or the holder
notifies the Corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection therewith.
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5. ADJUSTMENTS FOR SERIES A RECAPITALIZATION EVENTS AND CERTAIN OTHER
RECAPITALIZATION EVENTS. Series A Recapitalization Events shall mean
subdivisions (by a stock split, stock dividend or otherwise) of shares of Series
A Preferred Stock into a greater number of shares and to combinations (by a
reverse stock split or otherwise) of shares of Series A Preferred Stock into a
smaller number of shares. Wherever these terms of the Series A Preferred Stock
provide for an adjustment as a result of Series A Recapitalization Events, if a
subdivision (by a stock split, stock dividend or otherwise) of shares of Series
A Preferred Stock into a greater number of shares shall have occurred, then the
amount to be adjusted, if a per share amount, shall be proportionately reduced,
or if a share amount, shall be proportionately increased. Wherever these terms
of the Series A Preferred Stock provide for an adjustment as a result of Series
A Recapitalization Events, if a combination (by a reverse stock split or
otherwise) of shares of Series A Preferred Stock into a smaller number of shares
shall have occurred, then the amount to be adjusted, if a per share amount,
shall be proportionately increased, or if a share amount, shall be
proportionately reduced.
D. SERIES B PREFERRED STOCK.
1. VOTING. Except as may be otherwise required by law, the holders of
Series B Preferred Stock shall vote together with all other classes and series
of stock of the Corporation, and not as a separate class, on all actions to be
taken by the stockholders of the Corporation and shall have such additional
voting rights as provided in this Article FOURTH or provided by law. Each share
of Series B Preferred Stock shall entitle the holder thereof to such number of
votes per share on each such action as shall equal the number of shares of
Common Stock (including fractions of a share) into which each share of such
Series B Preferred Stock is then convertible on the record date for the
determination of the stockholders entitled to vote on such matters, or, if no
such record date is established, in accordance with Delaware Law. Except as
otherwise required by law, in any case where this Article FOURTH requires the
affirmative vote of the holders of record of a proportion of any class of
capital stock, the written consent (which may be in the form of a written
consent action pursuant to the Delaware General Corporation Law or in another
form evidencing such consent) of the holders of record of such proportion of the
shares of such class of capital stock shall be deemed equivalent to such a vote.
2. DIVIDENDS. Dividends may be declared and paid on the Series B
Preferred Stock from funds lawfully available therefor as and when determined by
the Board of Directors. No dividends shall be declared and set aside for or paid
upon any shares of Common Stock, except dividends of shares of Common Stock,
unless the Board of Directors shall contemporaneously declare and pay a dividend
upon the then outstanding shares of Series B Preferred Stock in the same amount
per share of Series B Preferred Stock as would be declared payable on the number
of shares of Common Stock into which each share of Series B Preferred Stock
could then be converted, such number to be determined as of the record date for
the determination of holders of the Corporation's Common Stock entitled to
receive such dividends, and plus the amount of the Series B Accruing Dividends
(as defined below) as of such date, to the extent then unpaid. The holders of
the Series B Preferred Stock shall also be entitled to receive, out of funds
legally available therefor, when and if declared by the Board of Directors,
dividends at the rate per annum of One Dollar Thirty-Two Cents ($1.32) per share
(as adjusted for Series B Recapitalization Events) (the "Series B Accruing
Dividends"). Only for purposes of the application of the provisions of Paragraph
D.3.(a)(1) of this Article FOURTH, the Series B
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Accruing Dividends shall accrue from day to day, whether or not earned or
declared. Except as provided in the immediately preceding sentences, the Series
B Accruing Dividends shall not accrue and shall not be cumulative and the
holders of the Series B Preferred Stock shall have no right thereto except if
and to the extent the Board of Directors, in its discretion, shall declare such
Series B Accruing Dividends.
3. LIQUIDATION.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets legally
available for distribution to stockholders shall be distributed to the
holders of record of shares of Preferred Stock and Common Stock as
follows:
(1) The amount of fifteen dollars ($15.00) for each
share of Series A Preferred Stock then outstanding, plus the
Accruing Dividends unpaid thereon (whether or not declared),
computed to the date payment thereof is made available, the
amount of twenty-two dollars ($22.00) for each share of Series
B Preferred Stock then outstanding, plus the Series B Accruing
Dividends unpaid thereon (whether or not declared), computed
to the date payment thereof is made available and the
respective amount for each share of any other series of
Preferred Stock then outstanding equal to the original
purchase price per share therefor (subject to adjustment for
applicable Recapitalization Events), plus any accruing
dividends unpaid thereon (whether or not declared), computed
to the date payment thereof is made available, in accordance
with the terms of such series of Preferred Stock; and
(2) After distribution of the full amounts described
in clause (1) immediately above, equal amounts for each
outstanding share of Common Stock.
If, upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be
distributed among the holders of Preferred Stock shall be insufficient
to permit payment in full to the holders of the Preferred Stock of the
full preferential amounts as provided in clause (1), then the entire
assets of the Corporation to be so distributed shall be distributed
ratably among the holders of the Preferred Stock entitled to receive a
distribution under such clause in accordance with the applicable
preferential amount set forth in such clause. The amounts distributable
as aforesaid shall be adjusted for Series B Recapitalization Events.
(b) Written notice of such liquidation, dissolution or winding
up, stating a payment date and the place where said payments shall be
made, shall be given by depositing such notice in the mail, first
class, postage prepaid, or by sending such notice by telex or telecopy
to non-U.S. residents, not less than twenty (20) days prior to the
payment date stated therein, to the holders of record of the Series B
Preferred Stock, such notice to be addressed to each such holder at its
address as shown on the records of the Corporation.
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(c) The rights of the holders of Series B Preferred Stock to
payments pursuant to this Section D(3) shall be PARI PASSU to the
rights of the holders of Series A Preferred Stock to payments pursuant
to Section C(3).
4. CONVERSIONS. The holders of shares of Series B Preferred Stock shall
have the following conversion rights:
(a) RIGHT TO CONVERT. Subject to the terms and conditions of
this Paragraph 4, the holder of any share or shares of Series B
Preferred Stock shall have the right, at its option at any time, to
convert any such shares of Series B Preferred Stock (except that upon
any liquidation of the Corporation the right of conversion shall
terminate at the close of business on the business day fixed for
payment of the amount distributable on the Series B Preferred Stock)
into such number of fully paid and non-assessable shares of Common
Stock (subject to Subparagraph (c) below) as is obtained by (1)
multiplying the number of shares of Series B Preferred Stock so to be
converted by twenty-two dollars ($22.00) and (2) dividing the result by
the Series B Conversion Price (as defined below), as in effect at the
time of conversion into Common Stock, which result shall be rounded to
the nearest one-hundredth of a share. Such rights of conversion into
Common Stock shall be exercised by the holder thereof by giving written
notice that the holder elects to convert a stated number of shares of
Series B Preferred Stock into Common Stock and by surrender of a
certificate or certificates for the shares so to be converted to the
Corporation at its principal office (or such other office or agency of
the Corporation as the Corporation may designate by notice in writing
to the holders of the Series B Preferred Stock) at any time during its
usual business hours on the date set forth in such notice, together
with a statement of the name or names (with address) in which the
certificate or certificates for shares of Common Stock shall be issued.
(b) ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED.
Promptly after the receipt of the written notice referred to in
Subparagraph 4(a) and surrender of the certificate or certificates for
the share or shares of Series B Preferred Stock to be converted, the
Corporation shall issue and deliver, or cause to be issued and
delivered, to the holder, registered in such name or names as such
holder may direct, a certificate or certificates for the number of
whole shares of Common Stock issuable upon the conversion of such share
or shares of Series B Preferred Stock. To the extent permitted by law,
such conversion into Common Stock shall be deemed to have been effected
and the Series B Conversion Price shall be determined as of the close
of business on the date on which such written notice shall have been
received by the Corporation and the certificate or certificates for
such share or shares shall have been surrendered as aforesaid, and at
such time the rights of the holder of such share or shares of Series B
Preferred Stock shall cease, and the person or persons in whose name or
names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares represented thereby.
(c) FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No
fractional shares shall be issued upon conversion of Series B Preferred
Stock into Common Stock and no payment or adjustment shall be made upon
any conversion on account of any cash
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dividends on the Common Stock issued upon such conversion. In case the
number of shares of Series B Preferred Stock represented by the
certificate or certificates surrendered pursuant to Subparagraph 4(a)
exceeds the number of shares converted, the Corporation shall, upon
such conversion, execute and deliver to the holder, at the expense of
the Corporation a new certificate or certificates for the number of
shares of Series B Preferred Stock represented by the certificate or
certificates surrendered which are not to be converted. If any
fractional share of Common Stock would, except for the provisions of
the first sentence of this Subparagraph 4(c), be delivered upon such
conversion, the Corporation, in lieu of delivering such fractional
share, shall pay to the holder surrendering the shares of Series B
Preferred Stock for conversion an amount in cash equal to the current
market price of such fractional share as determined in good faith by
the Board of Directors of the Corporation.
(d) DEFINITIONS.
(1) "Series B Conversion Price" as used in this
Article FOURTH shall mean the price at which shares of the
Common Stock shall be deliverable upon conversion of the
Series B Preferred Stock. The initial Series B Conversion
Price shall be two dollars and twenty cents ($2.20), but the
Series B Conversion Price shall be subject to adjustment from
time to time as provided in this Paragraph 4.
(2) "Series B Additional Shares of Common Stock" as
used in this Article FOURTH shall mean all shares of Common
Stock issued (or, pursuant to Subparagraph (e) immediately
below, deemed to be issued) by the Corporation after January
15, 1998 other than shares of Common Stock issued or issuable:
(A) upon conversion of shares of Series A or
B Preferred Stock;
(B) as a dividend or distribution on Series
A or B Preferred Stock;
(C) as a result of any combination,
consolidation, subdivision, stock dividend,
stock-split or reverse stock-split of or on shares of
Common Stock provided for in Subparagraphs 4(f) and
(g) of Section C of this Article FOURTH or
Subparagraphs 4(f) and (g) of Section D of this
Article FOURTH,
(D) to directors, officers, employees or
consultants of the Corporation in connection with
their service as directors of the Corporation, their
employment by the Corporation or their service as
consultants or officers to the Corporation or
pursuant to the exercise of options, warrants or
other rights to purchase Common Stock granted to
directors, officers, employees or consultants of the
Corporation in connection with their service as
directors of the Corporation, their employment by the
Corporation or their service as consultants or
officers of the Corporation:
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<PAGE> 16
(E) upon conversion or exchange of
Convertible Securities issued or sold prior to
January 15, 1998 or of Convertible Securities issued
or sold upon exercise of Options issued or sold prior
to January 15, 1998;
(F) upon the exercise of Options issued or
sold prior to January 15, 1998; and
(G) solely in consideration for the
acquisition of (i) all or substantially all of the
assets of another corporation or (ii) the acquisition
(whether by merger or otherwise) by the Corporation
of another corporation resulting in the ownership by
the Corporation of not less than a majority in
interest of the voting power of such corporation.
(3) "Recapitalization Events" as used in this Article
FOURTH shall mean stock-splits, reverse stock-splits, stock
dividends, recapitalizations, reclassifications and similar
events.
(4) "Options" shall mean any warrants or other rights
to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or security convertible
into or exchangeable for Common Stock.
(5) "Convertible Securities" shall mean any stock or
security convertible into or exchangeable for Common Stock or
for any stock or security convertible into or exchangeable for
Common Stock.
(e) RATCHET ADJUSTMENT OF PRICE UPON ISSUANCE OF COMMON STOCK.
(1) RATCHET ANTI-DILUTION ADJUSTMENT.
(A) If and whenever, during the Series B
Ratchet Period (as defined below), the Corporation
shall issue or sell any Series B Additional Shares of
Common Stock in a Qualifying Financing for a
consideration per share less than the Series B
Conversion Price in effect immediately prior to the
time of such issue or sale, then, upon such issue or
sale, the Series B Conversion Price shall be reduced
to a price equal to the consideration per share of
such Series B Additional Shares of Common Stock so
issued or sold or deemed to have been so issued or
sold.
(B) As used herein, "Series B Ratchet
Period" shall mean that period commencing on the date
of the first issuance of Series B Preferred Stock and
ending on October 22, 1998.
(C) As used in this Subparagraph (e)(1)(C),
a "Qualifying Financing" shall mean a financing or a
series of financing in an integrated transaction
pursuant to which the Corporation receives aggregate
gross cash proceeds which equal or exceed Five
Hundred Thousand Dollars ($500,000) for the issuance
of Common Stock, Options or Convertible Securities.
The term "Qualifying Financing" shall not include the
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<PAGE> 17
following: a joint venture, research and development,
licensing, technology transfer, corporate partner,
collaborative agreement or equipment financing.
(2) For purposes of this Subparagraph 4(e), the
following Subparagraphs (A) to (F) shall also be applicable:
(A) ISSUANCE OF OPTIONS. In case during the
Series B Ratchet Period the Corporation shall in any
manner issue or sell Options, whether or not such
Options or the rights to exchange or convert any
Convertible Securities issuable upon exercise of such
Options are immediately exercisable, and the price
per share for which Common Stock is issuable upon the
exercise of such Options or upon the conversion or
exchange of such Convertible Securities shall be less
than the Series B Conversion Price in effect
immediately prior to the time of such issue or sale,
then the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or
upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon
the exercise of such Options shall be deemed to be
outstanding and to have been issued for such price
per share as of the date of the issue or sale of such
Options and shall be Series B Additional Shares of
Common Stock, provided in no event shall such shares
be treated as Series B Additional Shares of Common
Stock if such shares are excluded from the definition
of Series B Additional Shares of Common Stock set
forth above. The price per share for which Common
Stock is issuable upon the exercise of such Options
or upon the conversion or exchange of such
Convertible Securities shall be determined by
dividing (i) the total amount, if any, received or
receivable by the Corporation as consideration for
the issue or sale of such Options, plus the minimum
aggregate amount of additional consideration (as set
forth in the instrument relating thereto without
regard to any provisions contained therein for a
subsequent adjustment of such amount), if any,
payable to the Corporation upon the exercise of all
such Options, plus, in the case of such Options which
relate to Convertible Securities, the minimum
aggregate amount of additional consideration (as set
forth in the instrument relating thereto without
regard to any provisions contained therein for a
subsequent adjustment of such amount), if any,
payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares
of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all
such Convertible Securities issuable upon the
exercise of such Options (as set forth in the
instrument relating thereto without regard to any
provisions contained therein for a subsequent
adjustment of such number). Except as otherwise
provided in Subparagraph (C) below, if an adjustment
of the Series B Conversion Price shall result from
the issuance or sale of such Option, then no further
adjustment of the Series B Conversion Price shall be
made upon the actual issuance of such shares of
Common Stock or of such Convertible
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<PAGE> 18
Securities upon exercise of such Options or upon the
actual issuance of such shares of Common Stock upon
conversion or exchange of such Convertible
Securities.
(B) ISSUANCE OF CONVERTIBLE SECURITIES. In
case during the Series B Ratchet Period the
Corporation shall in any manner issue or sell any
Convertible Securities, whether or not the rights to
exchange or convert any such Convertible Securities
are immediately exercisable, and the price per share
for which Common Stock is issuable upon such
conversion or exchange shall be less than the Series
B Conversion Price in effect immediately prior to the
time of such issue or sale, then the total maximum
number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible
Securities shall be deemed to be outstanding and to
have been issued for such price per share as of the
date of the issue or sale of such Convertible
Securities and shall be Series B Additional Shares of
Common Stock, provided in no event shall such shares
be treated as Series B Additional Shares of Common
Stock if such shares are excluded from the definition
of Series B Additional Shares of Common Stock set
forth above. The price per share for which Common
Stock is issuable upon such conversion or exchange
shall be determined by dividing (i) the total amount
received or receivable by the Corporation as
consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate
amount of additional consideration (as set forth in
the instrument relating thereto without regard to any
provisions contained therein for a subsequent
adjustment of such amount), if any, payable to the
Corporation upon the conversion or exchange thereof,
by (ii) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all
such Convertible Securities (as set forth in the
instrument relating thereto without regard to any
provisions contained therein for a subsequent
adjustment of such number). Except as otherwise
provided in Subparagraph (C), if an adjustment of the
Series B Conversion Price shall result from the
issuance or sale of such Convertible Securities, then
(x) no further adjustment of the Series B Conversion
Price shall be made upon the actual issuance of such
shares of Common Stock upon conversion or exchange of
such Convertible Securities and (y) if any such
issuance or sale of such Convertible Securities is
made upon exercise of any Options to purchase any
such Convertible Securities for which adjustments of
the Series B Conversion Price have been or are to be
made pursuant to other provisions of this
Subparagraph (e), no further adjustment of the Series
B Conversion Price shall be made by reason of such
issuance or sale.
(C) CHANGE IN OPTION PRICE OR CONVERSION
RATE. If the purchase price provided for in any
Option referred to above, the additional
consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred above
or the rate at which Convertible Securities referred
to above are convertible into or exchangeable for
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<PAGE> 19
Common Stock shall change at any time (excluding
changes under or by reason of provisions designed to
protect against dilution), the Series B Conversion
Price in effect at the time of such event shall
forthwith be readjusted to the Series B Conversion
Price which would have been in effect at such if time
if those Options or Convertible Securities which are
then still outstanding provided for such changed
purchase price, additional consideration, conversion
rate or exchange rate, as the case may be, at the
time such Options or Convertible Securities were
initially granted, issued or sold. Notwithstanding
any of the foregoing, no adjustment of the Series B
Conversion Price shall result in a Series B
Conversion Price greater than the Series B Conversion
Price as in effect immediately preceding such
original adjustment (as otherwise adjusted for
Recapitalization Events as provided in Subparagraphs
(f) and (g) below).
(D) STOCK DIVIDENDS. In case the Corporation
shall declare a dividend or make any other
distribution upon any stock of the Corporation
payable in Common Stock (except for dividends or
distributions upon the Common Stock), Options or
Convertible Securities, then any Common Stock,
Options or Convertible Securities, as the case may
be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or
sold for the fair value of such Common Stock, Options
or Convertible Securities, as the case may be, as
determined in good faith by the Board of Directors of
the Corporation.
(E) CONSIDERATION FOR STOCK. In case any
shares of Common Stock, Options or Convertible
Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be
the amount received by the Corporation therefor,
without deduction therefrom of any expenses incurred
or any underwriting commissions or concessions paid
or allowed by the Corporation in connection therewith
or any amounts set-off for amounts paid or payable to
the purchaser(s) for accrued interest, accrued
dividends or otherwise. In case any shares of Common
Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash,
the amount of the consideration other than cash
received by the Corporation shall be deemed to be the
fair value of such consideration as determined in
good faith by the Board of Directors of the
Corporation, without deduction of any expenses
incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in
connection therewith or any amounts set-off for
amounts paid or payable to the purchaser(s) for
accrued interest, accrued dividends or otherwise. In
case any Options shall be issued in connection with
the issue and sale of other securities of the
Corporation, together comprising one integral
transaction in which no specific consideration is
allocated to such Options by the parties thereto,
such Options shall be deemed to have been issued for
such consideration as determined in good faith by the
Board of Directors of the Corporation.
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<PAGE> 20
(F) RECORD DATE. In case the Corporation
shall take a record of the holders of its Common
Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in
Common Stock, Options or Convertible Securities or
(ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record
date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such
dividend or the making of such other distribution or
the date of the granting of such right of
subscription or purchase, as the case may be.
(f) SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Corporation shall at any time subdivide (by a stock split, stock
dividend or otherwise) its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price for the Series B
Preferred Stock in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding
shares of Common Stock shall be combined into a small number of shares
(including, without limitation, by a reverse stock split), the
Conversion Price for the Series B Preferred Stock in effect immediately
prior to such combination shall be proportionately increased.
(g) REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization or reclassification of the capital stock of the
Corporation shall be effected in such a way that holders of Common
Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, as a condition of
such reorganization or reclassification, lawful and adequate provisions
shall be made whereby each holder of a share or shares of Series B
Preferred Stock shall thereupon have the right to receive, upon the
basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable upon the
conversion of such share or shares of Series B Preferred Stock, such
shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such
Common Stock equal to the number of shares of such Common Stock
immediately theretofore receivable upon such conversion had such
reorganization or reclassification not taken place, and in any such
case appropriate provisions shall be made with respect to the rights
and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the
Conversion Price for the Series B Preferred Stock) shall thereafter be
applicable, in as nearing an equivalent manner as may be practicable,
in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of such conversion rights.
(h) NOTICE OF ADJUSTMENT. If there shall be any adjustment of
a Conversion Price, then and in each such case the Corporation shall
give written notice thereof, by depositing such notice in the mail,
first class, postage prepaid, or sending such notice by telex or
telecopy to non-U.S. residents, addressed to each holder of shares of
Series B Preferred Stock at the address of such holder as shown on the
books of the Corporation, which notice shall state the Conversion Price
for the Series B Preferred Stock resulting from such adjustment,
setting forth in reasonable detail the method upon which such
calculation is based.
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<PAGE> 21
(i) STOCK TO BE RESERVED. The Corporation will at all times
reserve and keep available out of its authorized Common Stock, solely
for the purpose of issuance upon the conversion of the Series B
Preferred Stock as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of all outstanding
shares of Series B Preferred Stock. The Corporation covenants that all
shares of Common Stock which shall be so issued shall be duly and
validly issued and fully paid and non-assessable and free from all
taxes, liens and charges with respect to the issue thereof.
(j) NO REISSUANCE OF SERIES B PREFERRED STOCK. Shares of
Series B Preferred Stock which are converted into shares of Common
Stock as provided herein shall not be reissued.
(k) MANDATORY CONVERSION UPON A PUBLIC OFFERING. If at any
time the Corporation shall effect an underwritten public offering of
shares of Common Stock pursuant to a registration statement filed with
the Securities and Exchange Commission, then effective upon the closing
of the sale of such shares by the Corporation pursuant to such public
offering, all outstanding shares of Series B Preferred Stock shall be
deemed automatically converted into shares of Common Stock (an
"Automatic Conversion Event") without further action by the holders of
such shares. On or after the date of an occurrence of an Automatic
Conversion Event, and in any event within ten (10) days after receipt
of notice, by mail, postage prepaid from the Corporation of the
occurrence of such event, each holder of record of shares of Series B
Preferred Stock shall surrender such holder's certificates evidencing
such shares at the principal office of the Corporation or at such other
place as the Corporation shall designate, and shall thereupon be
entitled to receive certificates evidencing the number of shares of
Common Stock into which such shares of Series B Preferred Stock are
converted. Notwithstanding the provisions of Subparagraph 4(b) above,
on the date of the occurrence of an Automatic Conversion Event, each
holder of record of the shares of Series B Preferred Stock shall be
deemed to be the holder of record of the Common Stock issuable upon
such conversion and no shares of Series B Preferred Stock shall be
considered outstanding, notwithstanding that the certificates
representing such shares of Series B Preferred Stock shall not have
been surrendered at the office of the Corporation, that notice from the
Corporation shall not have been received by any holder of record of
shares of Series B Preferred Stock, or that the certificates evidencing
such shares of Common Stock shall not then be actually delivered to
such holder, provided, however, that the Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless certificates evidencing such
shares of the Series B Preferred Stock being converted are either
delivered to the Corporation or its transfer agent, or the holder
notifies the Corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection therewith.
5. ADJUSTMENTS-FOR SERIES B RECAPITALIZATION EVENTS AND CERTAIN OTHER
RECAPITALIZATION EVENTS. Series B Recapitalization Events shall mean
subdivisions (by a stock split, stock dividend or otherwise) of shares of Series
B Preferred Stock into a greater number of shares and to combinations (by a
reverse stock split or otherwise) of shares of Series B Preferred Stock into a
smaller number of shares. Wherever these terms of the Series B Preferred Stock
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<PAGE> 22
provide for an adjustment as a result of Series B Recapitalization Events, if a
subdivision (by a stock split, stock dividend or otherwise) of shares of Series
B Preferred Stock into a greater number of shares shall have occurred, then the
amount to be adjusted, if a per share amount, shall be proportionately reduced,
or if a share amount, shall be proportionately increased. Wherever these terms
of the Series B Preferred Stock provide for an adjustment as a result of Series
B Recapitalization Events, if a combination (by a reverse stock split or
otherwise) of shares of Series B Preferred Stock into a smaller number of shares
shall have occurred, then the amount to be adjusted, if a per share amount,
shall be proportionately increased, or if a share amount, shall be
proportionately reduced.
E. SERIES C PREFERRED STOCK.
1. VOTING. Except as may be otherwise required by law, the holders of
Series C Preferred Stock shall vote together with all other classes and series
of stock of the Corporation, and not as a separate class, on all actions to be
taken by the stockholders of the Corporation and shall have such additional
voting rights as provided in this Article FOURTH or provided by law. Each share
of Series C Preferred Stock shall entitle the holder thereof to such number of
votes per share on each such action as shall equal the number of shares of
Common Stock (including fractions of a share) into which each share of such
Series C Preferred Stock is then convertible on the record date for the
determination of the stockholders entitled to vote on such matters, or, if no
such record date is established, in accordance with Delaware Law. Except as
otherwise required by law, in any case where this Article FOURTH requires the
affirmative vote of the holders of record of a proportion of any class of
capital stock, the written consent (which may be in the form of a written
consent action pursuant to the Delaware General Corporation Law or in another
form evidencing such consent) of the holders of record of such proportion of the
shares of such class of capital stock shall be deemed equivalent to such a vote.
2. DIVIDENDS. Dividends may be declared and paid on the Series C
Preferred Stock from funds lawfully available therefor as and when determined by
the Board of Directors. No dividends shall be declared and set aside for or paid
upon any shares of Common Stock, except dividends of shares of Common Stock,
unless the Board of Directors shall contemporaneously declare and pay a dividend
upon the then outstanding shares of Series C Preferred Stock in the same amount
per share of Series C Preferred Stock as would be declared payable on the number
of shares of Common Stock into which each share of Series C Preferred Stock
could then be converted, such number to be determined as of the record date for
the determination of holders of the Corporation's Common Stock entitled to
receive such dividends, and plus the amount of the Series C Accruing Dividends
(as defined below) as of such date, to the extent then unpaid. The holders of
the Series C Preferred Stock shall also be entitled to receive, out of funds
legally available therefor, when and if declared by the Board of Directors,
dividends at the rate per annum of $0.1416 per share (as adjusted for Series C
Recapitalization Events) (the "Series C Accruing Dividends"). Only for purposes
of the application of the provisions of Paragraph E.3.(a)(1) of this Article
FOURTH, the Series C Accruing Dividends shall accrue from day to day, whether or
not earned or declared. Except as provided in the immediately preceding
sentences, the Series C Accruing Dividends shall not accrue and shall not be
cumulative and the holders of the Series C Preferred Stock shall have no right
thereto except if and to the extent the Board of Directors, in its discretion,
shall declare such Series C Accruing Dividends.
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<PAGE> 23
3. LIQUIDATION.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets legally
available for distribution to stockholders shall be distributed to the
holders of record of shares of Preferred Stock and Common Stock as
follows:
(1) The amount of fifteen dollars ($15.00) for each
share of Series A Preferred Stock then outstanding, plus the
Accruing Dividends unpaid thereon (whether or not declared),
computed to the date payment thereof is made available, the
amount of twenty-two dollars ($22.00) for each share of Series
B Preferred Stock then outstanding, plus the Series B Accruing
Dividends unpaid thereon (whether or not declared), computed
to the date payment thereof is made available, the amount of
two dollars and thirty-six cents ($2.36) for each share of
Series C Preferred Stock then outstanding, plus the Series C
Accruing Dividends unpaid thereon (whether or not declared),
computed to the date payment thereof is made available and the
respective amount for each share of any other series of
Preferred Stock then outstanding equal to the original
purchase price per share therefor (subject to adjustment for
applicable Recapitalization Events), plus any accruing
dividends unpaid thereon (whether or not declared), computed
to the date payment thereof is made available, in accordance
with the terms of such series of Preferred Stock; and
(2) After distribution of the full amounts described
in clause (1) immediately above, equal amounts for each
outstanding share of Common Stock.
If, upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be
distributed among the holders of Preferred Stock shall be insufficient
to permit payment in full to the holders of the Preferred Stock of the
full preferential amounts as provided in clause (1), then the entire
assets of the Corporation to be so distributed shall be distributed
ratably among the holders of the Preferred Stock entitled to receive a
distribution under such clause in accordance with the applicable
preferential amount set forth in such clause. The amounts distributable
as aforesaid shall be adjusted for Series C Recapitalization Events.
(b) Written notice of such liquidation, dissolution or winding
up, stating a payment date and the place where said payments shall be
made, shall be given by depositing such notice in the mail, first
class, postage prepaid, or by sending such notice by telex or telecopy
to non-U.S. residents, not less than twenty (20) days prior to the
payment date stated therein, to the holders of record of the Series C
Preferred Stock, such notice to be addressed to each such holder at its
address as shown on the records of the Corporation.
(c) The rights of the holders of Series C Preferred Stock to
payments pursuant to this Section E(3) shall be PARI PASSU to the
rights of the holders of Series A Preferred Stock to payments pursuant
to Section C(3) and the rights of the holders of Series B Preferred
Stock to payments pursuant to Section D(3).
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4. CONVERSIONS. The holders of shares of Series C Preferred Stock shall
have the following conversion rights:
(a) RIGHT TO CONVERT. Subject to the terms and conditions of
this Paragraph 4, the holder of any share or shares of Series C
Preferred Stock shall have the right, at its option at any time, to
convert any such shares of Series C Preferred Stock (except that upon
any liquidation of the Corporation the right of conversion shall
terminate at the close of business on the business day fixed for
payment of the amount distributable on the Series C Preferred Stock)
into such number of fully paid and non-assessable shares of Common
Stock (subject to Subparagraph (c) below) as is obtained by (1)
multiplying the number of shares of Series C Preferred Stock so to be
converted by two dollars and thirty-six cents ($2.36) and (2) dividing
the result by the Series C Conversion Price (as defined below), as in
effect at the time of conversion into Common Stock, which result shall
be rounded to the nearest one-hundredth of a share. Such rights of
conversion into Common Stock shall be exercised by the holder thereof
by giving written notice that the holder elects to convert a stated
number of shares of Series C Preferred Stock into Common Stock and by
surrender of a certificate or certificates for the shares so to be
converted to the Corporation at its principal office (or such other
office or agency of the Corporation as the Corporation may designate by
notice in writing to the holders of the Series C Preferred Stock) at
any time during its usual business hours on the date set forth in such
notice, together with a statement of the name or names (with address)
in which the certificate or certificates for shares of Common Stock
shall be issued.
(b) ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED.
Promptly after the receipt of the written notice referred to in
Subparagraph 4(a) and surrender of the certificate or certificates for
the share or shares of Series C Preferred Stock to be converted, the
Corporation shall issue and deliver, or cause to be issued and
delivered, to the holder, registered in such name or names as such
holder may direct, a certificate or certificates for the number of
whole shares of Common Stock issuable upon the conversion of such share
or shares of Series C Preferred Stock. To the extent permitted by law,
such conversion into Common Stock shall be deemed to have been effected
and the Series C Conversion Price shall be determined as of the close
of business on the date on which such written notice shall have been
received by the Corporation and the certificate or certificates for
such share or shares shall have been surrendered as aforesaid, and at
such time the rights of the holder of such share or shares of Series C
Preferred Stock shall cease, and the person or persons in whose name or
names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares represented thereby.
(c) FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No
fractional shares shall be issued upon conversion of Series C Preferred
Stock into Common Stock and no payment or adjustment shall be made upon
any conversion on account of any cash dividends on the Common Stock
issued upon such conversion. In case the number of shares of Series C
Preferred Stock represented by the certificate or certificates
surrendered pursuant to Subparagraph 4(a) exceeds the number of shares
converted, the Corporation shall, upon such conversion, execute and
deliver to the holder, at the expense
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<PAGE> 25
of the Corporation a new certificate or certificates for the number of
shares of Series C Preferred Stock represented by the certificate or
certificates surrendered which are not to be converted. If any
fractional share of Common Stock would, except for the provisions of
the first sentence of this Subparagraph 4(c), be delivered upon such
conversion, the Corporation, in lieu of delivering such fractional
share, shall pay to the holder surrendering the shares of Series C
Preferred Stock for conversion an amount in cash equal to the current
market price of such fractional share as determined in good faith by
the Board of Directors of the Corporation.
(d) DEFINITIONS.
(1) "Series C Conversion Price" as used in this
Article FOURTH shall mean the price at which shares of the
Common Stock shall be deliverable upon conversion of the
Series C Preferred Stock. The initial Series C Conversion
Price shall be two dollars and thirty-six cents ($2.36), but
the Series C Conversion Price shall be subject to adjustment
from time to time as provided in this Paragraph 4.
(2) "Series C Additional Shares of Common Stock" as
used in this Article FOURTH shall mean all shares of Common
Stock issued (or, pursuant to Subparagraph (e) immediately
below, deemed to be issued) by the Corporation after June 1,
1998 other than shares of Common Stock issued or issuable:
(A) upon conversion of shares of Series A, B
or C Preferred Stock;
(B) as a dividend or distribution on Series
A, B or C Preferred Stock;
(C) as a result of any combination,
consolidation, subdivision, stock dividend,
stock-split or reverse stock-split of or on shares of
Common Stock provided for in Subparagraphs 4(f) and
(g) of Section C of this Article FOURTH,
Subparagraphs 4(f) and (g) of Section D of this
Article FOURTH or Subparagraphs 4(f) and (g) of
Section E of this Article FOURTH;
(D) to directors, officers, employees or
consultants of the Corporation in connection with
their service as directors of the Corporation, their
employment by the Corporation or their service as
consultants or officers to the Corporation or
pursuant to the exercise of options, warrants or
other rights to purchase Common Stock granted to
directors, officers, employees or consultants of the
Corporation in connection with their service as
directors of the Corporation, their employment by the
Corporation or their service as consultants or
officers of the Corporation:
(E) upon conversion or exchange of
Convertible Securities issued or sold prior to June
1, 1998 or of Convertible Securities issued or sold
upon exercise of Options issued or sold prior to June
1, 1998;
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<PAGE> 26
(F) upon the exercise of Options issued or
sold prior to June 1, 1998; and
(G) solely in consideration for the
acquisition of (i) all or substantially all of the
assets of another corporation or (ii) the acquisition
(whether by merger or otherwise) by the Corporation
of another corporation resulting in the ownership by
the Corporation of not less than a majority in
interest of the voting power of such corporation.
(3) "Recapitalization Events" as used in this Article
FOURTH shall mean stock-splits, reverse stock-splits, stock
dividends, recapitalizations, reclassifications and similar
events.
(4) "Options" shall mean any warrants or other rights
to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or security convertible
into or exchangeable for Common Stock.
(5) "Convertible Securities" shall mean any stock or
security convertible into or exchangeable for Common Stock or
for any stock or security convertible into or exchangeable for
Common Stock.
(e) RATCHET ADJUSTMENT OF PRICE UPON ISSUANCE OF COMMON STOCK.
(1) RATCHET ANTI-DILUTION ADJUSTMENT.
(A) If and whenever, during the Series C
Ratchet Period (as defined below), the Corporation
shall issue or sell any Series C Additional Shares of
Common Stock in a Qualifying Financing for a
consideration per share less than the Series C
Conversion Price in effect immediately prior to the
time of such issue or sale, then, upon such issue or
sale, the Series C Conversion Price shall be reduced
to a price equal to the consideration per share of
such Series C Additional Shares of Common Stock so
issued or sold or deemed to have been so issued or
sold.
(B) As used herein, "Series C Ratchet
Period" shall mean that period commencing on the date
of the first issuance of Series C Preferred Stock and
ending on October 22, 1998.
(C) As used in this Subparagraph (e)(1)(C),
a "Qualifying Financing" shall mean a financing or a
series of financing in an integrated transaction
pursuant to which the Corporation receives aggregate
gross cash proceeds which equal or exceed Five
Hundred Thousand Dollars ($500,000) for the issuance
of Common Stock, Options or Convertible Securities.
The term "Qualifying Financing" shall not include the
following: a joint venture, research and development,
licensing, technology transfer, corporate partner,
collaborative agreement or equipment financing.
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<PAGE> 27
(2) For purposes of this Subparagraph 4(e), the
following Subparagraphs (A) to (F) shall also be applicable:
(A) ISSUANCE OF OPTIONS. In case during the
Series C Ratchet Period the Corporation shall in any
manner issue or sell Options, whether or not such
Options or the rights to exchange or convert any
Convertible Securities issuable upon exercise of such
Options are immediately exercisable, and the price
per share for which Common Stock is issuable upon the
exercise of such Options or upon the conversion or
exchange of such Convertible Securities shall be less
than the Series C Conversion Price in effect
immediately prior to the time of such issue or sale,
then the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or
upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon
the exercise of such Options shall be deemed to be
outstanding and to have been issued for such price
per share as of the date of the issue or sale of such
Options and shall be Series C Additional Shares of
Common Stock, provided in no event shall such shares
be treated as Series C Additional Shares of Common
Stock if such shares are excluded from the definition
of Series C Additional Shares of Common Stock set
forth above. The price per share for which Common
Stock is issuable upon the exercise of such Options
or upon the conversion or exchange of such
Convertible Securities shall be determined by
dividing (i) the total amount, if any, received or
receivable by the Corporation as consideration for
the issue or sale of such Options, plus the minimum
aggregate amount of additional consideration (as set
forth in the instrument relating thereto without
regard to any provisions contained therein for a
subsequent adjustment of such amount), if any,
payable to the Corporation upon the exercise of all
such Options, plus, in the case of such Options which
relate to Convertible Securities, the minimum
aggregate amount of additional consideration (as set
forth in the instrument relating thereto without
regard to any provisions contained therein for a
subsequent adjustment of such amount), if any,
payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares
of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all
such Convertible Securities issuable upon the
exercise of such Options (as set forth in the
instrument relating thereto without regard to any
provisions contained therein for a subsequent
adjustment of such number). Except as otherwise
provided in Subparagraph (C) below, if an adjustment
of the Series C Conversion Price shall result from
the issuance or sale of such Option, then no further
adjustment of the Series C Conversion Price shall be
made upon the actual issuance of such shares of
Common Stock or of such Convertible Securities upon
exercise of such Options or upon the actual issuance
of such shares of Common Stock upon conversion or
exchange of such Convertible Securities.
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<PAGE> 28
(B) ISSUANCE OF CONVERTIBLE SECURITIES. In
case during the Series C Ratchet Period the
Corporation shall in any manner issue or sell any
Convertible Securities, whether or not the rights to
exchange or convert any such Convertible Securities
are immediately exercisable, and the price per share
for which Common Stock is issuable upon such
conversion or exchange shall be less than the Series
C Conversion Price in effect immediately prior to the
time of such issue or sale, then the total maximum
number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible
Securities shall be deemed to be outstanding and to
have been issued for such price per share as of the
date of the issue or sale of such Convertible
Securities and shall be Series C Additional Shares of
Common Stock, provided in no event shall such shares
be treated as Series C Additional Shares of Common
Stock if such shares are excluded from the definition
of Series C Additional Shares of Common Stock set
forth above. The price per share for which Common
Stock is issuable upon such conversion or exchange
shall be determined by dividing (i) the total amount
received or receivable by the Corporation as
consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate
amount of additional consideration (as set forth in
the instrument relating thereto without regard to any
provisions contained therein for a subsequent
adjustment of such amount), if any, payable to the
Corporation upon the conversion or exchange thereof,
by (ii) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all
such Convertible Securities (as set forth in the
instrument relating thereto without regard to any
provisions contained therein for a subsequent
adjustment of such number). Except as otherwise
provided in Subparagraph (C), if an adjustment of the
Series C Conversion Price shall result from the
issuance or sale of such Convertible Securities, then
(x) no further adjustment of the Series C Conversion
Price shall be made upon the actual issuance of such
shares of Common Stock upon conversion or exchange of
such Convertible Securities and (y) if any such
issuance or sale of such Convertible Securities is
made upon exercise of any Options to purchase any
such Convertible Securities for which adjustments of
the Series C Conversion Price have been or are to be
made pursuant to other provisions of this
Subparagraph (e), no further adjustment of the Series
C Conversion Price shall be made by reason of such
issuance or sale.
(C) CHANGE IN OPTION PRICE OR CONVERSION
RATE. If the purchase price provided for in any
Option referred to above, the additional
consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred above
or the rate at which Convertible Securities referred
to above are convertible into or exchangeable for
Common Stock shall change at any time (excluding
changes under or by reason of provisions designed to
protect against dilution), the Series C Conversion
Price in effect at the time of such event shall
forthwith be readjusted to the Series C Conversion
Price which would have been in
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<PAGE> 29
effect at such if time if those Options or
Convertible Securities which are then still
outstanding provided for such changed purchase price,
additional consideration, conversion rate or exchange
rate, as the case may be, at the time such Options or
Convertible Securities were initially granted, issued
or sold. Notwithstanding any of the foregoing, no
adjustment of the Series C Conversion Price shall
result in a Series C Conversion Price greater than
the Series C Conversion Price as in effect
immediately preceding such original adjustment (as
otherwise adjusted for Recapitalization Events as
provided in Subparagraphs (f) and (g) below).
(D) STOCK DIVIDENDS. In case the Corporation
shall declare a dividend or make any other
distribution upon any stock of the Corporation
payable in Common Stock (except for dividends or
distributions upon the Common Stock), Options or
Convertible Securities, then any Common Stock,
Options or Convertible Securities, as the case may
be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or
sold for the fair value of such Common Stock, Options
or Convertible Securities, as the case may be, as
determined in good faith by the Board of Directors of
the Corporation.
(E) CONSIDERATION FOR STOCK. In case any
shares of Common Stock, Options or Convertible
Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be
the amount received by the Corporation therefor,
without deduction therefrom of any expenses incurred
or any underwriting commissions or concessions paid
or allowed by the Corporation in connection therewith
or any amounts set-off for amounts paid or payable to
the purchaser(s) for accrued interest, accrued
dividends or otherwise. In case any shares of Common
Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash,
the amount of the consideration other than cash
received by the Corporation shall be deemed to be the
fair value of such consideration as determined in
good faith by the Board of Directors of the
Corporation, without deduction of any expenses
incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in
connection therewith or any amounts set-off for
amounts paid or payable to the purchaser(s) for
accrued interest, accrued dividends or otherwise. In
case any Options shall be issued in connection with
the issue and sale of other securities of the
Corporation, together comprising one integral
transaction in which no specific consideration is
allocated to such Options by the parties thereto,
such Options shall be deemed to have been issued for
such consideration as determined in good faith by the
Board of Directors of the Corporation.
(F) RECORD DATE. In case the Corporation
shall take a record of the holders of its Common
Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in
Common Stock, Options or Convertible Securities or
(ii) to subscribe for or purchase
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<PAGE> 30
Common Stock, Options or Convertible Securities, then
such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the
declaration of such dividend or the making of such
other distribution or the date of the granting of
such right of subscription or purchase, as the case
may be.
(f) SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Corporation shall at any time subdivide (by a stock split, stock
dividend or otherwise) its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price for the Series C
Preferred Stock in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding
shares of Common Stock shall be combined into a small number of shares
(including, without limitation, by a reverse stock split), the
Conversion Price for the Series C Preferred Stock in effect immediately
prior to such combination shall be proportionately increased.
(g) REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization or reclassification of the capital stock of the
Corporation shall be effected in such a way that holders of Common
Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, as a condition of
such reorganization or reclassification, lawful and adequate provisions
shall be made whereby each holder of a share or shares of Series C
Preferred Stock shall thereupon have the right to receive, upon the
basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable upon the
conversion of such share or shares of Series C Preferred Stock, such
shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such
Common Stock equal to the number of shares of such Common Stock
immediately theretofore receivable upon such conversion had such
reorganization or reclassification not taken place, and in any such
case appropriate provisions shall be made with respect to the rights
and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the
Conversion Price for the Series C Preferred Stock) shall thereafter be
applicable, in as nearing an equivalent manner as may be practicable,
in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of such conversion rights.
(h) NOTICE OF ADJUSTMENT. If there shall be any adjustment of
a Conversion Price, then and in each such case the Corporation shall
give written notice thereof, by depositing such notice in the mail,
first class, postage prepaid, or sending such notice by telex or
telecopy to non-U.S. residents, addressed to each holder of shares of
Series C Preferred Stock at the address of such holder as shown on the
books of the Corporation, which notice shall state the Conversion Price
for the Series C Preferred Stock resulting from such adjustment,
setting forth in reasonable detail the method upon which such
calculation is based.
(i) STOCK TO BE RESERVED. The Corporation will at all times
reserve and keep available out of its authorized Common Stock, solely
for the purpose of issuance upon the conversion of the Series C
Preferred Stock as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of all outstanding
shares
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<PAGE> 31
of Series C Preferred Stock. The Corporation covenants that all shares
of Common Stock which shall be so issued shall be duly and validly
issued and fully paid and non-assessable and free from all taxes, liens
and charges with respect to the issue thereof.
(j) NO REISSUANCE OF SERIES C PREFERRED STOCK. Shares of
Series C Preferred Stock which are converted into shares of Common
Stock as provided herein shall not be reissued.
(k) MANDATORY CONVERSION UPON A PUBLIC OFFERING. If at any
time the Corporation shall effect an underwritten public offering of
shares of Common Stock pursuant to a registration statement filed with
the Securities and Exchange Commission, then effective upon the closing
of the sale of such shares by the Corporation pursuant to such public
offering, all outstanding shares of Series C Preferred Stock shall be
deemed automatically converted into shares of Common Stock (an
"Automatic Conversion Event") without further action by the holders of
such shares. On or after the date of an occurrence of an Automatic
Conversion Event, and in any event within ten (10) days after receipt
of notice, by mail, postage prepaid from the Corporation of the
occurrence of such event, each holder of record of shares of Series C
Preferred Stock shall surrender such holder's certificates evidencing
such shares at the principal office of the Corporation or at such other
place as the Corporation shall designate, and shall thereupon be
entitled to receive certificates evidencing the number of shares of
Common Stock into which such shares of Series C Preferred Stock are
converted. Notwithstanding the provisions of Subparagraph 4(b) above,
on the date of the occurrence of an Automatic Conversion Event, each
holder of record of the shares of Series C Preferred Stock shall be
deemed to be the holder of record of the Common Stock issuable upon
such conversion and no shares of Series C Preferred Stock shall be
considered outstanding, notwithstanding that the certificates
representing such shares of Series C Preferred Stock shall not have
been surrendered at the office of the Corporation, that notice from the
Corporation shall not have been received by any holder of record of
shares of Series C Preferred Stock, or that the certificates evidencing
such shares of Common Stock shall not then be actually delivered to
such holder, provided, however, that the Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless certificates evidencing such
shares of the Series C Preferred Stock being converted are either
delivered to the Corporation or its transfer agent, or the holder
notifies the Corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection therewith.
5. ADJUSTMENTS-FOR SERIES C RECAPITALIZATION EVENTS AND CERTAIN OTHER
RECAPITALIZATION EVENTS. Series C Recapitalization Events shall mean
subdivisions (by a stock split, stock dividend or otherwise) of shares of Series
C Preferred Stock into a greater number of shares and to combinations (by a
reverse stock split or otherwise) of shares of Series C Preferred Stock into a
smaller number of shares. Wherever these terms of the Series C Preferred Stock
provide for an adjustment as a result of Series C Recapitalization Events, if a
subdivision (by a stock split, stock dividend or otherwise) of shares of Series
C Preferred Stock into a greater number of shares shall have occurred, then the
amount to be adjusted, if a per share amount, shall be proportionately reduced,
or if a share amount, shall be proportionately increased. Wherever
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<PAGE> 32
these terms of the Series C Preferred Stock provide for an adjustment as a
result of Series C Recapitalization Events, if a combination (by a reverse stock
split or otherwise) of shares of Series C Preferred Stock into a smaller number
of shares shall have occurred, then the amount to be adjusted, if a per share
amount, shall be proportionately increased, or if a share amount, shall be
proportionately reduced.
F. UNDESIGNATED PREFERRED STOCK. The undesignated Preferred Stock may
be issued from time to time in one or more series. The Board of Directors is
authorized, subject to any limitations prescribed by law, to provide for the
issuance of shares of undesignated Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware (such
certificate being referred to herein as a "Preferred Stock Designation"), to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of the shares
of each such series and any qualifications, limitations or restrictions thereof
The Board of Directors is also expressly authorized to increase or decrease the
number of shares of any such series prior to the issue of shares of that series.
In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series. The number of authorized shares of undesignated Preferred Stock may be
increased or decreased (but not below the number thereof outstanding) by the
affirmative vote of the holders of a majority of the Common Stock, without a
vote of the holders of the Preferred Stock, or of any series thereof, unless the
terms of such Preferred Stock shall provide otherwise.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition and not in limitation of
the powers of the Corporation and of its directors and of its stockholders or
any class thereof, as the case may be, conferred by the State of Delaware, it is
further provided that:
A. The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by, or in the
manner provided in, the By-Laws. The phrase "whole Board" and the phrase "total
number of directors" shall be deemed to have the same meaning, to wit, the total
number of directors which the Corporation would have if there were no vacancies.
No election of directors need be by written ballot.
B. After the original or other By-Laws of the Corporation have been
adopted, amended or repealed, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and, after the Corporation has received any payment for any of its
stock, the power to adopt, amend, or repeal the By-Laws of the Corporation may
be exercised by the Board of Directors of the Corporation.
C. The books of the Corporation may be kept at such place within or
without the State of Delaware as the By-Laws of the Corporation may provide or
as may be designated from time to time by the Board of Directors of the
Corporation.
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SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
EIGHTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented from time to time, indemnify and advance
expenses to, (i) its directors and officers, and (ii) any person who at the
request of the Corporation is or was serving as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, from and against any and all of the expenses, liabilities, or other
matters referred to in or covered by said section, provided, however, that
except with respect to proceedings to enforce rights to indemnification, the
By-laws of the Corporation may provide that the Corporation shall indemnify any
director, officer or such person in connection with a proceeding (or part
thereof) initiated by such director, officer or such person only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation. The Corporation, by action of its Board of Directors, may provide
indemnification or advance expenses to employees and agents of the Corporation
or other persons only on such terms and conditions and to the extent determined
by the Board of Directors in its sole and absolute discretion. The
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his or her official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
NINTH: No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director
notwithstanding any provision of law imposing such liability; provided, however,
that this provision shall not eliminate the liability of a director, to the
extent that such liability is imposed by applicable law, (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 or successor provisions of the
Delaware General Corporation Law or (iv) for any transaction from which the
director derived an improper personal benefit. This provision shall not
eliminate the liability of a director for any act or omission occurring prior to
the date upon which this provision
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becomes effective. No amendment or repeal of this Article shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal. If the General Corporation Law of
the State of Delaware is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of the State of Delaware, as so
amended.
TENTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Incorporation to be signed by and attested by its duly authorized officers this
10th day of March, 2000.
GENOMETRIX INCORPORATED
By:/s/ Mitchell D. Eggers
------------------------
Mitchell D. Eggers
Chief Executive Officer
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CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
SERIES D CONVERTIBLE PREFERRED STOCK,
SERIES E CONVERTIBLE PREFERRED STOCK AND
SERIES F CONVERTIBLE PREFERRED STOCK
OF
GENOMETRIX INCORPORATED
Genometrix Incorporated, a Delaware corporation (the "Corporation")
does hereby certify:
That, pursuant to authority conferred on the Board of Directors of the
Corporation by the Certificate of Incorporation of the Corporation and pursuant
to the provisions of Section 151 of Title 8 of the Delaware Code, the Board of
Directors has adopted resolutions providing for the designation, preferences and
relative, participating, optional or other rights, and qualifications,
limitations or restrictions thereof, of 7,373,381 shares of the Corporation's
Preferred Stock, par value $.001 per share, which resolutions are as follows:
RESOLVED: That pursuant to the authority granted to and vested in the
Board of Directors of the Corporation in accordance with the
provisions of the Certificate of Incorporation of the
Corporation, the Board of Directors hereby designates a series
of Preferred Stock of the Corporation, par value $.001 per
share (the "Preferred Stock"), consisting of 706,714 shares of
the authorized unissued Preferred Stock, as Series D
Convertible Preferred Stock (the "Series D Preferred Stock"),
and hereby fixes such designation and number of shares, and
the powers, preferences and relative, participating, optional
or other rights, and the qualifications, limitations and
restrictions thereof as set forth below.
RESOLVED: That pursuant to the authority granted to and vested in the
Board of Directors of the Corporation in accordance with the
provisions of the Certificate of Incorporation of the
Corporation, the Board of Directors hereby designates a series
of Preferred Stock, consisting of 2,666,667 shares of the
authorized unissued Preferred Stock, as Series E Convertible
Preferred Stock (the "Series E Preferred Stock"), and hereby
fixes such designation and number of shares, and the powers,
preferences and relative, participating, optional or other
rights, and the qualifications, limitations and restrictions
thereof as set forth below.
RESOLVED: That pursuant to the authority granted to and vested in the
Board of Directors of the Corporation in accordance with the
provisions of the Certificate of Incorporation of the
Corporation, the Board of Directors hereby designates a series
of Preferred Stock, consisting of 4,000,000 shares of the
authorized unissued Preferred Stock, as Series F Convertible
Preferred Stock (the "Series F Preferred Stock"), and hereby
fixes such designation and number of shares, and the powers,
preferences and relative, participating, optional or other
rights, and the qualifications, limitations and restrictions
thereof as set forth below.
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RESOLVED: That the officers of the Corporation, and each acting singly,
are hereby authorized, empowered and directed to file with the
Secretary of State of the State of Delaware a Certificate of
Designations, Preferences and Rights of the Series D Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock
as such officer or officers shall deem necessary or advisable
to carry out the purposes of the above Resolutions.
A. SERIES D CONVERTIBLE PREFERRED STOCK. The preferences, privileges and
restrictions granted to or imposed upon the Corporation's Series D Convertible
Preferred Stock, par value $.001 per share, or the holders thereof, are as
follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series D Convertible Preferred Stock" (the "Series D Preferred
Stock") and the number of shares constituting the Series D Preferred Stock shall
be 706,714. Such number of shares may be increased or decreased by resolution of
the Board of Directors, provided, however, that no decrease shall reduce the
number of shares of Series D Preferred Stock to a number less than the number of
shares then outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants or upon the conversion of
any outstanding securities issued by the Corporation and convertible into Series
D Preferred Stock.
2. VOTING; RESTRICTIONS.
(a) GENERAL. Except as may be otherwise required by law, the
holders of Series D Preferred Stock shall vote together with all other
classes and series of stock of the Corporation, and not as a separate
class, on all actions to be taken by the stockholders of the
Corporation and shall have such additional voting rights as provided
herein or provided by law. Each share of Series D Preferred Stock shall
entitle the holder thereof to such number of votes per share on each
such action as shall equal the number of shares of Common Stock
(including fractions of a share) into which each share of such Series D
Preferred Stock is then convertible on the record date for the
determination of the stockholders entitled to vote on such matters, or,
if no such record date is established, in accordance with Delaware Law.
Except as otherwise required by law, in any case herein requiring the
affirmative vote of the holders of record of a proportion of any class
of capital stock, the written consent (which may be in the form of a
written consent action pursuant to the Delaware General Corporation Law
or in another form evidencing such consent) of the holders of record of
such proportion of the shares of such class of capital stock shall be
deemed equivalent to such a vote.
(b) BOARD SEAT. For so long as fifty one percent (51%) of the
shares of the Series D Preferred Stock originally issued are
outstanding, the holders of shares of the Series D Preferred Stock
shall be entitled to elect one (1) director of the Corporation and a
vacancy in the directorship elected by the holders of shares of the
Series D Preferred Stock shall be filled only by vote of the holders of
shares of the Series D Preferred Stock.
(c) RESTRICTIONS. At any time when shares of the Series D
Preferred Stock are outstanding, except where the vote or written
consent of the holders of a greater number
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of shares of the Series D Preferred Stock is required by law or by the
Certificate of Incorporation of the Corporation, and in addition to any
other vote required by law or the Certificate of Incorporation of the
Corporation, without the consent of holders of a majority of the then
outstanding shares of the Series D Preferred Stock voting separately as
a series, the Corporation will not (i) increase the number of
authorized shares of the Series D Preferred Stock, (ii) amend the
designations, powers, preferences, rights, privileges or restrictions
of the Series D Preferred Stock, or (iii) create, authorize the
creation of, or increase the number of authorized shares of, any
additional class or series of shares of capital stock which ranks
senior to the Series D Preferred Stock as to dividends or liquidation
preferences, provided that the separate consent of the holders of the
shares of the Series D Preferred Stock set forth in this Section 2(c)
shall not be required if such additional class or series is created and
sold either (1) in a capital raising transaction between the
Corporation and a financial institution, including, without limitation
a venture capital fund, or (2) pursuant to or in connection with a
joint venture, research and development, licensing, technology
transfer, corporate partner or collaborative agreement.
3. DIVIDENDS. Dividends may be declared and paid on the Series D
Preferred Stock from funds lawfully available therefor as and when determined by
the Board of Directors. No dividends shall be declared and set aside for or paid
upon any shares of Common Stock, except dividends of shares of Common Stock,
unless the Board of Directors shall contemporaneously declare and pay a dividend
upon the then outstanding shares of Series D Preferred Stock in the same amount
per share of Series D Preferred Stock as would be declared payable on the number
of shares of Common Stock into which each share of Series D Preferred Stock
could then be converted, such number to be determined as of the record date for
the determination of holders of the Corporation's Common Stock entitled to
receive such dividends, and plus the amount of the Accruing Dividends (as
defined below) as of such date, to the extent then unpaid. The holders of the
Series D Preferred Stock shall also be entitled to receive, out of funds legally
available therefor, when and if declared by the Board of Directors, dividends at
the rate per annum of $0.1698 per share (as adjusted for Series D
Recapitalization Events) (the "Series D Accruing Dividends"). Only for purposes
of the application of the provisions of Section 4(a)(1) hereof, the Accruing
Dividends shall accrue from day to day, whether or not earned or declared.
Except as provided in the immediately preceding sentences, the Series D Accruing
Dividends shall not accrue and shall not be cumulative and the holders of the
Series D Preferred Stock shall have no right thereto except if and to the extent
the Board of Directors, in its discretion, shall declare such Series D Accruing
Dividends.
4. LIQUIDATION.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets legally
available for distribution to stockholders shall be distributed to the
holders of record of shares of Preferred Stock and Common Stock as
follows:
(1) The amount of two dollars and eighty three cents
($2.83) for each share of the Series D Preferred Stock then
outstanding, plus the Series D Accruing Dividends unpaid
thereon (whether or not declared), computed to the date
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payment thereof is made available, and the respective amount
for each share of any other series of Preferred Stock then
outstanding equal to the original purchase price per share
therefor (subject to adjustment for applicable
Recapitalization Events), plus any accruing dividends unpaid
thereon (whether or not declared), computed to the date
payment thereof is made available, in accordance with the
terms of such series of Preferred Stock; and
(2) After distribution of the full amounts described
in clause (1) immediately above, equal amounts for each
outstanding share of Common Stock.
If, upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be
distributed among the holders of Preferred Stock shall be insufficient
to permit payment in full to the holders of the Preferred Stock of the
full preferential amounts as provided in clause (1), then the entire
assets of the Corporation to be so distributed shall be distributed
ratably among the holders of the Preferred Stock entitled to receive a
distribution under such clause in accordance with the applicable
preferential amount set forth in such clause. The amounts distributable
as aforesaid shall be adjusted for Series D Recapitalization Events (as
defined in Section 6 below).
(b) Written notice of such liquidation, dissolution or winding
up, stating a payment date and the place where said payments shall be
made, shall be given by depositing such notice in the mail, first
class, postage prepaid, or by sending such notice by telex or telecopy
to non-U.S. residents, not less than twenty (20) days prior to the
payment date stated therein, to the holders of record of the Series D
Preferred Stock, such notice to be addressed to each such holder at its
address as shown on the records of the Corporation.
(c) The rights of the holders of Series D Preferred Stock to
payments pursuant to this Section 4 shall be pari passu to the rights
of the holders of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock as set forth in the Certificate of
Incorporation of the Corporation.
5. CONVERSION. The holders of shares of Series D Preferred Stock shall
have the following conversion rights:
(a) RIGHT TO CONVERT. Subject to the terms and conditions of
this Section 5, the holder of any share or shares of Series D Preferred
Stock shall have the right, at its option at any time, to convert any
such shares of Series D Preferred Stock (except that upon any
liquidation of the Corporation the right of conversion shall terminate
at the close of business on the business day fixed for payment of the
amount distributable on the Series D Preferred Stock) into such number
of fully paid and non-assessable shares of Common Stock (subject to
Subsection 5(c) below) as is obtained by (1) multiplying the number of
shares of Series D Preferred Stock so to be converted by two dollars
and eighty three cents ($2.83) and (2) dividing the result by the
Series D Conversion Price (as defined below), as in effect at the time
of conversion into Common Stock, which result shall be rounded to the
nearest one-hundredth of a share. Such rights of conversion into
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Common Stock shall be exercised by the holder thereof by giving written
notice that the holder elects to convert a stated number of shares of
Series D Preferred Stock into Common Stock and by surrender of a
certificate or certificates for the shares so to be converted to the
Corporation at its principal office (or such other office or agency of
the Corporation as the Corporation may designate by notice in writing
to the holders of the Series D Preferred Stock) at any time during its
usual business hours on the date set forth in such notice, together
with a statement of the name or names (with address) in which the
certificate or certificates for shares of Common Stock shall be issued.
(b) ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED.
Promptly after the receipt of the written notice referred to in
Subsection 5(a) and surrender of the certificate or certificates for
the share or shares of Series D Preferred Stock to be converted, the
Corporation shall issue and deliver, or cause to be issued and
delivered, to the holder, registered in such name or names as such
holder may direct, a certificate or certificates for the number of
whole shares of Common Stock issuable upon the conversion of such share
or shares of Series D Preferred Stock. To the extent permitted by law,
such conversion into Common Stock shall be deemed to have been effected
and the Series D Conversion Price shall be determined as of the close
of business on the date on which such written notice shall have been
received by the Corporation and the certificate or certificates for
such share or shares shall have been surrendered as aforesaid, and at
such time the rights of the holder of such share or shares of Series D
Preferred Stock shall cease, and the person or persons in whose name or
names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares represented thereby.
(c) FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No
fractional shares shall be issued upon conversion of Series D Preferred
Stock into Common Stock and no payment or adjustment shall be made upon
any conversion on account of any cash dividends on the Common Stock
issued upon such conversion. In case the number of shares of Series D
Preferred Stock represented by the certificate or certificates
surrendered pursuant to Subsection 5(a) exceeds the number of shares
converted, the Corporation shall, upon such conversion, execute and
deliver to the holder, at the expense of the Corporation a new
certificate or certificates for the number of shares of Series D
Preferred Stock represented by the certificate or certificates
surrendered which are not to be converted. If any fractional share of
Common Stock would, except for the provisions of the first sentence of
this Subsection 5(c), be delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share, shall pay to
the holder surrendering the shares of Series D Preferred Stock for
conversion an amount in cash equal to the current market price of such
fractional share as determined in good faith by the Board of Directors
of the Corporation.
(d) DEFINITIONS.
(1) "Series D Conversion Price" as used herein shall
mean the price at which shares of the Common Stock shall be
deliverable upon conversion of the Series D Preferred Stock.
The initial Series D Conversion Price shall be two
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dollars and eighty three cents ($2.83), but the Series D
Conversion Price shall be subject to adjustment from time to
time as provided in this Section 5.
(2) "Series D Additional Shares of Common Stock" as
used herein shall mean all shares of Common Stock issued (or,
pursuant to Subparagraph (e) immediately below, deemed to be
issued) by the Corporation after the date of first issuance of
Series D Preferred Stock other than shares of Common Stock
issued or issuable:
(A) upon conversion of shares of Series A,
B, C or D Preferred Stock;
(B) as a dividend or distribution on Series
A, B, C or D Preferred Stock;
(C) as a result of any combination,
consolidation, subdivision, stock dividend,
stock-split or reverse stock-split of or on shares of
Common Stock as described in Subsections 5(f) and
5(g) hereof;
(D) to directors, officers, employees or
consultants of the Corporation in connection with
their service as directors of the Corporation, their
employment by the Corporation or their service as
consultants or officers to the Corporation or
pursuant to the exercise of options, warrants or
other rights to purchase Common Stock granted to
directors, officers, employees or consultants of the
Corporation in connection with their service as
directors of the Corporation, their employment by the
Corporation or their service as consultants or
officers of the Corporation:
(E) upon conversion or exchange of
Convertible Securities issued or sold prior to the
date of first issuance of Series D Preferred Stock or
of Convertible Securities issued or sold upon
exercise of Options issued or sold prior to the date
of first issuance of Series D Preferred Stock;
(F) upon the exercise of Options issued or
sold prior to the date of first issuance of Series D
Preferred Stock; and
(G) solely in consideration for the
acquisition of (i) all or substantially all of the
assets of another corporation or (ii) the acquisition
(whether by merger or otherwise) by the Corporation
of another corporation resulting in the ownership by
the Corporation of not less than a majority in
interest of the voting power of such corporation.
(3) "Recapitalization Events" as used herein shall
mean stock-splits, reverse stock-splits, stock dividends,
recapitalizations, reclassifications and similar events.
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(4) "Options" shall mean any warrants or other rights
to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or security convertible
into or exchangeable for Common Stock.
(5) "Convertible Securities" shall mean any stock or
security convertible into or exchangeable for Common Stock or
for any stock or security convertible into or exchangeable for
Common Stock.
(e) ADJUSTMENT OF SERIES D CONVERSION PRICE UPON CERTAIN EVENTS.
(1) RATCHET ANTI-DILUTION ADJUSTMENT. If and
whenever, during the Series D Ratchet Period (as defined
below), the Corporation shall issue or sell any Series D
Additional Shares of Common Stock in a Qualifying Financing
(as defined below) for a consideration per share less than the
Series D Conversion Price in effect immediately prior to the
time of such issue or sale, then, upon such issue or sale, the
Series D Conversion Price shall be reduced to a price equal to
the consideration per share of such Series D Additional Shares
of Common Stock so issued or sold or deemed to have been so
issued or sold. As used herein, "Series D Ratchet Period"
shall mean that period commencing on December 28, 1998 and
ending on the closing of a Qualifying Financing in which the
Company receives aggregate gross cash proceeds of at least
three million dollars ($3,000,000).
(2) WEIGHTED AVERAGE ANTI-DILUTION ADJUSTMENT. If and
whenever, after the end of the Series D Ratchet Period, the
Corporation shall issue or sell any Series D Additional Shares
of Common Stock in a Qualifying Financing for a consideration
per share less than the Series D Conversion Price in effect
immediately prior to the time of such issue or sale, then,
upon such issue or sale, the Series D Conversion Price shall
be reduced to a price determined by multiplying the Series D
Conversion Price in effect immediately prior to such issue or
sale by a fraction (x) the numerator of which shall be (A) the
number of shares of Common Stock outstanding immediately prior
to such issue or sale (including shares of the Common Stock
issuable upon exercise or conversion of any outstanding
Options or Convertible Securities) plus (B) the number of
shares of the Common Stock which the aggregate consideration
received by the Corporation for the total number of Series D
Additional Shares of Common Stock so issued would purchase at
the Series D Conversion Price in effect immediately prior to
such issue and (y) the denominator of which shall be the
number of shares of the Common Stock outstanding immediately
prior to such issue or sale (including shares of Common Stock
issuable upon exercise or conversion of any outstanding
Options or Convertible Securities) plus (D) the number of
Series D Additional Shares of Common Stock so issued.
(3) As used in this Subsection 5(e), a "Qualifying
Financing" shall mean a financing or a series of financings in
an integrated transaction pursuant to which the Corporation
receives aggregate gross cash proceeds which equal or exceed
five hundred thousand dollars ($500,000) for the issuance of
Common
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Stock, Options or Convertible Securities. The term "Qualifying
Financing" shall not include a joint venture, research and
development, licensing, technology transfer, corporate
partner, collaborative agreement or equipment financing.
(4) For purposes of this Subsection 5(e), the
following Subsections (A) to (F) shall also be applicable:
(A) ISSUANCE OF OPTIONS. In case the
Corporation shall in any manner issue or sell
Options, whether or not such Options or the rights to
exchange or convert any Convertible Securities
issuable upon exercise of such Options are
immediately exercisable, and the price per share for
which Common Stock is issuable upon the exercise of
such Options or upon the conversion or exchange of
such Convertible Securities shall be less than the
Series D Conversion Price in effect immediately prior
to the time of such issue or sale, then the total
maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion
or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of
such Options shall be deemed to be outstanding and to
have been issued for such price per share as of the
date of the issue or sale of such Options and shall
be Series D Additional Shares of Common Stock,
provided in no event shall such shares be treated as
Series D Additional Shares of Common Stock if such
shares are excluded from the definition of Series D
Additional Shares of Common Stock set forth above.
The price per share for which Common Stock is
issuable upon the exercise of such Options or upon
the conversion or exchange of such Convertible
Securities shall be determined by dividing (i) the
total amount, if any, received or receivable by the
Corporation as consideration for the issue or sale of
such Options, plus the minimum aggregate amount of
additional consideration (as set forth in the
instrument relating thereto without regard to any
provisions contained therein for a subsequent
adjustment of such amount), if any, payable to the
Corporation upon the exercise of all such Options,
plus, in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount
of additional consideration (as set forth in the
instrument relating thereto without regard to any
provisions contained therein for a subsequent
adjustment of such amount), if any, payable upon the
issue or sale of such Convertible Securities and upon
the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon the
conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options
(as set forth in the instrument relating thereto
without regard to any provisions contained therein
for a subsequent adjustment of such number). Except
as otherwise provided in Subsection (C) below, if an
adjustment of the Series D Conversion Price shall
result from the issuance or sale of such Option, then
no further adjustment of the Series D Conversion
Price shall be made upon the actual issuance of such
shares of Common Stock or of such Convertible
Securities upon exercise of such Options or upon the
actual
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issuance of such shares of Common Stock upon
conversion or exchange of such Convertible
Securities.
(B) ISSUANCE OF CONVERTIBLE SECURITIES. In
case the Corporation shall in any manner issue or
sell any Convertible Securities, whether or not the
rights to exchange or convert any such Convertible
Securities are immediately exercisable, and the price
per share for which Common Stock is issuable upon
such conversion or exchange shall be less than the
Series D Conversion Price in effect immediately prior
to the time of such issue or sale, then the total
maximum number of shares of Common Stock issuable
upon conversion or exchange of all such Convertible
Securities shall be deemed to be outstanding and to
have been issued for such price per share as of the
date of the issue or sale of such Convertible
Securities and shall be Series D Additional Shares of
Common Stock, provided in no event shall such shares
be treated as Series D Additional Shares of Common
Stock if such shares are excluded from the definition
of Series D Additional Shares of Common Stock set
forth above. The price per share for which Common
Stock is issuable upon such conversion or exchange
shall be determined by dividing (i) the total amount
received or receivable by the Corporation as
consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate
amount of additional consideration (as set forth in
the instrument relating thereto without regard to any
provisions contained therein for a subsequent
adjustment of such amount), if any, payable to the
Corporation upon the conversion or exchange thereof,
by (ii) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all
such Convertible Securities (as set forth in the
instrument relating thereto without regard to any
provisions contained therein for a subsequent
adjustment of such number). Except as otherwise
provided in Subsection (C), if an adjustment of the
Series D Conversion Price shall result from the
issuance or sale of such Convertible Securities, then
(x) no further adjustment of the Series D Conversion
Price shall be made upon the actual issuance of such
shares of Common Stock upon conversion or exchange of
such Convertible Securities and (y) if any such
issuance or sale of such Convertible Securities is
made upon exercise of any Options to purchase any
such Convertible Securities for which adjustments of
the Series D Conversion Price have been or are to be
made pursuant to other provisions of this Subsection
5(e), no further adjustment of the Series D
Conversion Price shall be made by reason of such
issuance or sale.
(C) CHANGE IN OPTION PRICE OR CONVERSION
RATE. If the purchase price provided for in any
Option referred to above, the additional
consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred above
or the rate at which Convertible Securities referred
to above are convertible into or exchangeable for
Common Stock shall change at any time (excluding
changes under or by reason of provisions designed to
protect against dilution), the Series D
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Conversion Price in effect at the time of such event
shall forthwith be readjusted to the Series D
Conversion Price which would have been in effect at
such time if those Options or Convertible Securities
which are then still outstanding provided for such
changed purchase price, additional consideration,
conversion rate or exchange rate, as the case may be,
at the time such Options or Convertible Securities
were initially granted, issued or sold.
Notwithstanding any of the foregoing, no adjustment
of the Series D Conversion Price shall result in a
Series D Conversion Price greater than the Series D
Conversion Price as in effect immediately preceding
such original adjustment (as otherwise adjusted for
Recapitalization Events as provided in Subsections
5(f) and 5(g) below).
(D) STOCK DIVIDENDS. In case the Corporation
shall declare a dividend or make any other
distribution upon any stock of the Corporation
payable in Common Stock (except for dividends or
distributions upon the Common Stock), Options or
Convertible Securities, then any Common Stock,
Options or Convertible Securities, as the case may
be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or
sold for the fair value of such Common Stock, Options
or Convertible Securities, as the case may be, as
determined in good faith by the Board of Directors of
the Corporation.
(E) CONSIDERATION FOR STOCK. In case any
shares of Common Stock, Options or Convertible
Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be
the amount received by the Corporation therefor,
without deduction therefrom of any expenses incurred
or any underwriting commissions or concessions paid
or allowed by the Corporation in connection therewith
or any amounts set-off for amounts paid or payable to
the purchaser(s) for accrued interest, accrued
dividends or otherwise. In case any shares of Common
Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash,
the amount of the consideration other than cash
received by the Corporation shall be deemed to be the
fair value of such consideration as determined in
good faith by the Board of Directors of the
Corporation, without deduction of any expenses
incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in
connection therewith or any amounts set-off for
amounts paid or payable to the purchaser(s) for
accrued interest, accrued dividends or otherwise. In
case any Options shall be issued in connection with
the issue and sale of other securities of the
Corporation, together comprising one integral
transaction in which no specific consideration is
allocated to such Options by the parties thereto,
such Options shall be deemed to have been issued for
such consideration as determined in good faith by the
Board of Directors of the Corporation.
(F) RECORD DATE. In case the Corporation
shall take a record of the holders of its Common
Stock for the purpose of entitling them (i) to
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receive a dividend or other distribution payable in
Common Stock, Options or Convertible Securities or
(ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record
date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such
dividend or the making of such other distribution or
the date of the granting of such right of
subscription or purchase, as the case may be.
(f) SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Corporation shall at any time subdivide (by a stock split, stock
dividend or otherwise) its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price for the Series D
Preferred Stock in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding
shares of Common Stock shall be combined into a small number of shares
(including, without limitation, by a reverse stock split), the
Conversion Price for the Series D Preferred Stock in effect immediately
prior to such combination shall be proportionately increased.
(g) REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization or reclassification of the capital stock of the
Corporation shall be effected in such a way that holders of Common
Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, as a condition of
such reorganization or reclassification, lawful and adequate provisions
shall be made whereby each holder of a share or shares of Series D
Preferred Stock shall thereupon have the right to receive, upon the
basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable upon the
conversion of such share or shares of Series D Preferred Stock, such
shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such
Common Stock equal to the number of shares of such Common Stock
immediately theretofore receivable upon such conversion had such
reorganization or reclassification not taken place, and in any such
case appropriate provisions shall be made with respect to the rights
and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the
Conversion Price for the Series D Preferred Stock) shall thereafter be
applicable, in as nearing an equivalent manner as may be practicable,
in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of such conversion rights.
(h) NOTICE OF ADJUSTMENT. If there shall be any adjustment of
a Conversion Price, then and in each such case the Corporation shall
give prompt written notice thereof, by depositing such notice in the
mail, first class, postage prepaid, or sending such notice by telex or
telecopy to non-U.S. residents, addressed to each holder of shares of
Series D Preferred Stock at the address of such holder as shown on the
books of the Corporation, which notice shall state the Conversion Price
for the Series D Preferred Stock resulting from such adjustment,
setting forth in reasonable detail the method upon which such
calculation is based and the reasonable time period in which such
holder may comment on, or object to, such adjustment.
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(i) STOCK TO BE RESERVED. The Corporation will at all times
reserve and keep available out of its authorized Common Stock, solely
for the purpose of issuance upon the conversion of the Series D
Preferred Stock as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of all outstanding
shares of Series D Preferred Stock. The Corporation covenants that all
shares of Common Stock which shall be so issued shall be duly and
validly issued and fully paid and non-assessable and free from all
taxes, liens and charges with respect to the issue thereof.
(j) NO REISSUANCE OF SERIES D PREFERRED STOCK. Shares of the
Series D Preferred Stock which are converted into shares of Common
Stock as provided herein shall not be reissued.
(k) MANDATORY CONVERSION UPON A PUBLIC OFFERING. If at any
time the Corporation shall effect an underwritten public offering of
shares of Common Stock pursuant to a registration statement filed with
the Securities and Exchange Commission, then effective upon the closing
of the sale of such shares by the Corporation pursuant to such public
offering, all outstanding shares of Series D Preferred Stock shall be
deemed automatically converted into shares of Common Stock (an
"Automatic Conversion Event") without further action by the holders of
such shares. On or after the date of an occurrence of an Automatic
Conversion Event, and in any event within ten (10) days after receipt
of notice, by mail, postage prepaid from the Corporation of the
occurrence of such event, each holder of record of shares of Series D
Preferred Stock shall surrender such holder's certificates evidencing
such shares at the principal office of the Corporation or at such other
place as the Corporation shall designate, and shall thereupon be
entitled to receive certificates evidencing the number of shares of
Common Stock into which such shares of Series D Preferred Stock are
converted. Notwithstanding the provisions of Subsection 5(b) above, on
the date of the occurrence of an Automatic Conversion Event, each
holder of record of the shares of Series D Preferred Stock shall be
deemed to be the holder of record of the Common Stock issuable upon
such conversion and no shares of Series D Preferred Stock shall be
considered outstanding, notwithstanding that the certificates
representing such shares of Series D Preferred Stock shall not have
been surrendered at the office of the Corporation, that notice from the
Corporation shall not have been received by any holder of record of
shares of Series D Preferred Stock, or that the certificates evidencing
such shares of Common Stock shall not then be actually delivered to
such holder, provided, however, that the Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless certificates evidencing such
shares of the Series D Preferred Stock being converted are either
delivered to the Corporation or its transfer agent, or the holder
notifies the Corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection therewith.
6. ADJUSTMENTS FOR SERIES D RECAPITALIZATION EVENTS AND CERTAIN OTHER
RECAPITALIZATION EVENTS. Series D Recapitalization Events shall mean
subdivisions (by a stock split, stock dividend or otherwise) of shares of Series
D Preferred Stock into a greater number of shares and to combinations (by a
reverse stock split or otherwise) of shares of Series D Preferred Stock into a
smaller number of shares. Wherever these terms of the Series D Preferred Stock
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provide for an adjustment as a result of Series D Recapitalization Events, if a
subdivision (by a stock split, stock dividend or otherwise) of shares of Series
D Preferred Stock into a greater number of shares shall have occurred, then the
amount to be adjusted, if a per share amount, shall be proportionately reduced,
or if a share amount, shall be proportionately increased. Wherever these terms
of the Series D Preferred Stock provide for an adjustment as a result of Series
D Recapitalization Events, if a combination (by a reverse stock split or
otherwise) of shares of Series D Preferred Stock into a smaller number of shares
shall have occurred, then the amount to be adjusted, if a per share amount,
shall be proportionately increased, or if a share amount, shall be
proportionately reduced.
B. SERIES E CONVERTIBLE PREFERRED STOCK. The preferences, privileges and
restrictions granted to or imposed upon the Corporation's Series E Convertible
Preferred Stock, par value $.001 per share, or the holders thereof, are as
follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series E Convertible Preferred Stock" (the "Series E Preferred
Stock") and the number of shares constituting the Series E Preferred Stock shall
be 2,666,667. Except as specifically set forth in this Certificate of
Designation, such number of shares may be increased or decreased by resolution
of the Board of Directors, provided, however, that no decrease shall reduce the
number of shares of Series E Preferred Stock to a number less than the number of
shares then outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants or upon the conversion of
any outstanding securities issued by the Corporation and convertible into Series
E Preferred Stock.
2. VOTING; RESTRICTIONS.
(a) GENERAL. Except as may be otherwise required by law, the
holders of Series E Preferred Stock shall vote together with all other
classes and series of stock of the Corporation, and not as a separate
class, on all actions to be taken by the stockholders of the
Corporation and shall have such additional voting rights as provided
herein or provided by law. Each share of Series E Preferred Stock shall
entitle the holder thereof to such number of votes per share on each
such action as shall equal the number of shares of Common Stock
(including fractions of a share) into which each share of such Series E
Preferred Stock is then convertible on the record date for the
determination of the stockholders entitled to vote on such matters, or,
if no such record date is established, in accordance with Delaware Law.
Except as otherwise required by law, in any case herein requiring the
affirmative vote of the holders of record of a proportion of any class
of capital stock, the written consent (which may be in the form of a
written consent action pursuant to the Delaware General Corporation Law
or in another form evidencing such consent) of the holders of record of
such proportion of the shares of such class of capital stock shall be
deemed equivalent to such a vote.
(b) RESTRICTIONS. At any time when shares of the Series E
Preferred Stock are outstanding, except where the vote or written
consent of the holders of a greater number of shares of the Series E
Preferred Stock is required by law or by the Certificate of
Incorporation of the Corporation, and in addition to any other vote
required by law or the
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<PAGE> 48
Certificate of Incorporation of the Corporation, without the consent of
holders of a majority of the then outstanding shares of the Series E
Preferred Stock voting separately as a series, the Corporation will not
(i) increase the number of authorized shares of the Series E Preferred
Stock, (ii) amend the designations, powers, preferences, rights,
privileges or restrictions of the Series E Preferred Stock, or (iii)
create, authorize the creation of, or increase the number of authorized
shares of, any additional class or series of shares of capital stock
which ranks senior to the Series E Preferred Stock as to dividends or
liquidation preferences, provided that the separate consent of the
holders of the shares of the Series E Preferred Stock set forth in this
Section 2(b) shall not be required if such additional class or series
is created and sold either (1) in a capital raising transaction between
the Corporation and a financial institution, including, without
limitation a venture capital fund, or (2) pursuant to or in connection
with a joint venture, research and development, licensing, technology
transfer, corporate partner or collaborative agreement.
3. DIVIDENDS. Dividends may be declared and paid on the Series E
Preferred Stock from funds lawfully available therefor as and when determined by
the Board of Directors. No dividends shall be declared and set aside for or paid
upon any shares of Common Stock, except dividends of shares of Common Stock,
unless the Board of Directors shall contemporaneously declare and pay a dividend
upon the then outstanding shares of Series E Preferred Stock in the same amount
per share of Series E Preferred Stock as would be declared payable on the number
of shares of Common Stock into which each share of Series E Preferred Stock
could then be converted, such number to be determined as of the record date for
the determination of holders of the Corporation's Common Stock entitled to
receive such dividends, and plus the amount of the Accruing Dividends (as
defined below) as of such date, to the extent then unpaid. The holders of the
Series E Preferred Stock shall also be entitled to receive, out of funds legally
available therefor, when and if declared by the Board of Directors, dividends at
the rate per annum of $0.18 per share (as adjusted for Series E Recapitalization
Events (as defined in Subsection 5(d)(3) below)) (the "Series E Accruing
Dividends"). Only for purposes of the application of the provisions of Section
4(a)(1) hereof, the Series E Accruing Dividends shall accrue from day to day,
whether or not earned or declared. Except as provided in the immediately
preceding sentences, the Series E Accruing Dividends shall not accrue and shall
not be cumulative and the holders of the Series E Preferred Stock shall have no
right thereto except if and to the extent the Board of Directors, in its
discretion, shall declare such Series E Accruing Dividends.
4. LIQUIDATION.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets legally
available for distribution to stockholders shall be distributed to the
holders of record of shares of Preferred Stock and Common Stock as
follows:
(1) The amount of three dollars ($3.00) for each
share of the Series E Preferred Stock then outstanding, plus
the Series E Accruing Dividends unpaid thereon (whether or not
declared), computed to the date payment thereof is made
available, and the respective amount for each share of any
other series of Preferred Stock then outstanding equal to the
original purchase price per share
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<PAGE> 49
therefor (subject to adjustment for applicable
Recapitalization Events), plus any accruing dividends unpaid
thereon (whether or not declared), computed to the date
payment thereof is made available, in accordance with the
terms of such series of Preferred Stock; and
(2) After distribution of the full amounts described
in clause (1) immediately above, equal amounts for each
outstanding share of Common Stock.
If, upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be
distributed among the holders of Preferred Stock shall be insufficient
to permit payment in full to the holders of the Preferred Stock of the
full preferential amounts as provided in clause (1), then the entire
assets of the Corporation to be so distributed shall be distributed
ratably among the holders of the Preferred Stock entitled to receive a
distribution under such clause in accordance with the applicable
preferential amount set forth in such clause. The amounts distributable
as aforesaid shall be adjusted for Series E Recapitalization Events.
(b) Written notice of such liquidation, dissolution or winding
up, stating a payment date and the place where said payments shall be
made, shall be given by depositing such notice in the mail, first
class, postage prepaid, or by sending such notice by telex or telecopy
to non-U.S. residents, not less than twenty (20) days prior to the
payment date stated therein, to the holders of record of the Series E
Preferred Stock, such notice to be addressed to each such holder at its
address as shown on the records of the Corporation.
(c) The rights of the holders of Series E Preferred Stock to
payments pursuant to this Section 4 shall be pari passu to the rights
of the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock as set forth in
the Certificate of Incorporation of the Corporation and the Certificate
of Designation of Series D Convertible Preferred Stock of the
Corporation.
5. CONVERSION. The holders of shares of Series E Preferred Stock shall
have the following conversion rights:
(a) RIGHT TO CONVERT. Subject to the terms and conditions of
this Section 5, the holder of any share or shares of Series E Preferred
Stock shall have the right, at its option at any time, to convert any
such shares of Series E Preferred Stock (except that upon any
liquidation of the Corporation the right of conversion shall terminate
at the close of business on the business day fixed for payment of the
amount distributable on the Series E Preferred Stock) into such number
of fully paid and non-assessable shares of Common Stock (subject to
Subsection 5(c) below) as is obtained by (1) multiplying the number of
shares of Series E Preferred Stock so to be converted by three dollars
($3.00) and (2) dividing the result by the Series E Conversion Price
(as defined below), as in effect at the time of conversion into Common
Stock, which result shall be rounded to the nearest one-hundredth of a
share. Such rights of conversion into Common Stock shall be exercised
by the holder thereof by giving written notice that the holder elects
to convert a stated number of shares of Series E Preferred Stock into
Common Stock and by surrender
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of a certificate or certificates for the shares so to be converted to
the Corporation at its principal office (or such other office or agency
of the Corporation as the Corporation may designate by notice in
writing to the holders of the Series E Preferred Stock) at any time
during its usual business hours on the date set forth in such notice,
together with a statement of the name or names (with address) in which
the certificate or certificates for shares of Common Stock shall be
issued.
(b) ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED.
Promptly after the receipt of the written notice referred to in
Subsection 5(a) and surrender of the certificate or certificates for
the share or shares of Series E Preferred Stock to be converted, the
Corporation shall issue and deliver, or cause to be issued and
delivered, to the holder, registered in such name or names as such
holder may direct, a certificate or certificates for the number of
whole shares of Common Stock issuable upon the conversion of such share
or shares of Series E Preferred Stock. To the extent permitted by law,
such conversion into Common Stock shall be deemed to have been effected
and the Series E Conversion Price shall be determined as of the close
of business on the date on which such written notice shall have been
received by the Corporation and the certificate or certificates for
such share or shares shall have been surrendered as aforesaid, and at
such time the rights of the holder of such share or shares of Series E
Preferred Stock shall cease, and the person or persons in whose name or
names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares represented thereby.
(c) FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No
fractional shares shall be issued upon conversion of Series E Preferred
Stock into Common Stock and no payment or adjustment shall be made upon
any conversion on account of any cash dividends on the Common Stock
issued upon such conversion. In case the number of shares of Series E
Preferred Stock represented by the certificate or certificates
surrendered pursuant to Subsection 5(a) exceeds the number of shares
converted, the Corporation shall, upon such conversion, execute and
deliver to the holder, at the expense of the Corporation a new
certificate or certificates for the number of shares of Series E
Preferred Stock represented by the certificate or certificates
surrendered which are not to be converted. If any fractional share of
Common Stock would, except for the provisions of the first sentence of
this Subsection 5(c), be delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share, shall pay to
the holder surrendering the shares of Series E Preferred Stock for
conversion an amount in cash equal to the current market price of such
fractional share as determined in good faith by the Board of Directors
of the Corporation.
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(d) DEFINITIONS.
(1) "Series E Conversion Price" shall mean the price
at which shares of the Common Stock shall be deliverable upon
conversion of the Series E Preferred Stock. The initial Series
E Conversion Price shall be three dollars ($3.00), but the
Series E Conversion Price shall be subject to adjustment from
time to time as provided in this Section 5.
(2) "Series E Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or, pursuant to
Subparagraph (e) immediately below, deemed to be issued) by
the Corporation after the date of first issuance of Series E
Preferred Stock other than shares of Common Stock issued or
issuable:
(A) Upon conversion of shares of Series A,
B, C, D or E Preferred Stock;
(B) As a dividend or distribution on Series
A, B, C, D or E Preferred Stock;
(C) As a result of any combination,
consolidation, subdivision, stock dividend,
stock-split or reverse stock-split of or on shares of
Common Stock as described in Subsections 5(f) and
5(g) hereof;
(D) To directors, officers, employees or
consultants of the Corporation in connection with
their service as directors of the Corporation, their
employment by the Corporation or their service as
consultants or officers to the Corporation or
pursuant to the exercise of options, warrants or
other rights to purchase Common Stock granted to
directors, officers, employees or consultants of the
Corporation in connection with their service as
directors of the Corporation, their employment by the
Corporation or their service as consultants or
officers of the Corporation:
(E) Upon conversion or exchange of
Convertible Securities issued or sold prior to the
date of first issuance of Series E Preferred Stock or
of Convertible Securities issued or sold upon
exercise of Options issued or sold prior to the date
of first issuance of Series E Preferred Stock;
(F) Upon the exercise of Options issued or
sold prior to the date of first issuance of Series E
Preferred Stock; and
(G) Solely in consideration for the
acquisition of (i) all or substantially all of the
assets of another corporation or (ii) the acquisition
(whether by merger or otherwise) by the Corporation
of another corporation resulting in the ownership by
the Corporation of not less than a majority in
interest of the voting power of such corporation.
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(3) "Series E Recapitalization Events" shall mean
stock-splits, reverse stock-splits, stock dividends,
recapitalizations, reclassifications and similar events.
(4) "Options" shall mean any warrants or other rights
to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or security convertible
into or exchangeable for Common Stock.
(5) "Convertible Securities" shall mean any stock or
security convertible into or exchangeable for Common Stock or
for any stock or security convertible into or exchangeable for
Common Stock.
(e) ADJUSTMENT OF SERIES E CONVERSION PRICE UPON CERTAIN EVENTS.
(1) RATCHET ANTI-DILUTION ADJUSTMENT. If and
whenever, during the Series E Ratchet Period (as defined
below), the Corporation shall issue or sell any Series E
Additional Shares of Common Stock in a Qualifying Financing
(as defined below) for a consideration per share less than the
Series E Conversion Price in effect immediately prior to the
time of such issue or sale, then, upon such issue or sale, the
Series E Conversion Price shall be reduced to a price equal to
the consideration per share of such Series E Additional Shares
of Common Stock so issued or sold or deemed to have been so
issued or sold. As used herein, "Series E Ratchet Period"
shall mean that period commencing on July 6, 1999 and ending
on June 30, 2000.
(2) WEIGHTED AVERAGE ANTI-DILUTION ADJUSTMENT. If and
whenever, after the end of the Series E Ratchet Period, the
Corporation shall issue or sell any Series E Additional Shares
of Common Stock in a Qualifying Financing for a consideration
per share less than the Series E Conversion Price in effect
immediately prior to the time of such issue or sale, then,
upon such issue or sale, the Series E Conversion Price shall
be reduced to a price determined by multiplying the Series E
Conversion Price in effect immediately prior to such issue or
sale by a fraction (x) the numerator of which shall be (A) the
number of shares of Common Stock outstanding immediately prior
to such issue or sale (including shares of the Common Stock
issuable upon exercise or conversion of any outstanding
Options or Convertible Securities) plus (B) the number of
shares of the Common Stock which the aggregate consideration
received by the Corporation for the total number of Series E
Additional Shares of Common Stock so issued would purchase at
the Series E Conversion Price in effect immediately prior to
such issue or sale and (y) the denominator of which shall be
the number of shares of the Common Stock outstanding
immediately prior to such issue or sale (including shares of
Common Stock issuable upon exercise or conversion of any
outstanding Options or Convertible Securities) plus (D) the
number of Series E Additional Shares of Common Stock so
issued.
(3) As used in this Subsection 5(e), a "Qualifying
Financing" shall mean a financing or a series of financings in
an integrated transaction pursuant to
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<PAGE> 53
which the Corporation receives aggregate gross cash proceeds
which equal or exceed five hundred thousand dollars ($500,000)
for the issuance of Common Stock, Options or Convertible
Securities. The term "Qualifying Financing" shall not include
a joint venture, research and development, licensing,
technology transfer, corporate partner, collaborative
agreement or equipment financing.
(4) For purposes of this Subsection 5(e), the
following Subsections (A) to (F) shall also be applicable:
(A) ISSUANCE OF OPTIONS. In case the
Corporation shall in any manner issue or sell
Options, whether or not such Options or the rights to
exchange or convert any Convertible Securities
issuable upon exercise of such Options are
immediately exercisable, and the price per share for
which Common Stock is issuable upon the exercise of
such Options or upon the conversion or exchange of
such Convertible Securities shall be less than the
Series E Conversion Price in effect immediately prior
to the time of such issue or sale, then the total
maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion
or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of
such Options shall be deemed to be outstanding and to
have been issued for such price per share as of the
date of the issue or sale of such Options and shall
be Series E Additional Shares of Common Stock,
provided in no event shall such shares be treated as
Series E Additional Shares of Common Stock if such
shares are excluded from the definition of Series E
Additional Shares of Common Stock set forth above.
The price per share for which Common Stock is
issuable upon the exercise of such Options or upon
the conversion or exchange of such Convertible
Securities shall be determined by dividing (i) the
total amount, if any, received or receivable by the
Corporation as consideration for the issue or sale of
such Options, plus the minimum aggregate amount of
additional consideration (as set forth in the
instrument relating thereto without regard to any
provisions contained therein for a subsequent
adjustment of such amount), if any, payable to the
Corporation upon the exercise of all such Options,
plus, in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount
of additional consideration (as set forth in the
instrument relating thereto without regard to any
provisions contained therein for a subsequent
adjustment of such amount), if any, payable upon the
issue or sale of such Convertible Securities and upon
the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon the
conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options
(as set forth in the instrument relating thereto
without regard to any provisions contained therein
for a subsequent adjustment of such number). Except
as otherwise provided in Subsection (C) below, if an
adjustment of the Series E Conversion Price shall
result from the issuance or sale of such Option, then
no further adjustment of the Series E Conversion
Price shall be made
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upon the actual issuance of such shares of Common
Stock or of such Convertible Securities upon exercise
of such Options or upon the actual issuance of such
shares of Common Stock upon conversion or exchange of
such Convertible Securities.
(B) ISSUANCE OF CONVERTIBLE SECURITIES. In
case the Corporation shall in any manner issue or
sell any Convertible Securities, whether or not the
rights to exchange or convert any such Convertible
Securities are immediately exercisable, and the price
per share for which Common Stock is issuable upon
such conversion or exchange shall be less than the
Series E Conversion Price in effect immediately prior
to the time of such issue or sale, then the total
maximum number of shares of Common Stock issuable
upon conversion or exchange of all such Convertible
Securities shall be deemed to be outstanding and to
have been issued for such price per share as of the
date of the issue or sale of such Convertible
Securities and shall be Series E Additional Shares of
Common Stock, provided in no event shall such shares
be treated as Series E Additional Shares of Common
Stock if such shares are excluded from the definition
of Series E Additional Shares of Common Stock set
forth above. The price per share for which Common
Stock is issuable upon such conversion or exchange
shall be determined by dividing (i) the total amount
received or receivable by the Corporation as
consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate
amount of additional consideration (as set forth in
the instrument relating thereto without regard to any
provisions contained therein for a subsequent
adjustment of such amount), if any, payable to the
Corporation upon the conversion or exchange thereof,
by (ii) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all
such Convertible Securities (as set forth in the
instrument relating thereto without regard to any
provisions contained therein for a subsequent
adjustment of such number). Except as otherwise
provided in Subsection (C), if an adjustment of the
Series E Conversion Price shall result from the
issuance or sale of such Convertible Securities, then
(x) no further adjustment of the Series E Conversion
Price shall be made upon the actual issuance of such
shares of Common Stock upon conversion or exchange of
such Convertible Securities and (y) if any such
issuance or sale of such Convertible Securities is
made upon exercise of any Options to purchase any
such Convertible Securities for which adjustments of
the Series E Conversion Price have been or are to be
made pursuant to other provisions of this Subsection
5(e), no further adjustment of the Series E
Conversion Price shall be made by reason of such
issuance or sale.
(C) CHANGE IN OPTION PRICE OR CONVERSION
RATE. If the purchase price provided for in any
Option referred to above, the additional
consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred above
or the rate at which Convertible Securities referred
to above are convertible into or exchangeable for
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Common Stock shall change at any time (excluding
changes under or by reason of provisions designed to
protect against dilution), the Series E Conversion
Price in effect at the time of such event shall
forthwith be readjusted to the Series E Conversion
Price which would have been in effect at such time if
those Options or Convertible Securities which are
then still outstanding provided for such changed
purchase price, additional consideration, conversion
rate or exchange rate, as the case may be, at the
time such Options or Convertible Securities were
initially granted, issued or sold. Notwithstanding
any of the foregoing, no adjustment of the Series E
Conversion Price shall result in a Series E
Conversion Price greater than the Series E Conversion
Price as in effect immediately preceding such
original adjustment (as otherwise adjusted for Series
E Recapitalization Events as provided in Subsections
5(f) and 5(g) below).
(D) STOCK DIVIDENDS. In case the Corporation
shall declare a dividend or make any other
distribution upon any stock of the Corporation
payable in Common Stock (except for dividends or
distributions upon the Common Stock), Options or
Convertible Securities, then any Common Stock,
Options or Convertible Securities, as the case may
be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or
sold for the fair value of such Common Stock, Options
or Convertible Securities, as the case may be, as
determined in good faith by the Board of Directors of
the Corporation.
(E) CONSIDERATION FOR STOCK. In case any
shares of Common Stock, Options or Convertible
Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be
the amount received by the Corporation therefor,
without deduction therefrom of any expenses incurred
or any underwriting commissions or concessions paid
or allowed by the Corporation in connection therewith
or any amounts set-off for amounts paid or payable to
the purchaser(s) for accrued interest, accrued
dividends or otherwise. In case any shares of Common
Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash,
the amount of the consideration other than cash
received by the Corporation shall be deemed to be the
fair value of such consideration as determined in
good faith by the Board of Directors of the
Corporation, without deduction of any expenses
incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in
connection therewith or any amounts set-off for
amounts paid or payable to the purchaser(s) for
accrued interest, accrued dividends or otherwise. In
case any Options shall be issued in connection with
the issue and sale of other securities of the
Corporation, together comprising one integral
transaction in which no specific consideration is
allocated to such Options by the parties thereto,
such Options shall be deemed to have been issued for
such consideration as determined in good faith by the
Board of Directors of the Corporation.
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(F) RECORD DATE. In case the Corporation
shall take a record of the holders of its Common
Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in
Common Stock, Options or Convertible Securities or
(ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record
date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such
dividend or the making of such other distribution or
the date of the granting of such right of
subscription or purchase, as the case may be.
(f) SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Corporation shall at any time subdivide (by a stock split, stock
dividend or otherwise) its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price for the Series E
Preferred Stock in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding
shares of Common Stock shall be combined into a small number of shares
(including, without limitation, by a reverse stock split), the
Conversion Price for the Series E Preferred Stock in effect immediately
prior to such combination shall be proportionately increased.
(g) REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization or reclassification of the capital stock of the
Corporation shall be effected in such a way that holders of Common
Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, as a condition of
such reorganization or reclassification, lawful and adequate provisions
shall be made whereby each holder of a share or shares of Series E
Preferred Stock shall thereupon have the right to receive, upon the
basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable upon the
conversion of such share or shares of Series E Preferred Stock, such
shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such
Common Stock equal to the number of shares of such Common Stock
immediately theretofore receivable upon such conversion had such
reorganization or reclassification not taken place, and in any such
case appropriate provisions shall be made with respect to the rights
and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the
Conversion Price for the Series E Preferred Stock) shall thereafter be
applicable, in as nearing an equivalent manner as may be practicable,
in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of such conversion rights.
(h) NOTICE OF ADJUSTMENT. If there shall be any adjustment of
a Conversion Price, then and in each such case the Corporation shall
give prompt written notice thereof, by depositing such notice in the
mail, first class, postage prepaid, or sending such notice by telex or
telecopy to non-U.S. residents, addressed to each holder of shares of
Series E Preferred Stock at the address of such holder as shown on the
books of the Corporation, which notice shall state the Conversion Price
for the Series E Preferred Stock resulting from such adjustment,
setting forth in reasonable detail the method upon which such
calculation is based and the reasonable time period in which such
holder may comment on, or object to, such adjustment.
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(i) STOCK TO BE RESERVED. The Corporation will at all times
reserve and keep available out of its authorized Common Stock, solely
for the purpose of issuance upon the conversion of the Series E
Preferred Stock as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of all outstanding
shares of Series E Preferred Stock. The Corporation covenants that all
shares of Common Stock which shall be so issued shall be duly and
validly issued and fully paid and non-assessable and free from all
taxes, liens and charges with respect to the issue thereof.
(j) NO REISSUANCE OF SERIES E PREFERRED STOCK. Shares of the
Series E Preferred Stock which are converted into shares of Common
Stock as provided herein shall not be reissued.
(k) MANDATORY CONVERSION UPON A PUBLIC OFFERING. If at any
time the Corporation shall effect an underwritten public offering of
shares of Common Stock pursuant to a registration statement filed with
the Securities and Exchange Commission, then effective upon the closing
of the sale of such shares by the Corporation pursuant to such public
offering, all outstanding shares of Series E Preferred Stock shall be
deemed automatically converted into shares of Common Stock (an
"Automatic Conversion Event") without further action by the holders of
such shares. On or after the date of an occurrence of an Automatic
Conversion Event, and in any event within ten (10) days after receipt
of notice, by mail, postage prepaid from the Corporation of the
occurrence of such event, each holder of record of shares of Series E
Preferred Stock shall surrender such holder's certificates evidencing
such shares at the principal office of the Corporation or at such other
place as the Corporation shall designate, and shall thereupon be
entitled to receive certificates evidencing the number of shares of
Common Stock into which such shares of Series E Preferred Stock are
converted. Notwithstanding the provisions of Subsection 5(b) above, on
the date of the occurrence of an Automatic Conversion Event, each
holder of record of the shares of Series E Preferred Stock shall be
deemed to be the holder of record of the Common Stock issuable upon
such conversion and no shares of Series E Preferred Stock shall be
considered outstanding, notwithstanding that the certificates
representing such shares of Series E Preferred Stock shall not have
been surrendered at the office of the Corporation, that notice from the
Corporation shall not have been received by any holder of record of
shares of Series E Preferred Stock, or that the certificates evidencing
such shares of Common Stock shall not then be actually delivered to
such holder, provided, however, that the Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless certificates evidencing such
shares of the Series E Preferred Stock being converted are either
delivered to the Corporation or its transfer agent, or the holder
notifies the Corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection therewith.
6. ADJUSTMENTS FOR SERIES E RECAPITALIZATION EVENTS. Wherever these
terms of the Series E Preferred Stock provide for an adjustment as a result of
Series E Recapitalization Events (as defined in Subsection 5(d)(3) above, if a
subdivision (by a stock split, stock dividend or otherwise) of shares of Series
E Preferred Stock into a greater number of shares shall have occurred, then the
amount to be adjusted, if a per share amount, shall be proportionately reduced,
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or if a share amount, shall be proportionately increased. Wherever these terms
of the Series E Preferred Stock provide for an adjustment as a result of Series
E Recapitalization Events, if a combination (by a reverse stock split or
otherwise) of shares of Series E Preferred Stock into a smaller number of shares
shall have occurred, then the amount to be adjusted, if a per share amount,
shall be proportionately increased, or if a share amount, shall be
proportionately reduced.
C. SERIES F CONVERTIBLE PREFERRED STOCK. The preferences, privileges and
restrictions granted to or imposed upon the Corporation's Series F Convertible
Preferred Stock, par value $.001 per share, or the holders thereof, are as
follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series F Convertible Preferred Stock" (the "Series F Preferred
Stock") and the number of shares constituting the Series F Preferred Stock shall
be 4,000,000. Except as specifically set forth in this Certificate of
Designation, such number of shares may be increased or decreased by resolution
of the Board of Directors, provided, however, that no decrease shall reduce the
number of shares of Series F Preferred Stock to a number less than the number of
shares then outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants or upon the conversion of
any outstanding securities issued by the Corporation and convertible into Series
F Preferred Stock.
2. VOTING. Except as may be otherwise required by law, the holders of
Series F Preferred Stock shall vote together with all other classes and series
of stock of the Corporation, and not as a separate class, on all actions to be
taken by the stockholders of the Corporation and shall have such additional
voting rights as provided herein or provided by law. Each share of Series F
Preferred Stock shall entitle the holder thereof to such number of votes per
share on each such action as shall equal the number of shares of Common Stock
(including fractions of a share) into which each share of such Series F
Preferred Stock is then convertible on the record date for the determination of
the stockholders entitled to vote on such matters, or, if no such record date is
established, in accordance with Delaware Law. Except as otherwise required by
law, in any case herein requiring the affirmative vote of the holders of record
of a proportion of any class of capital stock, the written consent (which may be
in the form of a written consent action pursuant to the Delaware General
Corporation Law or in another form evidencing such consent) of the holders of
record of such proportion of the shares of such class of capital stock shall be
deemed equivalent to such a vote.
3. DIVIDENDS. Dividends may be declared and paid on the Series F
Preferred Stock from funds lawfully available therefor as and when determined by
the Board of Directors. No dividends shall be declared and set aside for or paid
upon any shares of Common Stock, except dividends of shares of Common Stock,
unless the Board of Directors shall contemporaneously declare and pay a dividend
upon the then outstanding shares of Series F Preferred Stock in the same amount
per share of Series F Preferred Stock as would be declared payable on the number
of shares of Common Stock into which each share of Series F Preferred Stock
could then be converted, such number to be determined as of the record date for
the determination of holders of the Corporation's Common Stock entitled to
receive such dividends, and plus the amount of the Accruing Dividends (as
defined below) as of such date, to the extent then unpaid. The holders of
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the Series F Preferred Stock shall also be entitled to receive, out of funds
legally available therefor, when and if declared by the Board of Directors,
dividends at the rate per annum of $0.18 per share (as adjusted for Series F
Recapitalization Events (as defined in Subsection 5(d)(3) below)) (the "Series F
Accruing Dividends"). Only for purposes of the application of the provisions of
Section 4(a)(1) hereof, the Series F Accruing Dividends shall accrue from day to
day, whether or not earned or declared. Except as provided in the immediately
preceding sentences, the Series F Accruing Dividends shall not accrue and shall
not be cumulative and the holders of the Series F Preferred Stock shall have no
right thereto except if and to the extent the Board of Directors, in its
discretion, shall declare such Series F Accruing Dividends.
4. LIQUIDATION.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets legally
available for distribution to stockholders shall be distributed to the
holders of record of shares of Preferred Stock and Common Stock as
follows:
(1) The amount of three dollars ($3.00) for each
share of the Series F Preferred Stock then outstanding, plus
the Series F Accruing Dividends unpaid thereon (whether or not
declared), computed to the date payment thereof is made
available, and the respective amount for each share of any
other series of Preferred Stock then outstanding equal to the
original purchase price per share therefor (subject to
adjustment for applicable Recapitalization Events), plus any
accruing dividends unpaid thereon (whether or not declared),
computed to the date payment thereof is made available, in
accordance with the terms of such series of Preferred Stock;
and
(2) After distribution of the full amounts described
in clause (1) immediately above, equal amounts for each
outstanding share of Common Stock.
If, upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be
distributed among the holders of Preferred Stock shall be insufficient
to permit payment in full to the holders of the Preferred Stock of the
full preferential amounts as provided in clause (1), then the entire
assets of the Corporation to be so distributed shall be distributed
ratably among the holders of the Preferred Stock entitled to receive a
distribution under such clause in accordance with the applicable
preferential amount set forth in such clause. The amounts distributable
as aforesaid shall be adjusted for Series F Recapitalization Events.
(b) Written notice of such liquidation, dissolution or winding
up, stating a payment date and the place where said payments shall be
made, shall be given by depositing such notice in the mail, first
class, postage prepaid, or by sending such notice by telex or telecopy
to non-U.S. residents, not less than twenty (20) days prior to the
payment date stated therein, to the holders of record of the Series F
Preferred Stock, such notice to be addressed to each such holder at its
address as shown on the records of the Corporation.
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(c) The rights of the holders of Series F Preferred Stock to
payments pursuant to this Section 4 shall be pari passu to the rights
of the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock as set forth in the Certificate of Incorporation of the
Corporation, the Certificate of Designation of Series D Convertible
Preferred Stock of the Corporation and the Certificate of Designation
of Series E Convertible Preferred Stock of the Corporation.
5. CONVERSION. The holders of shares of Series F Preferred Stock shall
have the following conversion rights:
(a) RIGHT TO CONVERT. Subject to the terms and conditions of
this Section 5, the holder of any share or shares of Series F Preferred
Stock shall have the right, at its option at any time, to convert any
such shares of Series F Preferred Stock (except that upon any
liquidation of the Corporation the right of conversion shall terminate
at the close of business on the business day fixed for payment of the
amount distributable on the Series F Preferred Stock) into such number
of fully paid and non-assessable shares of Common Stock (subject to
Subsection 5(c) below) as is obtained by (1) multiplying the number of
shares of Series F Preferred Stock so to be converted by three dollars
($3.00) and (2) dividing the result by the Series F Conversion Price
(as defined below), as in effect at the time of conversion into Common
Stock, which result shall be rounded to the nearest one-hundredth of a
share. Such rights of conversion into Common Stock shall be exercised
by the holder thereof by giving written notice that the holder elects
to convert a stated number of shares of Series F Preferred Stock into
Common Stock and by surrender of a certificate or certificates for the
shares so to be converted to the Corporation at its principal office
(or such other office or agency of the Corporation as the Corporation
may designate by notice in writing to the holders of the Series F
Preferred Stock) at any time during its usual business hours on the
date set forth in such notice, together with a statement of the name or
names (with address) in which the certificate or certificates for
shares of Common Stock shall be issued.
(b) ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED.
Promptly after the receipt of the written notice referred to in
Subsection 5(a) and surrender of the certificate or certificates for
the share or shares of Series F Preferred Stock to be converted, the
Corporation shall issue and deliver, or cause to be issued and
delivered, to the holder, registered in such name or names as such
holder may direct, a certificate or certificates for the number of
whole shares of Common Stock issuable upon the conversion of such share
or shares of Series F Preferred Stock. To the extent permitted by law,
such conversion into Common Stock shall be deemed to have been effected
and the Series F Conversion Price shall be determined as of the close
of business on the date on which such written notice shall have been
received by the Corporation and the certificate or certificates for
such share or shares shall have been surrendered as aforesaid, and at
such time the rights of the holder of such share or shares of Series F
Preferred Stock shall cease, and the person or persons in whose name or
names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares represented thereby.
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(c) FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No
fractional shares shall be issued upon conversion of Series F Preferred
Stock into Common Stock and no payment or adjustment shall be made upon
any conversion on account of any cash dividends on the Common Stock
issued upon such conversion. In case the number of shares of Series F
Preferred Stock represented by the certificate or certificates
surrendered pursuant to Subsection 5(a) exceeds the number of shares
converted, the Corporation shall, upon such conversion, execute and
deliver to the holder, at the expense of the Corporation a new
certificate or certificates for the number of shares of Series F
Preferred Stock represented by the certificate or certificates
surrendered which are not to be converted. If any fractional share of
Common Stock would, except for the provisions of the first sentence of
this Subsection 5(c), be delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share, shall pay to
the holder surrendering the shares of Series F Preferred Stock for
conversion an amount in cash equal to the current market price of such
fractional share as determined in good faith by the Board of Directors
of the Corporation.
(d) DEFINITIONS.
(1) "Series F Conversion Price" shall mean the price
at which shares of the Common Stock shall be deliverable upon
conversion of the Series F Preferred Stock. The initial Series
F Conversion Price shall be three dollars ($3.00), but the
Series F Conversion Price shall be subject to adjustment from
time to time as provided in this Section 5.
(2) "Series F Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or, pursuant to
Subparagraph (e) immediately below, deemed to be issued) by
the Corporation after the date of first issuance of Series F
Preferred Stock other than shares of Common Stock issued or
issuable:
(A) Upon conversion of shares of Series A,
B, C, D, E or F Preferred Stock;
(B) As a dividend or distribution on Series
A, B, C, D, E or F Preferred Stock;
(C) As a result of any combination,
consolidation, subdivision, stock dividend,
stock-split or reverse stock-split of or on shares of
Common Stock as described in Subsections 5(f) and
5(g) hereof;
(D) To directors, officers, employees or
consultants of the Corporation in connection with
their service as directors of the Corporation, their
employment by the Corporation or their service as
consultants or officers to the Corporation or
pursuant to the exercise of options, warrants or
other rights to purchase Common Stock granted to
directors, officers, employees or consultants of the
Corporation in connection with their service as
directors of the Corporation, their
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employment by the Corporation or their service as
consultants or officers of the Corporation:
(E) Upon conversion or exchange of
Convertible Securities issued or sold prior to the
date of first issuance of Series F Preferred Stock or
of Convertible Securities issued or sold upon
exercise of Options issued or sold prior to the date
of first issuance of Series F Preferred Stock;
(F) Upon the exercise of Options issued or
sold prior to the date of first issuance of Series F
Preferred Stock; and
(G) Solely in consideration for the
acquisition of (i) all or substantially all of the
assets of another corporation or (ii) the acquisition
(whether by merger or otherwise) by the Corporation
of another corporation resulting in the ownership by
the Corporation of not less than a majority in
interest of the voting power of such corporation.
(3) "Series F Recapitalization Events" shall mean
stock-splits, reverse stock-splits, stock dividends,
recapitalizations, reclassifications and similar events.
(4) "Options" shall mean any warrants or other rights
to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or security convertible
into or exchangeable for Common Stock.
(5) "Convertible Securities" shall mean any stock or
security convertible into or exchangeable for Common Stock or
for any stock or security convertible into or exchangeable for
Common Stock.
(e) ADJUSTMENT OF SERIES F CONVERSION PRICE UPON CERTAIN
EVENTS.
(1) RATCHET ANTI-DILUTION ADJUSTMENT. If and
whenever, during the Series F Ratchet Period (as defined
below), the Corporation shall issue or sell any Series F
Additional Shares of Common Stock in a Qualifying Financing
(as defined below) for a consideration per share less than the
Series F Conversion Price in effect immediately prior to the
time of such issue or sale, then, upon such issue or sale, the
Series F Conversion Price shall be reduced to a price equal to
the consideration per share of such Series F Additional Shares
of Common Stock so issued or sold or deemed to have been so
issued or sold. As used herein, "Series F Ratchet Period"
shall mean that period commencing on August 31, 1999 and
ending on June 30, 2000.
(2) WEIGHTED AVERAGE ANTI-DILUTION ADJUSTMENT. If and
whenever, after the end of the Series F Ratchet Period, the
Corporation shall issue or sell any Series F Additional Shares
of Common Stock in a Qualifying Financing for a consideration
per share less than the Series F Conversion Price in effect
immediately prior to the time of such issue or sale, then,
upon such issue or sale, the Series F Conversion Price shall
be reduced to a price determined by
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multiplying the Series F Conversion Price in effect
immediately prior to such issue or sale by a fraction (x) the
numerator of which shall be (A) the number of shares of Common
Stock outstanding immediately prior to such issue or sale
(including shares of the Common Stock issuable upon exercise
or conversion of any outstanding Options or Convertible
Securities) plus (B) the number of shares of the Common Stock
which the aggregate consideration received by the Corporation
for the total number of Series F Additional Shares of Common
Stock so issued would purchase at the Series F Conversion
Price in effect immediately prior to such issue or sale and
(y) the denominator of which shall be the number of shares of
the Common Stock outstanding immediately prior to such issue
or sale (including shares of Common Stock issuable upon
exercise or conversion of any outstanding Options or
Convertible Securities) plus (D) the number of Series F
Additional Shares of Common Stock so issued.
(3) As used in this Subsection 5(e), a "Qualifying
Financing" shall mean a financing or a series of financings in
an integrated transaction pursuant to which the Corporation
receives aggregate gross cash proceeds which equal or exceed
five hundred thousand dollars ($500,000) for the issuance of
Common Stock, Options or Convertible Securities. The term
"Qualifying Financing" shall not include a joint venture,
research and development, licensing, technology transfer,
corporate partner, collaborative agreement or equipment
financing.
(4) For purposes of this Subsection 5(e), the
following Subsections (A) to (F) shall also be applicable:
(A) ISSUANCE OF OPTIONS. In case the
Corporation shall in any manner issue or sell
Options, whether or not such Options or the rights to
exchange or convert any Convertible Securities
issuable upon exercise of such Options are
immediately exercisable, and the price per share for
which Common Stock is issuable upon the exercise of
such Options or upon the conversion or exchange of
such Convertible Securities shall be less than the
Series F Conversion Price in effect immediately prior
to the time of such issue or sale, then the total
maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion
or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of
such Options shall be deemed to be outstanding and to
have been issued for such price per share as of the
date of the issue or sale of such Options and shall
be Series F Additional Shares of Common Stock,
provided in no event shall such shares be treated as
Series F Additional Shares of Common Stock if such
shares are excluded from the definition of Series F
Additional Shares of Common Stock set forth above.
The price per share for which Common Stock is
issuable upon the exercise of such Options or upon
the conversion or exchange of such Convertible
Securities shall be determined by dividing (i) the
total amount, if any, received or receivable by the
Corporation as consideration for the issue or sale of
such Options, plus the minimum aggregate amount of
additional consideration (as set forth in the
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instrument relating thereto without regard to any
provisions contained therein for a subsequent
adjustment of such amount), if any, payable to the
Corporation upon the exercise of all such Options,
plus, in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount
of additional consideration (as set forth in the
instrument relating thereto without regard to any
provisions contained therein for a subsequent
adjustment of such amount), if any, payable upon the
issue or sale of such Convertible Securities and upon
the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon the
conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options
(as set forth in the instrument relating thereto
without regard to any provisions contained therein
for a subsequent adjustment of such number). Except
as otherwise provided in Subsection (C) below, if an
adjustment of the Series F Conversion Price shall
result from the issuance or sale of such Option, then
no further adjustment of the Series F Conversion
Price shall be made upon the actual issuance of such
shares of Common Stock or of such Convertible
Securities upon exercise of such Options or upon the
actual issuance of such shares of Common Stock upon
conversion or exchange of such Convertible
Securities.
(B) ISSUANCE OF CONVERTIBLE SECURITIES. In
case the Corporation shall in any manner issue or
sell any Convertible Securities, whether or not the
rights to exchange or convert any such Convertible
Securities are immediately exercisable, and the price
per share for which Common Stock is issuable upon
such conversion or exchange shall be less than the
Series F Conversion Price in effect immediately prior
to the time of such issue or sale, then the total
maximum number of shares of Common Stock issuable
upon conversion or exchange of all such Convertible
Securities shall be deemed to be outstanding and to
have been issued for such price per share as of the
date of the issue or sale of such Convertible
Securities and shall be Series F Additional Shares of
Common Stock, provided in no event shall such shares
be treated as Series F Additional Shares of Common
Stock if such shares are excluded from the definition
of Series F Additional Shares of Common Stock set
forth above. The price per share for which Common
Stock is issuable upon such conversion or exchange
shall be determined by dividing (i) the total amount
received or receivable by the Corporation as
consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate
amount of additional consideration (as set forth in
the instrument relating thereto without regard to any
provisions contained therein for a subsequent
adjustment of such amount), if any, payable to the
Corporation upon the conversion or exchange thereof,
by (ii) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all
such Convertible Securities (as set forth in the
instrument relating thereto without regard to any
provisions contained therein for a subsequent
adjustment of such number). Except as otherwise
provided in Subsection (C), if an
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adjustment of the Series F Conversion Price shall
result from the issuance or sale of such Convertible
Securities, then (x) no further adjustment of the
Series F Conversion Price shall be made upon the
actual issuance of such shares of Common Stock upon
conversion or exchange of such Convertible Securities
and (y) if any such issuance or sale of such
Convertible Securities is made upon exercise of any
Options to purchase any such Convertible Securities
for which adjustments of the Series F Conversion
Price have been or are to be made pursuant to other
provisions of this Subsection 5(e), no further
adjustment of the Series F Conversion Price shall be
made by reason of such issuance or sale.
(C) CHANGE IN OPTION PRICE OR CONVERSION
RATE. If the purchase price provided for in any
Option referred to above, the additional
consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred above
or the rate at which Convertible Securities referred
to above are convertible into or exchangeable for
Common Stock shall change at any time (excluding
changes under or by reason of provisions designed to
protect against dilution), the Series F Conversion
Price in effect at the time of such event shall
forthwith be readjusted to the Series F Conversion
Price which would have been in effect at such time if
those Options or Convertible Securities which are
then still outstanding provided for such changed
purchase price, additional consideration, conversion
rate or exchange rate, as the case may be, at the
time such Options or Convertible Securities were
initially granted, issued or sold. Notwithstanding
any of the foregoing, no adjustment of the Series F
Conversion Price shall result in a Series F
Conversion Price greater than the Series F Conversion
Price as in effect immediately preceding such
original adjustment (as otherwise adjusted for Series
F Recapitalization Events as provided in Subsections
5(f) and 5(g) below).
(D) STOCK DIVIDENDS. In case the Corporation
shall declare a dividend or make any other
distribution upon any stock of the Corporation
payable in Common Stock (except for dividends or
distributions upon the Common Stock), Options or
Convertible Securities, then any Common Stock,
Options or Convertible Securities, as the case may
be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or
sold for the fair value of such Common Stock, Options
or Convertible Securities, as the case may be, as
determined in good faith by the Board of Directors of
the Corporation.
(E) CONSIDERATION FOR STOCK. In case any
shares of Common Stock, Options or Convertible
Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be
the amount received by the Corporation therefor,
without deduction therefrom of any expenses incurred
or any underwriting commissions or concessions paid
or allowed by the Corporation in connection therewith
or any amounts set-off for amounts paid or payable to
the purchaser(s) for accrued interest,
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accrued dividends or otherwise. In case any shares of
Common Stock, Options or Convertible Securities shall
be issued or sold for a consideration other than
cash, the amount of the consideration other than cash
received by the Corporation shall be deemed to be the
fair value of such consideration as determined in
good faith by the Board of Directors of the
Corporation, without deduction of any expenses
incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in
connection therewith or any amounts set-off for
amounts paid or payable to the purchaser(s) for
accrued interest, accrued dividends or otherwise. In
case any Options shall be issued in connection with
the issue and sale of other securities of the
Corporation, together comprising one integral
transaction in which no specific consideration is
allocated to such Options by the parties thereto,
such Options shall be deemed to have been issued for
such consideration as determined in good faith by the
Board of Directors of the Corporation.
(F) RECORD DATE. In case the Corporation
shall take a record of the holders of its Common
Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in
Common Stock, Options or Convertible Securities or
(ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record
date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such
dividend or the making of such other distribution or
the date of the granting of such right of
subscription or purchase, as the case may be.
(f) SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Corporation shall at any time subdivide (by a stock split, stock
dividend or otherwise) its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price for the Series F
Preferred Stock in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding
shares of Common Stock shall be combined into a small number of shares
(including, without limitation, by a reverse stock split), the
Conversion Price for the Series F Preferred Stock in effect immediately
prior to such combination shall be proportionately increased.
(g) REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization or reclassification of the capital stock of the
Corporation shall be effected in such a way that holders of Common
Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, as a condition of
such reorganization or reclassification, lawful and adequate provisions
shall be made whereby each holder of a share or shares of Series F
Preferred Stock shall thereupon have the right to receive, upon the
basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable upon the
conversion of such share or shares of Series F Preferred Stock, such
shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such
Common Stock equal to the number of shares of such Common Stock
immediately theretofore receivable upon such conversion had such
reorganization or
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reclassification not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof (including without
limitation provisions for adjustments of the Conversion Price for the
Series F Preferred Stock) shall thereafter be applicable, in as nearing
an equivalent manner as may be practicable, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise
of such conversion rights.
(h) NOTICE OF ADJUSTMENT. If there shall be any adjustment of
a Conversion Price, then and in each such case the Corporation shall
give prompt written notice thereof, by depositing such notice in the
mail, first class, postage prepaid, or sending such notice by telex or
telecopy to non-U.S. residents, addressed to each holder of shares of
Series F Preferred Stock at the address of such holder as shown on the
books of the Corporation, which notice shall state the Conversion Price
for the Series F Preferred Stock resulting from such adjustment,
setting forth in reasonable detail the method upon which such
calculation is based and the reasonable time period in which such
holder may comment on, or object to, such adjustment.
(i) STOCK TO BE RESERVED. The Corporation will at all times
reserve and keep available out of its authorized Common Stock, solely
for the purpose of issuance upon the conversion of the Series F
Preferred Stock as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of all outstanding
shares of Series F Preferred Stock. The Corporation covenants that all
shares of Common Stock which shall be so issued shall be duly and
validly issued and fully paid and non-assessable and free from all
taxes, liens and charges with respect to the issue thereof.
(j) NO REISSUANCE OF SERIES F PREFERRED STOCK. Shares of the
Series F Preferred Stock which are converted into shares of Common
Stock as provided herein shall not be reissued.
(k) MANDATORY CONVERSION UPON A PUBLIC OFFERING. If at any
time the Corporation shall effect an underwritten public offering of
shares of Common Stock pursuant to a registration statement filed with
the Securities and Exchange Commission, then effective upon the closing
of the sale of such shares by the Corporation pursuant to such public
offering, all outstanding shares of Series F Preferred Stock shall be
deemed automatically converted into shares of Common Stock (an
"Automatic Conversion Event") without further action by the holders of
such shares. On or after the date of an occurrence of an Automatic
Conversion Event, and in any event within ten (10) days after receipt
of notice, by mail, postage prepaid from the Corporation of the
occurrence of such event, each holder of record of shares of Series F
Preferred Stock shall surrender such holder's certificates evidencing
such shares at the principal office of the Corporation or at such other
place as the Corporation shall designate, and shall thereupon be
entitled to receive certificates evidencing the number of shares of
Common Stock into which such shares of Series F Preferred Stock are
converted. Notwithstanding the provisions of Subsection 5(b) above, on
the date of the occurrence of an Automatic Conversion Event, each
holder of record of the shares of Series F Preferred Stock shall be
deemed to be the holder of record of the Common Stock issuable upon
such conversion and no shares of Series F Preferred Stock shall be
considered outstanding, notwithstanding that the
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certificates representing such shares of Series F Preferred Stock shall
not have been surrendered at the office of the Corporation, that notice
from the Corporation shall not have been received by any holder of
record of shares of Series F Preferred Stock, or that the certificates
evidencing such shares of Common Stock shall not then be actually
delivered to such holder, provided, however, that the Corporation shall
not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such conversion unless certificates evidencing such
shares of the Series F Preferred Stock being converted are either
delivered to the Corporation or its transfer agent, or the holder
notifies the Corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection therewith.
6. ADJUSTMENTS FOR SERIES F RECAPITALIZATION EVENTS. Wherever these
terms of the Series F Preferred Stock provide for an adjustment as a result of
Series F Recapitalization Events (as defined in Subsection 5(d)(3) above, if a
subdivision (by a stock split, stock dividend or otherwise) of shares of Series
F Preferred Stock into a greater number of shares shall have occurred, then the
amount to be adjusted, if a per share amount, shall be proportionately reduced,
or if a share amount, shall be proportionately increased. Wherever these terms
of the Series F Preferred Stock provide for an adjustment as a result of Series
F Recapitalization Events, if a combination (by a reverse stock split or
otherwise) of shares of Series F Preferred Stock into a smaller number of shares
shall have occurred, then the amount to be adjusted, if a per share amount,
shall be proportionately increased, or if a share amount, shall be
proportionately reduced.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by and attested by its duly authorized officer this
10th day of March, 2000.
GENOMETRIX INCORPORATED
By: /s/ Mitchell D. Eggers
----------------------
Mitchell D. Eggers
Chief Executive Officer
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Exhibit 3.3
GENOMETRIX INCORPORATED
BY-LAWS
ARTICLE I. - STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at ten o'clock a.m. or
such other time as is determined by the Board of Directors, on such date (other
than a Saturday, Sunday or legal holiday) as is determined by the Board of
Directors, which date shall be within thirteen (13) months subsequent to the
later of the date of incorporation or the last annual meeting of stockholders,
and at such place as the Board of Directors shall each year fix.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, special meetings of stockholders of the
Corporation may be called only by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors authorized.
Special meetings of the stockholders may be held at such place within or without
the State of Delaware as may be stated in such resolution.
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of a majority of all of
the shares of the stock entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law. Where a
separate vote by a class or classes is required, a majority of the shares of
such
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class or classes present in person or represented by proxy shall constitute a
quorum entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date, or time.
Section 5. Organization.
The Chairman of the Board of Directors or, in his or her absence, such
person as the Board of Directors may have designated or, in his or her absence,
the chief executive officer of the Corporation or, in his or her absence, such
person as may be chosen by the holders of a majority of the shares entitled to
vote who are present, in person or by proxy, shall call to order any meeting of
the stockholders, shall preside at, and act as chairman of the meeting. In the
absence of the Secretary of the Corporation, the secretary of the meeting shall
be such person as the chairman of the meeting appoints.
Section 6. Conduct of Business.
The chairman of any meeting of stockholders shall determine the order
of business and the procedures at the meeting, including such regulation of the
manner of voting and the conduct of discussion as he or she deems to be
appropriate.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting.
Each stockholder shall have one (1) vote for every share of stock
entitled to vote which is registered in his or her name on the record date for
the meeting, except as otherwise provided herein or required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or his or her proxy, a vote by
ballot shall be taken.
Except as otherwise provided in the terms of any class or series of
preferred stock of the Corporation, all elections shall be determined by a
plurality of the votes cast, and except as otherwise required by law, all other
matters shall be determined by a majority of the votes cast.
Section 8. Action Without Meeting.
Any action required to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be (1) signed and dated by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take
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such action at a meeting at which all shares entitled to vote thereon were
present and voted and (2) delivered to the Corporation within sixty (60) days of
the earliest dated consent by delivery to its registered office in the State of
Delaware (in which case delivery shall be by hand or by certified or registered
mail, return receipt requested), its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
Section 9. Stock List.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. Such list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
ARTICLE II. - BOARD OF DIRECTORS
Section 1. Number, Election, Tenure and Qualification.
The number of directors which shall constitute the whole board shall be
determined by resolution of the Board of Directors or by the stockholders at the
annual meeting or at any special meeting of stockholders. The directors shall be
elected at the annual meeting or at any special meeting of the stockholders,
except as provided in Section 2 of this Article, and each director elected shall
hold office until his or her successor is elected and qualified, unless sooner
displaced. Directors need not be stockholders.
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation to elect directors, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the directors then in office, though less than a
quorum, or the sole remaining director. No decrease in the number of authorized
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
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Section 3. Resignation and Removal.
Any director may resign at any time upon written notice to the
Corporation at its principal place of business or to the chief executive officer
or secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event. Any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, unless otherwise specified by law or the
Certificate of Incorporation.
Section 4. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
written notice of each regular meeting shall not be required.
Section 5. Special Meetings.
Special meetings of the Board of Directors may be called by the
Chairman of the Board of Directors, if any, the President, the Treasurer, the
Secretary or one or more of the directors then in office and shall be held at
such place, on such date, and at such time as they or he or she shall fix.
Notice of the place, date, and time of each such special meeting shall be given
each director by whom it is not waived by mailing written notice not less than
three (3) days before the meeting or orally, by telegraph, telex, cable or
telecopy given not less than twenty-four (24) hours before the meeting. Unless
otherwise indicated in the notice thereof, any and all business may be
transacted at a special meeting.
Section 6. Quorum.
At any meeting of the Board of Directors, a majority of the total
number of members of the Board of Directors shall constitute a quorum for all
purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
Section 7. Action by Consent.
Unless otherwise restricted by the Certificate of Incorporation or
these By-Laws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting, if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
Section 8. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
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Section 9. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law.
Section 10. Powers.
The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, including, without limiting the generality of the
foregoing, the unqualified power:
1. To declare dividends from time to time in accordance
with law;
2. To purchase or otherwise acquire any property, rights
or privileges on such terms as it shall determine;
3. To authorize the creation, making and issuance, in
such form as it may determine, of written obligations
of every kind, negotiable or non-negotiable, secured
or unsecured, to borrow funds and guarantee
obligations, and to do all things necessary in
connection therewith;
4. To remove any officer of the Corporation with or
without cause, and from time to time to devolve the
powers and duties of any officer upon any other
person for the time being;
5. To confer upon any officer of the Corporation the
power to appoint, remove and suspend subordinate
officers, employees and agents;
6. To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for
directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
7. To adopt from time to time such insurance,
retirement, and other benefit plans for directors,
officers, employees and agents of the Corporation and
its subsidiaries as it may determine; and,
8. To adopt from time to time regulations, not
inconsistent with these By-Laws, for the management
of the Corporation's business and affairs.
Section 11. Compensation of Directors.
Directors, as such, may receive, pursuant to a resolution of the Board
of Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
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ARTICLE III. - COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Board of
Directors, may from time to time designate committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for those committees and any others provided
for herein, elect a director or directors to serve as the member or members,
designating, if it desires, other directors as alternate members who may replace
any absent or disqualified member at any meeting of the committee. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of, the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the By-Laws of the Corporation. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum; and all matters shall be determined by a majority vote of
the members present. Action may be taken by any committee without a meeting if
all members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of such committee.
ARTICLE IV. - OFFICERS
Section 1. Enumeration.
The officers of the Corporation shall be the President, the Treasurer,
the Secretary and such other officers as the Board of Directors or the Chairman
of the Board may determine, including, but not limited to, the Chairman of the
Board of Directors, one or more Vice Presidents, Assistant Treasurers and
Assistant Secretaries.
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Section 2. Election.
The Chairman of the Board, if any, the President, the Treasurer and the
Secretary shall be elected annually by the Board of Directors at its first
meeting following the annual meeting of the stockholders. The Board of Directors
or the Chairman of the Board, if any, may, from time to time, elect or appoint
such other officers as it or he or she may determine, including, but not limited
to, one or more Vice Presidents, Assistant Treasurers and Assistant Secretaries.
Section 3. Qualification.
No officer need be a stockholder. The Chairman of the Board, if any,
and any Vice Chairman appointed to act in the absence of the Chairman, if any,
shall be elected by and from the Board of Directors, but no other officer need
be a director. Two or more offices may be held by any one person. If required by
vote of the Board of Directors, an officer shall give bond to the Corporation
for the faithful performance of his or her duties, in such form and amount and
with such sureties as the Board of Directors may determine. The premiums for
such bonds shall be paid by the Corporation.
Section 4. Tenure and Removal.
Each officer elected or appointed by the Board of Directors shall hold
office until the first meeting of the Board of Directors following the next
annual meeting of the stockholders and until his or her successor is elected or
appointed and qualified, or until he or she dies, resigns, is removed or becomes
disqualified, unless a shorter term is specified in the vote electing or
appointing said officer. Each officer appointed by the Chairman of the Board, if
any, shall hold office until his or her successor is elected or appointed and
qualified, or until he or she dies, resigns, is removed or becomes disqualified,
unless a shorter term is specified by any agreement or other instrument
appointing such officer. Any officer may resign by giving written notice of his
or her resignation to the Chairman of the Board, if any, the President, or the
Secretary, or to the Board of Directors at a meeting of the Board, and such
resignation shall become effective at the time specified therein. Any officer
elected or appointed by the Board of Directors may be removed from office with
or without cause by vote of a majority of the directors. Any officer appointed
by the Chairman of the Board, if any, may be removed with or without cause by
the Chairman of the Board.
Section 5. Chairman of the Board.
The Chairman of the Board, if any, shall preside at all meetings of the
Board of Directors and stockholders at which he or she is present and shall have
such authority and perform such duties as may be prescribed by these By-Laws or
from time to time be determined by the Board of Directors. The Chairman of the
Board shall have power to sign all stock certificates, contracts and other
instruments of the Corporation which are authorized.
Section 6. President.
The President shall, subject to the control and direction of the Board
of Directors, have and perform such powers and duties as may be prescribed by
these By-Laws or from time to time be determined by the Board of Directors. The
President shall have power to sign all stock
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certificates, contracts and other instruments of the Corporation which are
authorized. In the absence of a Chief Executive Officer, the President shall be
the chief executive officer of the Corporation and shall, subject to the
direction of the Board of Directors, have general supervision and control of its
business and shall have general supervision and direction of all of the
officers, employees and agents of the Corporation.
Section 7. Vice Presidents.
The Vice Presidents, if any, in the order of their election, or in such
other order as the Board of Directors may determine, shall have and perform the
powers and duties of the President (or such of the powers and duties as the
Board of Directors may determine) whenever the President is absent or unable to
act. The Vice Presidents, if any, shall also have such other powers and duties
as may from time to time be determined by the Board of Directors.
Section 8. Treasurer amid Assistant Treasurers.
The Treasurer shall, subject to the control and direction of the Board
of Directors, have and perform such powers and duties as may be prescribed in
these By-Laws or be determined from time to time by the Board of Directors. All
property of the Corporation in the custody of the Treasurer shall be subject at
all times to the inspection and control of the Board of Directors. Unless
otherwise voted by the Board of Directors, each Assistant Treasurer, if any,
shall have and perform the powers and duties of the Treasurer whenever the
Treasurer is absent or unable to act, and may at any time exercise such of the
powers of the Treasurer, and such other powers and duties, as may from time to
time be determined by the Board of Directors.
Section 9. Secretary amid Assistant Secretaries.
The Board of Directors shall appoint a Secretary and, in his or her
absence, an Assistant Secretary. The Secretary or, in his or her absence, any
Assistant Secretary, shall attend all meetings of the directors and shall record
all votes of the Board of Directors and minutes of the proceedings at such
meetings. The Secretary or, in his or her absence, any Assistant Secretary,
shall notify the directors of their meetings, and shall have and perform such
other powers and duties as may from time to time be determined by the Board of
Directors. If the Secretary or an Assistant Secretary is elected but is absent
from any meeting of directors, a temporary secretary may be appointed by the
directors at the meeting
Section 10. Bond.
If required by the Board of Directors, any officer shall give the
Corporation a bond in such sum and with such surety or sureties and upon such
terms and conditions as shall be satisfactory to the Board of Directors,
including without limitation a bond for the faithful performance of the duties
of his office and for the restoration to the Corporation of all books, papers,
vouchers, money and other property of whatever kind in his or her possession or
under his control and belonging to the Corporation.
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Section 11. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President, the
Treasurer or any officer of the Corporation authorized by the President shall
have power to vote and otherwise act on behalf of the Corporation, in person or
by proxy, at any meeting of stockholders of or with respect to any action of
stockholders of any other corporation in which this Corporation may hold
securities and otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in such other
corporation.
ARTICLE V. - STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in
the name of the Corporation by the Chairman of the Board of Directors, or the
President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary, certifying the number of shares
owned by it, him or her.
Any or all of the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the Corporation
kept at an office of the Corporation or by transfer agents designated to
transfer shares of the stock of the Corporation. Except where a certificate is
issued in accordance with Section V.4 of this Article of these By-Laws, an
outstanding certificate for the number of shares involved shall be surrendered
for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
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A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
Section 6. Interpretation.
The Board of Directors shall have the power to interpret all of the
terms and provisions of these By-Laws, which interpretation shall be conclusive.
ARTICLE VI. - NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, director, officer, employee
or agent shall be in writing and may in every instance be effectively given by
hand delivery to the recipient thereof, by depositing such notice in the mail,
postage paid, or by sending such notice by courier service, prepaid telegram or
mailgram, or telecopy, cable, or telex. Any such notice shall be addressed to
such stockholder, director, officer, employee or agent at its, his or her last
known address as the same appears on the books of the Corporation. The time when
such notice is received, if hand delivered, or dispatched, if delivered through
the mail or by courier, telegram, mailgram, telecopy, cable, or telex shall be
the time of the giving of the notice.
Section 2. Waiver of Notice.
A written waiver of any notice, signed by a stockholder, director,
officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, director, officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.
Attendance of a director or stockholder at a meeting without protesting prior
thereto or at its commencement the lack of notice shall also constitute a waiver
of notice by such director or stockholder.
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ARTICLE VII. - INDEMNIFICATION
Section 1. Right to Indemnification.
Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was a director or an officer of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "Indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such Indemnitee in connection
therewith; provided, however, that, except as provided in Section 3 of this
Article with respect to proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such Indemnitee in connection with a proceeding
(or part thereof) initiated by such Indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
Section 2. Right to Advancement of Expenses.
The right to indemnification conferred in Section 1 of this Article
shall include the right to be paid by the Corporation the expenses (including
attorney s fees) incurred in defending any such proceeding in advance of its
final disposition; provided, however, that, if the Delaware General Corporation
Law requires, an advancement of expenses incurred by an Indemnitee in his
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such Indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such Indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal that such Indemnitee is
not entitled to be indemnified for such expenses under this Section 2 or
otherwise. The rights to indemnification and to the advancement of expenses
conferred in Sections 1 and 2 of this Article shall be contract rights and such
rights shall continue as to an Indemnitee who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the Indemnitee's
heirs, executors, and administrators. Any repeal or modification of any of the
provisions of this Article shall not adversely affect any right or protection of
an Indemnitee existing at the time of such repeal or modification.
Section 3. Right of Indemnitees to Bring Suit.
If a claim under Section 1 or 2 of this Article is not paid in full by
the Corporation within sixty (60) days after a written claim has been received
by the Corporation, except in the case of a
11
<PAGE> 12
claim for an advancement of expenses, in which case the applicable period shall
be twenty (20) days, the Indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit, or in a suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
Indemnitee shall also be entitled to be paid the expenses of prosecuting or
defending such suit. In (i) any suit brought by the Indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the Indemnitee
to enforce a right to an advancement of expenses) it shall be a defense that,
and (ii) in any suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the Indemnitee
has not met any applicable standard for indemnification set forth in the
Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the Indemnitee is proper in the circumstances
because the Indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the Indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or brought by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of proving that the Indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article or otherwise shall be on the Corporation.
Section 4. Non-Exclusivity of Rights.
The rights to indemnification and to the advancement of expenses
conferred in this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation as amended from time to time, these by-laws, any
agreement, any vote of stockholders or disinterested directors or otherwise.
Section 5. Insurance.
The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
Section 6. Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
12
<PAGE> 13
ARTICLE VIII. - CERTAIN TRANSACTIONS
Section 1. Transactions with Interested Parties.
No contract or transaction between the Corporation and one or more of
its directors or officers, or between the Corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board or
committee thereof which authorizes the contract or transaction or solely because
the votes of such director or officer are counted for such purpose, if:
(a) The material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are
known to the Board of Directors or the committee, and the Board or
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or
(b) The material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are
known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
stockholders; or
(c) The contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders.
Section 2. Quorum.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
ARTICLE IX. - MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these By-Laws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name
of the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
13
<PAGE> 14
Section 3. Reliance upon Books, Reports amid Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
Except as otherwise determined by the Board of Directors from time to
time, the fiscal year of the Corporation shall end on the last day of September
of each year.
Section 5. Time Periods.
In applying any provision of these By-Laws which requires that an act
be done or not be done a specified number of days prior to an event or that an
act be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE X. - AMENDMENTS
These By-Laws may be amended, added to, rescinded or repealed by the
stockholders or by the Board of Directors, when such power is conferred upon the
Board of Directors by the Certificate of Incorporation, at any meeting of the
stockholders or of the Board of Directors.
14
<PAGE> 1
EXHIBIT 4.2
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
144 OF SUCH ACT. ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO APPLICABLE STATE
SECURITIES LAWS.
GENOMETRIX INCORPORATED
WARRANT
FOR VALUE RECEIVED, GENOMETRIX INCORPORATED, a Delaware corporation
(the "Company"), hereby certifies that ______________ (the "Holder", which term
shall include any subsequent holder hereof) is entitled to purchase from the
Company fully paid and nonassessable shares (subject to adjustment as provided
below) of the Capital Stock (as defined below), determined as provided herein.
This Warrant has been issued pursuant to a Note and Warrant Purchase
Agreement of dated as of January 24, 1996 between the Company and the Holder
(the "Agreement"). Hereinafter, (i) "Capital Stock," "Conversion Date",
"Financing" and "Purchase Price" shall have the respective meanings set forth in
the Convertible Note (the "Convertible Note") issued contemporaneously herewith,
and (ii) the shares of Capital Stock purchasable hereunder are referred to as
the "Warrant Shares," (iii) the aggregate purchase price payable for the Warrant
Shares hereunder is referred to as the "Aggregate Warrant Price," and (iv) the
price payable for each of the Warrant Shares hereunder is referred to as the
"Per Share Warrant Price."
1. EXERCISE OF WARRANT.
(a) This Warrant may be exercised, in whole at any time or in part from
time to time by the Holder commencing on the Conversion Date and prior to 5:00
p.m., The Woodlands, Texas time, on the later of (1) [THREE YEARS FROM DATE OF
ISSUE] or (2) the first (1st) anniversary of the Conversion Date, by the
surrender of this Warrant (with the subscription form at the end hereof duly
executed) at the address set forth in Section 8 hereof, together with proper
payment of the Aggregate Warrant Price made by certified or official bank check
payable to the order of the Company.
(b) This Warrant shall be exercisable for that number of shares as
equals six tenths
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<PAGE> 2
(.6) times the number of shares of Capital Stock determined by dividing (i) the
sum of the outstanding principal amount of the Convertible Note and all accrued
but unpaid interest thereon as of the Conversion Date by (ii) the Purchase Price
per such share of Capital Stock, subject to adjustment as provided herein, and
the Per Share Warrant Price shall be equal to the Purchase Price per share,
subject to adjustment as provided herein.
(c) If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Capital Stock, and the holder is
entitled to receive a new Warrant covering the Warrant Shares as to which this
Warrant has not been exercised. Upon exercise of this Warrant, the Company will
(i) issue a certificate or certificates in the name of the holder for the
largest number of whole shares of the Capital Stock to which the holder shall be
entitled, and (ii) deliver the other securities and properties receivable upon
the exercise of this Warrant.
2. RESERVATION OF WARRANT SHARES. The Company agrees that, prior to the
expiration of this Warrant, the Company will at all times have authorized and in
reserve, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the shares of the Capital Stock and other securities
and properties as from time to time shall be receivable upon the exercise of
this Warrant, free and clear of all restrictions on sale or transfer and free
and clear of all preemptive rights and rights of first refusal.
3. ADJUSTMENTS OF PER SHARE WARRANT PRICE.
(a) In case the Company shall, after the Conversion Date (i) pay a
dividend or make a distribution on its Capital Stock in shares of Capital Stock,
(ii) subdivide its outstanding shares of Capital Stock into a greater number of
shares (by a stock split or otherwise), (iii) combine its outstanding shares of
Capital Stock into a smaller number of shares (by a reverse stock split or
otherwise) or (iv) issue by reclassification of its Capital Stock any shares of
capital stock of the Company (whether or not Capital Stock), the Per Share
Warrant Price shall be adjusted so that the holder upon the exercise hereof
shall be entitled to receive the number of shares of Capital Stock or other
capital stock of the Company which it would have owned immediately following
such action had such Warrant been exercised immediately prior thereto. An
adjustment made pursuant to this Section 3(a) shall become effective on the
record date in the case of a dividend or distribution and shall become effective
on the effective date in the case of a subdivision, combination or
reclassification.
(b) In case of any capital reorganization or reclassification, or any
consolidation or merger to which the Company is a party other than a merger or
consolidation in which the Company is the continuing corporation, or in case of
any sale or conveyance to another entity of the property of the Company as an
entirety or substantially as a entirety, or in the case of any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of a third corporation into the Company) (which
consolidation, merger, sale, conveyance and statutory exchange is referred to
below as a "Sale"), the Holder of this Warrant shall have the right thereafter
to receive on the exercise of this Warrant the kind and
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<PAGE> 3
amount of securities, cash or other property which the Holder would have owned
or have been entitled to receive immediately after such reorganization or
reclassification (as if such transaction had already occurred for the Purchase
Price contemplated in such reorganization or reclassification as the value
attributable to each share of Common Stock by the Company's Board of Directors
in the reorganization or reclassification approved thereby) or Sale had this
Warrant been exercised immediately prior to the effective date of such
reorganization, reclassification or Sale and in any such case, if necessary,
appropriate adjustment shall be made in the application of the provisions set
forth in this Section 3 with respect to the rights and interests thereafter of
the Holder of this Warrant to the end that the provisions set forth in this
Section 3 shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant. The above
provisions of this Section 3(b) shall similarly apply to successive
reorganizations, reclassifications or Sales. The issuer of any shares of stock
or other securities or property thereafter deliverable on the exercise of this
Warrant shall be responsible for all of the agreements and obligations of the
Company hereunder. Notice of any such reorganization, reclassification or Sale
and of said provisions so proposed to be made, shall be mailed to the Holder not
less than thirty (30) days prior to such event. In the event of an anticipated
Sale, the Company or the entity assuming the obligations of the Company
hereunder may (i) upon written notice to the Holder, provide that this Warrant
must be exercised, to the extent then exercisable, within thirty (30) days of
the date of such notice, at the end of which period this Warrant shall terminate
(but if and only if such Sale shall be consummated); or (ii) terminate this
Warrant in exchange for a cash payment equal to the excess of the current market
price of the Warrant Shares subject to this Warrant (to the extent then
exercisable) over the Per Share Warrant Price thereof (but if and only if such
Sale shall be consummated).
(c) If the Board of Directors of the Company shall declare any dividend
or other distribution with respect to any Capital Stock of the Company, the
Company shall mail notice thereof to the Holder not less than fifteen (15) days
prior to the record date fixed for determining stockholders entitled to
participate in such dividend or other distribution.
(d) If, as a result of an adjustment made pursuant to this Section 3,
the Holder after surrender of this Warrant for exercise shall become entitled to
receive shares of two or more classes of capital stock of the Company, the Board
of Directors (whose determination shall be conclusive and shall be described in
a written notice to the Holder promptly after such adjustment) shall determine
the allocation of the adjusted Per Share Warrant Price between or among shares
or such classes of capital stock.
4. FULLY PAID STOCK. The Company agrees that the shares of the Capital
Stock represented by each and every certificate for Warrant Shares delivered on
the exercise of this Warrant shall, at the time of such delivery, be validly
issued and outstanding, fully paid and nonassessable, and not subject to
preemptive rights or rights of first refusal, and the Company will take all such
actions as may be necessary to assure that the par value or stated value, if
any, per share of the Capital Stock is at all times equal to or less than the
then Per Share Warrant
-3-
<PAGE> 4
Price.
5. LOSS, ETC., OF WARRANT. Upon receipt of evidence reasonably to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
6. WARRANT HOLDER NOT STOCKHOLDER. Except as otherwise provided herein,
this Warrant does not confer upon the Holder any right to vote or to consent to
or receive notice as a stockholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a stockholder, prior
to the exercise hereof.
7. COVENANTS OF WARRANT HOLDER. By acceptance of this Warrant, the
Holder is hereby deemed to covenant and agree with the Company:
(a) that it is acquiring this Warrant as an investment and not with a
view to distribution hereof. The holder of this Warrant or any Warrant Shares
may transfer this Warrant or such Warrant Shares only pursuant to applicable
Federal and state laws. Each registered Holder of this Warrant acknowledges that
this Warrant has not been registered under the Securities Act of 1933, as
amended (or any successor legislation) (the "Securities Act") and agrees not to
sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this
Warrant or any Warrant Shares issued upon its exercise in the absence of (i) an
effective registration statement as to this Warrant or such Warrant Shares under
the Securities Act, or (ii) an opinion of counsel reasonably acceptable to the
Company to the effect that such registration is not, under the circumstances,
required. In addition, in order for any transferee of this Warrant or any
Warrant Shares to receive any of the benefits of this Warrant or the Warrant
Shares, as the case may be, the Company must have received notice of such
transfer, at the address set forth in Section 8 below, in the form of assignment
or partial assignment attached hereto. Any transferee other than pursuant to an
effective registration statement under the Securities Act or pursuant to Rule
144 promulgated under the Securities Act must also covenant and agree that it is
acquiring this Warrant or such Warrant Shares as an investment and not with a
view to distribution hereof or thereof, except in accordance with the Securities
Act and applicable state securities law; and
(b) it will not sell, transfer or otherwise dispose of any securities
of the Company during the period commencing upon the date upon which the Company
files a registration statement with the Securities and Exchange Commission for
the registration of any securities for sale to the public and terminating on the
180th day following the date on which the Company's registration statement with
respect to its initial public offering is declared effective, except pursuant to
any written registration rights agreement with the Company.
8. NOTICES. All notices, requests, consents and demands shall be made
in writing and shall be mailed postage prepaid, or delivered by hand, to the
Company or to the Holder
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<PAGE> 5
thereof at their respective addresses set forth below or to such other address
as may be furnished in writing to the other party hereto:
If to the Holder: ------------------
------------------
------------------
------------------
If to the Company: Genometrix Incorporated
3608 Research Forest Drive, Suite B7
The Woodlands, TX 77381
Attention: Mitchell D. Eggers
President
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier,on the next business day following the day
such notice is delivered to the courier service, or (iv) if sent by registered
or certified mail, on the 5th business day following the day such mailing is
made.
9. HEADINGS. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
10. APPLICABLE LAW. This Warrant shall be governed by and construed in
accordance with the law of the State of Texas without giving effect to the
principles of conflicts of law thereof.
11. AMENDMENT. The terms of this Warrant may be amended or modified or
waiver of compliance of any term hereof may be obtained only in a writing signed
by the Company and the Holder.
[Remainder of Page Left Intentionally Blank]
-5-
<PAGE> 6
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its President and its corporate seal to be hereunto affixed and
attested by its Secretary effective as of ________________.
GENOMETRIX INCORPORATED
By:
--------------------------------------
Mitchell D. Eggers
President
ATTEST:
- ---------------------------------
Secretary
[Corporate Seal]
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<PAGE> 7
SUBSCRIPTION
The undersigned, ___________________, pursuant to the provisions of the
foregoing Warrant, hereby agrees to subscribe for and purchase
____________________ shares (the "Warrant Shares") of ___________, $.__ par
value per share, of Genometrix Incorporated covered by said Warrant, and makes
payment therefor in full at the price per share provided by said Warrant.
(a) The undersigned represents that the address of the undersigned
furnished below is the undersigned's principal business address.
(b) The undersigned (i) was not formed for the purpose of investing in
the Company, (ii) is acquiring the Warrant Shares for its own account for
investment and not with a view to or for resale in connection with any
distribution or resale of the Warrant Shares except in accordance with the
Securities Act of 1933, as amended (or any successor statute) (the "Securities
Act") and applicable state securities laws, and (iii) has not offered or sold
any portion of the Warrant Shares and has no present intention of dividing the
Warrant Shares with others or of selling, distributing or otherwise disposing of
any portion of the Warrant Shares either currently or after the passage of a
fixed or determinable period of time or upon the occurrence or non-occurrence of
any predetermined event or circumstance, except in accordance with the
Securities Act and applicable state securities laws.
(c) The undersigned understands that (i) the sale of the Warrant Shares
has not been registered under the Securities Act or any state securities law in
reliance upon an exemption therefrom for non-public or limited offerings, (ii)
the Warrant Shares must be held indefinitely unless the sale or other transfer
thereof is subsequently registered under the Securities Act or an exemption from
such registration is available at the time, and (iii) the Company has no
obligation to register the Warrant Shares.
(d) The undersigned understands and agrees that the following
restrictions and limitations are applicable to its purchase and any resales,
pledges, hypothecations or other transfers of the Warrant Shares:
(i) The following legend (or a legend in substantially similar
form) will be placed on any certificate(s) or other document(s)
evidencing the Warrant Shares, and the undersigned must comply with the
terms and conditions set forth in such legend prior to any resales,
pledges, hypothecations or other transfers of the Warrant Shares:
"The securities represented by this certificate have not been
registered pursuant to the Securities Act of 1933, as amended
("Act"), or any state securities laws, and may not be sold,
pledged, hypothecated or otherwise transferred unless (A) the
stockholder wishing to transfer such securities provides an
opinion of counsel in form and substance reasonably
satisfactory to Genometrix Incorporated (the
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<PAGE> 8
"Company") stating that the proposed transfer of the Company's
securities is exempt from the registration provisions of all
applicable federal and state laws; or (B) said securities are
registered pursuant to the Act and all applicable state
securities laws.
(ii) Stop transfer instructions have been or will be placed on
any certificates or other documents evidencing the Warrant Shares so as
to restrict the resale, pledge, hypothecation or other transfer thereof
in accordance with the provisions hereof.
(e) The undersigned's representations and warranties made herein shall
survive the execution and delivery hereof and of the Warrant Shares.
Dated: Signature:
------------------ ----------------------------------
Address:
------------------------------------
-8-
<PAGE> 9
LIST OF PURCHASERS
PURCHASER ISSUE DATE
- --------- ----------
Palmetto Partners, Ltd. January 26, 1996
Palmetto Partners, Ltd. April 8, 1996
Palmetto Partners, Ltd. May 13, 1996
Palmetto Partners, Ltd. August 5, 1996
Donald R. Kendall and Dianne S. January 26, 1996
Kendall, JTWROS
Donald R. Kendall and Dianne S. April 8, 1996
Kendall, JTWROS
Donald R. Kendall and Dianne S. May 13, 1996
Kendall, JTWROS
Donald R. Kendall and Dianne S. August 5, 1996
Kendall, JTWROS
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<PAGE> 1
EXHIBIT 10.1
GENOMETRIX INCORPORATED
1994 STOCK PLAN
(INCLUDING AMENDMENTS THROUGH MARCH 13, 2000)
1. DEFINITIONS. Unless otherwise specified or unless the context
otherwise requires, the following terms, as used in this Genometrix Incorporated
1994 Stock Plan, have the following meanings:
ADMINISTRATOR means the Board of Directors, unless it has
delegated power to act on its behalf to a committee. (See Article 4)
AFFILIATE means a corporation which, for purposes of Section
424 of the Code, is a parent or subsidiary of the Company, direct or
indirect.
BOARD OF DIRECTORS means the Board of Directors of the
Company.
CODE means the United States Internal Revenue Code of 1986, as
amended.
COMMITTEE means the Committee to which the Board of Directors
has delegated power to act under or pursuant to the provisions of the
Plan.
COMMON STOCK means shares of the Company's common stock,
$.0001 par value.
COMPANY means Genometrix Incorporated, a Delaware corporation.
DISABILITY or DISABLED means permanent and total disability as
defined in Section 22(e)(3) of the Code.
FAIR MARKET VALUE of a Share of Common Stock means:
(1) If the Common Stock is listed on a national
securities exchange or traded in the over-the-counter market
and sales prices are regularly reported for the Common Stock,
either (a) the average of the closing or last prices of the
Common Stock on the Composite Tape or other comparable
reporting system for the ten (10) consecutive trading days
immediately preceding the applicable date or (b) the closing
or last price of the Common Stock on the Composite Tape or
other comparable reporting system for the trading day
immediately preceding the applicable date, as the
Administrator shall determine;
(2) If the Common Stock is not traded on a national
securities exchange but is traded on the over-the-counter
market, if sales prices are not regularly reported for the
Common Stock for the trading day or days referred to in clause
(1), and if bid and asked prices for the Common Stock are
regularly reported, either (a) the average of the mean between
the bid and the asked price
<PAGE> 2
for the Common Stock at the close of trading in the
over-the-counter market for the ten (10) trading days on which
the Common Stock was traded immediately preceding the
applicable date or (b) the mean between the bid and the asked
price for the Common Stock at the close of trading in the
over-the-counter market for the trading day on which the
Common Stock was traded immediately preceding the applicable
date, as the Administrator shall determine; and
(3) If the Common Stock is neither listed on a
national securities exchange nor traded in the
over-the-counter market, such value as the Administrator, in
good faith, shall determine.
ISO means an option meant to qualify as an incentive stock
option under Code Section 422.
KEY EMPLOYEE means an employee of the Company or of an
Affiliate (including, without limitation, an employee who is also
serving as an officer or director of the Company or of an Affiliate),
designated by the Administrator to be eligible to be granted one or
more Stock Rights under the Plan.
NON-QUALIFIED OPTION means an option which is not intended to
qualify as an ISO.
OPTION means an ISO or a Non-Qualified Option granted under
the Plan.
PARTICIPANT means a Key Employee, director or consultant to
whom one or more Stock Rights are granted under the Plan. As used
herein, "Participant" shall include "Participant's Survivors" where the
context requires.
PARTICIPANT'S SURVIVORS means a deceased Participant's legal
representatives and/or any person or persons who acquired the
Participant's rights to a Stock Right by will or by the laws of descent
and distribution.
PLAN means this Genometrix Incorporated 1994 Stock Plan.
PURCHASE OPPORTUNITY means an opportunity to make a direct
purchase of Shares of the Company granted under the Plan.
SHARES means shares of Common Stock as to which Stock Rights
have been or may be granted under the Plan or any shares of capital
stock into which the Shares are changed or for which they are exchanged
within the provisions of Article 3 of the Plan. The Shares issued upon
exercise of Stock Rights granted under the Plan may be authorized and
unissued shares or shares held by the Company in its treasury, or both.
STOCK AGREEMENT means an agreement pertaining to a Stock Right
between the Company and a Participant executed and delivered pursuant
to the Plan, in such form as the Administrator shall approve.
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STOCK RIGHT means a right to Shares of the Company granted
pursuant to the Plan, an ISO, a Non-Qualified Option or a Purchase
Opportunity.
2. PURPOSES OF THE PLAN. The Plan is intended to encourage ownership of
Shares by Key Employees, directors and certain consultants to the Company in
order to attract such people, to induce them to work for the benefit of the
Company or of an Affiliate and to provide additional incentive for them to
promote the success of the Company or of an Affiliate. The Plan provides for the
granting of ISOs, Non-Qualified Options and Purchase Opportunities to Key
Employees, directors and consultants of the Company.
3. SHARES SUBJECT TO THE PLAN. The number of Shares subject to this
Plan as to which Stock Rights may be granted from time to time shall be seven
million five hundred thousand (7,500,000), or the equivalent of such number of
Shares after the Administrator, in its sole discretion, has interpreted the
effect of any stock split, stock dividend, combination, recapitalization or
similar transaction in accordance with Article 18 of the Plan.
If an Option or Purchase Opportunity ceases to be "outstanding", in
whole or in part, or if the Company shall reacquire any Shares issued pursuant
to Purchase Opportunities, the unpurchased Shares subject to such Option and any
Shares so reacquired by the Company shall again be available for the granting of
other Stock Rights under the Plan. Any Option or Purchase Opportunity shall be
treated as "outstanding" until such Option or Purchase Opportunity is exercised
in full, or terminates or expires under the provisions of the Plan, or by
agreement of the parties to the pertinent Stock Agreement.
4. ADMINISTRATION OF THE PLAN. The Administrator of the Plan will be
the Board of Directors, except to the extent the Board of Directors delegates
its authority to a Committee of the Board of Directors. Following the date, if
any, on which the Common Stock is registered under the Securities and Exchange
Act of 1934, as amended (the "1934 Act"), the Plan is intended to comply in all
respects with Rule 16b-3 or its successors, promulgated pursuant to Section 16
of the 1934 Act with respect to Participants who are subject to Section 16 of
the 1934 Act, and any provision in this Plan with respect to such persons
contrary to Rule 16b-3 shall be deemed null and void to the extent permissible
by law and deemed appropriate by the Administrator.
Subject to the provisions of the Plan, the Administrator is authorized to:
(a) Interpret the provisions of the Plan or of any Option,
Purchase Opportunity or Stock Agreement and to make all rules and
determinations which it deems necessary or advisable for the
administration of the Plan;
(b) Determine which employees of the Company or of an
Affiliate shall be designated as Key Employees and which of the Key
Employees, directors and consultants shall be granted Stock Rights,
subject to the terms of Section 5 hereof;
(c) Determine the number of Shares for which a Stock Right or
Stock Rights shall be granted; and
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(d) Specify the terms and conditions upon which a Stock Right
or Stock Rights may be granted;
provided, however, that all such interpretations, rules,
determinations, terms and conditions shall be made and prescribed in the context
of preserving the tax status under Code Section 422 of those Options which are
designated as ISOs. Subject to the foregoing, the interpretation and
construction by the Administrator of any provisions of the Plan or of any Stock
Right granted under it shall be final, unless otherwise determined by the Board
of Directors, if the Administrator is other than the Board of Directors.
5. ELIGIBILITY FOR PARTICIPATION. The Administrator will, in its sole
discretion, name the Participants in the Plan, provided, however, that each
Participant must be a Key Employee, director or consultant of the Company or of
an Affiliate at the time a Stock Right is granted. Notwithstanding any of the
foregoing provisions, (i) the Administrator may authorize the grant of a Stock
Right to a person not then an employee, director or consultant of the Company or
of an Affiliate, PROVIDED, however, that the actual grant of such Stock Right
shall be conditioned upon such person becoming eligible to become a Participant
at or prior to the time of the execution of the Stock Agreement evidencing such
Stock Right and (ii) ISOs may be granted only to Key Employees. Non-Qualified
Options and Purchase Opportunities may be granted to any Key Employee, director
or consultant of the Company or an Affiliate. The granting of any Stock Right to
any individual shall neither entitle that individual to, nor disqualify him or
her from, participation in any other grant of Stock Rights.
6. TERMS AND CONDITIONS OF NON-QUALIFIED OPTIONS. Each Non-Qualified
Option shall be set forth in a Stock Agreement, duly executed by the Company and
by the Participant. The Administrator may provide that Options be granted
subject to such conditions as the Administrator may deem appropriate including,
without limitation, subsequent approval by the stockholders of the Company of
this Plan or any amendments thereto. Such Stock Agreement shall contain terms
and conditions which the Administrator determines to be appropriate and in the
best interest of the Company, subject to the following minimum standards for any
such Non-Qualified Option:
(a) The Stock Agreement shall be in writing in the form
approved by the Administrator, with such changes and modifications to
such form as the Administrator, in its discretion, shall approve with
respect to any particular Participant or Participants;
(b) Non-Qualified Option Price: The option price (per share)
of the Shares covered by each Non-Qualified Option shall be determined
by the Administrator but shall not be less than the par value per share
of Common Stock;
(c) Each Stock Agreement shall state the number of Shares to
which the Non-Qualified Option pertains;
(d) Each Stock Agreement shall state the date or dates on
which the Non-Qualified Option first is exercisable and the date after
which it may no longer be
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exercised, and may provide that the Non-Qualified Option rights accrue
or become exercisable in installments over a period of months or years,
or upon the attainment of stated goals or events; and
(e) Exercise of any Non-Qualified Option may be conditioned
upon the Participant's execution of a Share purchase agreement in form
satisfactory to the Administrator providing for certain protections for
the Company and its other shareholders including requirements that:
i. The Participant's or the Participant's
Survivors' right to sell or transfer the Shares may be
restricted; and
ii. The Participant or the Participant's Survivors
may be required to execute letters of investment intent and
must also acknowledge that the Shares will bear legends noting
any applicable restrictions.
7. TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS. Each Option
intended to be an ISO shall be issued only to a Key Employee and shall be set
forth in a Stock Agreement, duly executed by the Company and by the Participant.
Such Stock Agreement shall contain terms and conditions which the Administrator
determines to be appropriate and in the best interests of the Company, subject
to the following minimum standards:
(a) The Stock Agreement for an ISO shall be in writing in
substantially the form approved by the Administrator, with such changes
to such form as the Administrator shall approve, provided any changes
are not inconsistent with Code Section 422 and relevant regulations and
rulings of the Internal Revenue Service.
(b) ISO Price: Immediately before the ISO is granted, if the
Participant owns, directly or by reason of the applicable attribution
rules in Code Section 424(d):
i. Ten percent (10%) OR LESS of the total combined
voting power of all classes of share capital of the Company or
an Affiliate, the option price (per share) of the Shares
covered by each ISO shall be not less than one hundred percent
(100%) of the Fair Market Value (per share) of the Shares on
the date of the grant of the ISO.
ii. More than ten percent (10%) of the total combined
voting power of all classes of share capital of the Company or
an Affiliate, the option price (per share) of the Shares
covered by each ISO shall be not less than one hundred ten
percent (110%) of the said Fair Market Value on the date of
grant.
(c) Each Stock Agreement shall state the number of shares to
which the ISO pertains.
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(d) Each Stock Agreement shall state the date on which the ISO
is first exercisable and the date after which it may no longer be
exercised.
(e) Term of ISO:
i. For Participants who own ten percent (10%) OR LESS
of the total combined voting power of all classes of share
capital of the Company or an Affiliate, each ISO shall
terminate not more than ten (10) years from the date of the
grant or at such earlier time as the Stock Agreement may
provide.
ii. For Participants who own more than 10% of the
total combined voting power of all classes of share capital of
the Company or an Affiliate, each ISO shall terminate not more
than five (5) years from the date of the grant or at such
earlier time as the Stock Agreement may provide.
(f) Medium of Payment: The ISO price shall be payable upon the
exercise of the ISO and only in such form as the Administrator
determines and as is permitted by Section 422 of the Code.
(g) Limitation on Yearly Exercise: The Stock Agreements shall
restrict the amount of ISOs which may be exercisable in any calendar
year (under this or any other ISO plan of the Company or an Affiliate)
so that the aggregate Fair Market Value (determined at the time each
ISO is granted) of the stock with respect to which ISOs are exercisable
for the first time by the Participant in any calendar year does not
exceed one hundred thousand dollars ($100,000), provided that this
subparagraph (g) shall have no force or effect if its inclusion in the
Plan is not necessary for Options issued as ISOs to qualify as ISOs
pursuant to Section 422(d) of the Code.
(h) Limitation on Grant of ISOs: No ISOs shall be granted
after the expiration of the date which is the EARLIER of ten (10) years
from the date of the adoption of the Plan by the Company and the date
of the approval of the Plan by the shareholders of the Company.
8. TERMS AND CONDITIONS OF PURCHASE OPPORTUNITIES. Each Purchase
Opportunity shall be set forth in a Stock Agreement, duly executed by the
Company and by the Participant. The Stock Agreement shall contain terms and
conditions which the Administrator determines to be appropriate and in the best
interest of the Company, subject to the following minimum standards:
(a) The Stock Agreement shall be in writing in the form
approved by the Administrator, with such changes and modifications to
such form as the Administrator, in its discretion, shall approve with
respect to any particular Participant or Participants;
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(b) The purchase price (per share) of the Shares covered by
each Purchase Opportunity shall be determined by the Administrator but
shall not be less than the aggregate par value of the Shares;
(c) Each Stock Agreement shall state the number of shares to
which the Purchase Opportunity pertains;
(d) Each Stock Agreement shall state the date prior to which
the Purchase Opportunity must be exercised by the Participant; and
(e) Each Stock Agreement shall include the terms of any right
of the Company to reacquire the Shares subject to the Purchase
Opportunity, including the time and events upon which such rights shall
accrue and the purchase price therefor.
9. EXERCISE OF STOCK RIGHTS AND ISSUANCE OF SHARES. A Stock Right (or
any part or installment thereof) shall be exercised by giving written notice to
the Company at its principal office address, together with provision for payment
of the full purchase price in accordance with this article for the Shares as to
which such Stock Right is being exercised, and upon compliance with any other
condition(s) set forth in the Stock Agreement. Such written notice shall be
signed by the person exercising the Stock Right, shall state the number of
Shares with respect to which the Stock Right is being exercised and shall
contain any representation required by the Plan or the Stock Agreement. Payment
of the purchase price for the Shares as to which such Stock Right is being
exercised shall be made (a) in United States dollars in cash or by check, or (b)
at the discretion of the Administrator, through delivery of shares of Common
Stock having a Fair Market Value equal as of the date of the exercise to the
cash exercise price of the Stock Right, determined in good faith by the
Administrator, or (c) at the discretion of the Administrator, by delivery of the
Participant's personal recourse note bearing interest payable not less than
annually at no less than 100% of the applicable Federal rate, as defined in
Section 1274(d) of the Code, or (d) in accordance with a cashless exercise
program established with a securities brokerage firm and approved by the
Administrator or (e) at the discretion of the Administrator, by any combination
of (a), (b), (c) and (d) above. Notwithstanding the foregoing, the Administrator
shall accept only such payment on exercise of an ISO as is permitted by Section
422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to
which such Stock Right was exercised to the Participant (or to the Participant's
Survivors, as the case may be). In determining what constitutes "reasonably
promptly," it is expressly understood that the delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation which
requires the Company to take any action with respect to the Shares prior to
their issuance. The Shares shall, upon delivery, be evidenced by an appropriate
certificate or certificates for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of
exercise of any installment of any Stock Right and to provide for the lapse of
any right of reacquisition; provided that the Administrator shall not accelerate
the exercise date of any installment of any Option granted to
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any Key Employee as an ISO (and not previously converted into a Non-Qualified
Option pursuant to Article 21) if such acceleration would violate the annual
vesting limitation contained in Section 422(d) of the Code, as described in
Article 7, subparagraph (g).
The Administrator may, in its discretion, amend any term or condition
of an outstanding Stock Right provided (i) such term or condition as amended is
permitted by the Plan, (ii) any such amendment, if adverse to the holder of the
Stock Right, shall be made only with the consent of the Participant to whom the
Stock Right was granted or in the event of the death of the Participant, the
Participant's Survivors, (iii) any such amendment of any ISO shall be made only
after the Administrator, after consulting with counsel for the Company,
determines whether such amendment would constitute a "modification" of the ISO
(as that term is defined in Section 424(h) of the Code) or would cause any
adverse tax consequences for the holders of such ISO, and (iv) with respect to
any Stock Right held by any Participant who is subject to the provisions of
Section 16(a) of the 1934 Act, any such amendment shall be made only after the
Administrator, after consulting with counsel for the Company, determines whether
such amendment would constitute the grant of a new Stock Right.
10. RIGHTS AS A SHAREHOLDER. No Participant to whom a Stock Right has
been granted shall have rights as a shareholder with respect to any Shares
covered by such Stock Right, except after due exercise of the Stock Right and
tender of the full purchase price for the Shares being purchased pursuant to
such exercise and registration of the Shares in the Company's share register in
the name of the Participant.
11. ASSIGNABILITY AND TRANSFERABILITY OF OPTIONS. By its terms, a Stock
Right granted to a Participant shall not be transferable by the Participant
other than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act or the rules thereunder, and shall be
exercisable, during the Participant's lifetime, only by such Participant (or by
his or her legal representative). Such Stock Right shall not be assigned,
pledged or hypothecated in any way (whether by operation of law or otherwise)
and shall not be subject to execution, attachment or similar process. Any
attempted transfer, assignment, pledge, hypothecation or other disposition of
any Stock Right or of any rights granted thereunder contrary to the provisions
of this Plan, or the levy of any attachment or similar process upon a Stock
Right, shall be null and void.
12. EFFECT OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE". Except as
otherwise provided in the pertinent Stock Agreement, in the event of a
termination of service (whether as an employee, director or consultant) with the
Company or an Affiliate, the following rules apply:
(a) In the event a Participant ceases to be an employee,
director or consultant of the Company or of an Affiliate (for any
reason other than termination "for cause", Disability, or death for
which events there are special rules in Articles 13, 14, and 15,
respectively), such Participant may exercise any Option granted to such
Participant:
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(i) To the extent that the right to purchase Shares
has accrued on the date of his or her termination of service;
and
(ii) If such Participant's service has been
terminated by the Company other than "for cause," as opposed
to a voluntary termination by such Participant, then, in the
event rights to exercise the Option accrue periodically, to
the extent of any additional rights as would have accrued had
the service of the Participant not been terminated prior to
the end of the accrual period which next ends following the
date of his or her termination of service.
(b) A Participant may exercise the rights set forth in section
(a) above only within a period of not more than ninety (90) days after
the date that the service of the Participant was terminated,
notwithstanding that the Participant might have been able to exercise
the Option as to some or all of the Shares on a later date if his or
her service had not been terminated and he or she had continued to be
an employee, director or consultant or, if earlier, within the
originally prescribed term of the Option.
(c) In the event a Participant ceases to be an employee,
director or consultant of the Company or of an Affiliate (for any
reason other than termination "for cause", Disability, or death for
which events there are special rules in Articles 13, 14, and 15,
respectively) before all of the Company's repurchase rights with
respect to Shares purchased by the Participant pursuant to a Purchase
Opportunity have expired, the Company's right to repurchase such Shares
shall not apply to Shares owned by such Participant only to the extent
that the right to transfer such Shares free of the Company's right to
repurchase has accrued on the date of his or her termination of
service.
(d) The provisions of this article, and not the provisions of
Article 14 or 15, shall apply to a Participant who subsequently becomes
disabled or dies after the termination of employment, director status
or consultancy, provided, however, in the case of a Participant's death
within ninety (90) days after the termination of employment, director
status or consulting, the Participant's Survivors may exercise the
Option within one (1) year after the date of the Participant's death,
but in no event after the date of expiration of the term of the Option.
(e) A Participant to whom a Stock Right has been granted under
the Plan who is absent from work with the Company or with an Affiliate
because of temporary disability (any disability other than a permanent
and total Disability as defined in Article 1 hereof), or who is on
leave of absence for any purpose, shall not, during the period of any
such absence, be deemed, by virtue of such absence alone, to have
terminated such Participant's employment, director status or
consultancy with the Company or with an Affiliate, except as the
Administrator may otherwise expressly provide.
(f) Stock Rights granted under the Plan shall not be affected
by any change of employment or other service within or among the
Company and any Affiliates, so long as
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the Participant continues to be an employee, director or consultant of
the Company or any Affiliate, provided, however, if a Participant's
employment by either the Company or an Affiliate should cease (other
than to become an employee of an Affiliate or the Company), such
termination shall affect the Participant's rights under any ISO granted
to such Participant in accordance with the terms of the Plan and the
pertinent Stock Agreement.
13. EFFECT OF TERMINATION OF SERVICE "FOR CAUSE". Except as otherwise
provided in the pertinent Stock Agreement, in the event of a termination of
service (whether as an employee, director or consultant) with the Company or an
Affiliate, the following rules apply:
(a) In the event a Participant ceases to be an employee,
director or consultant of the Company or of an Affiliate "for cause",
such Participant may exercise any Option granted to such Participant
only to the extent that the right to purchase Shares has accrued on the
date of his or her termination of service.
(b) A Participant may exercise the rights set forth in section
(a) above only within a period of not more than ninety (90) days after
the date that the service of the Participant was terminated,
notwithstanding that the Participant might have been able to exercise
the Option as to some or all of the Shares on a later date if his or
her service had not been terminated and he or she had continued to be
an employee, director or consultant or, if earlier, within the
originally prescribed term of the Option.
(c) In the event a Participant ceases to be an employee,
director or consultant of the Company or of an Affiliate "for cause"
before all of the Company's repurchase rights with respect to Shares
purchased by the Participant pursuant to a Purchase Opportunity have
expired, the Company's right to repurchase such Shares shall not apply
to Shares owned by such Participant only to the extent that the right
to transfer such Shares free of the Company's right to repurchase has
accrued on the date of his or her termination of service.
(d) The provisions of this article, and not the provisions of
Article 14 or 15, shall apply to a Participant who subsequently becomes
disabled or dies after the termination of employment, director status
or consultancy for "cause", provided, however, in the case of a
Participant's death within ninety (90) days after the termination of
employment, director status or consulting for "cause", the
Participant's Survivors may exercise the Option within one (1) year
after the date of the Participant's death, but in no event after the
date of expiration of the term of the Option.
(e) For purposes of this Article 13, "cause" shall include
(and is not limited to) dishonesty with respect to the employer,
insubordination, substantial malfeasance or non-feasance of duty,
unauthorized disclosure of confidential information, and conduct
substantially prejudicial to the business of the Company or any
Affiliate. The
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determination of the Administrator as to the existence of cause will be
conclusive on the Participant and the Company.
(f) "Cause" is not limited to events which have occurred prior
to a Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination.
(g) Any definition in an agreement between the Participant and
the Company or an Affiliate, which contains a conflicting definition of
"cause" for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with respect
to such Participant.
14. EFFECT OF TERMINATION OF SERVICE FOR DISABILITY. Except as
otherwise provided in the pertinent Stock Agreement, a Participant who ceases to
be an employee, director or consultant of the Company or of an Affiliate by
reason of Disability may exercise any Option granted to such Participant:
(a) To the extent that the right to purchase Shares has
accrued on the date of his or her Disability; and
(b) In the event rights to exercise the Option accrue
periodically, to the extent of any additional rights as would have
accrued had the Participant not become Disabled prior to the end of the
accrual period which next ends following the date of Disability.
A Disabled Participant may exercise such rights only within a period of
not more than one (1) year after the date that the Participant became Disabled,
notwithstanding that the Participant might have been able to exercise the Option
as to some or all of the Shares on a later date if he or she had not become
disabled and had continued to be an employee, director or consultant or, if
earlier, within the originally prescribed term of the Option.
Except as otherwise provided in the pertinent Stock Agreement, a
Participant who ceases to be an employee, director or consultant of the Company
or of an Affiliate by reason of Disability before all of the Company's
repurchase rights with respect to Shares purchased by such Participant pursuant
to a Purchase Opportunity have expired, the Company's right to repurchase such
Shares shall not apply to Shares owned by such Participant:
(a) to the extent that the right to transfer such Shares free
of the Company's right to repurchase has accrued on the date of his or
her Disability; and
(b) in the event that rights to transfer Shares free of the
Company's right to repurchase accrue periodically, to the extent of any
additional rights as would have accrued had the Participant not become
Disabled prior to the end of the accrual period which next ends
following the date of Disability.
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The Administrator shall make the determination both of whether
Disability has occurred and the date of its occurrence (unless a procedure for
such determination is set forth in another agreement between the Company and
such Participant, in which case such procedure shall be used for such
determination). If requested, the Participant shall be examined by a physician
selected or approved by the Administrator, the cost of which examination shall
be paid for by the Company.
15. EFFECT OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT. Except
as otherwise provided in the pertinent Stock Agreement, in the event of the
death of a Participant to whom an Option has been granted while the Participant
is an employee, director or consultant of the Company or of an Affiliate, such
Option may be exercised by the Participant's Survivors:
(a) To the extent exercisable but not exercised on the date of
death; and
(b) In the event rights to exercise the Option accrue
periodically, to the extent of any additional rights which would have
accrued had the Participant not died prior to the end of the accrual
period which next ends following the date of death.
If the Participant's Survivors wish to exercise the Option, they must
take all necessary steps to exercise the Option within one (1) year after the
date of death of such Participant, notwithstanding that the decedent might have
been able to exercise the Option as to some or all of the Shares on a later date
if he or she had not died and had continued to be an employee, director or
consultant or, if earlier, within the originally prescribed term of the Option.
Except as otherwise provided in the pertinent Stock Agreement, in the
event of the death of a Participant before all of the Company's repurchase
rights with respect to Shares purchased by such Participant pursuant to a
Purchase Opportunity have expired, the Company's right to repurchase such Shares
shall not apply to Shares owned by such Participant's Survivors, and such
Survivors shall be free to transfer such Shares free of the Company's right of
repurchase:
(a) to the extent that the right to transfer such Shares free
of the Company's right to repurchase has accrued on the date of death;
and
(b) in the event that rights to transfer Shares free of the
Company's right to repurchase accrue periodically, to the extent of any
additional rights as would have accrued had the Participant not died
prior to the end of the accrual period which next ends following the
date of death.
16. PURCHASE FOR INVESTMENT. less the offering and sale of the Shares
to be issued upon the particular exercise of a Stock Right shall have been
effectively registered under the Securities Act of 1933, as now in force or
hereafter amended (the "1933 Act"), the Company shall be under no obligation to
issue the Shares covered by such exercise unless and until the following
conditions have been fulfilled:
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(a) The person(s) who exercise such Stock Right shall warrant
to the Company, at the time of such exercise or receipt, as the case
may be, that such person(s) are acquiring such Shares for their own
respective accounts, for investment, and not with a view to, or for
sale in connection with, the distribution of any such Shares, in which
event the person(s) acquiring such Shares shall be bound by the
provisions of the following legend which shall be endorsed upon the
certificate(s) evidencing their Shares issued pursuant to such exercise
or such grant:
The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred
by any person, including a pledgee, unless (1) either (a) a
Registration Statement with respect to such shares shall be
effective under the Securities Act of 1933, as amended, or (b)
the Company shall have received an opinion of counsel
satisfactory to it that an exemption from registration under
such Act is then available, and (2) there shall have been
compliance with all applicable state securities laws.
(b) Unless a Registration Statement with respect to such
shares shall be effective under the 1933 Act and not subject to any
stop order, the Company shall have received an opinion of its counsel
that the Shares may be issued upon such particular exercise in
compliance with the 1933 Act without registration thereunder.
The Company may delay issuance of the Shares until completion of any
action or obtaining of any consent which the Company deems necessary under any
applicable law (including, without limitation, state securities or "blue sky"
laws).
17. DISSOLUTION OR LIQUIDATION OF THE COMPANY. on the dissolution or
liquidation of the Company, all Stock Rights granted under this Plan which as of
such date shall not have been exercised will terminate and become null and void;
provided, however, that if the rights of a Participant or a Participant's
Survivors have not otherwise terminated and expired, the Participant or the
Participant's Survivors will have the right immediately prior to such
dissolution or liquidation to exercise any Stock Right to the extent that the
right to purchase Shares has accrued under the Plan as of the date immediately
prior to such dissolution or liquidation.
18. ADJUSTMENTS. on the occurrence of any of the following events, a
Participant's rights with respect to any Stock Right granted to him or her
hereunder which have not previously been exercised in full shall be adjusted as
hereinafter provided, unless otherwise specifically provided in the written
agreement between the Participant and the Company relating to such Stock Right:
(a) STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common
Stock shall be subdivided or combined into a greater or smaller number
of shares or if the Company shall issue any shares of Common Stock as a
stock dividend on its outstanding Common Stock, after the date of grant
of a Stock Right, the number of shares of Common Stock
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deliverable upon a subsequent exercise of such Stock Right shall be
appropriately increased or decreased proportionately, and appropriate
adjustments shall be made in the purchase price per Share to reflect
such subdivision, combination or stock dividend.
(b) CONSOLIDATIONS OR MERGERS. If the Company is to be
consolidated with or acquired by another entity in a merger, sale of
all or substantially all of the Company's assets or otherwise (an
"Acquisition"), the Administrator or the board of directors of any
entity assuming the obligations of the Company hereunder (the
"Successor Board"), shall, as to outstanding and unexercised Stock
Rights, either (i) make appropriate provision for the continuation of
such Stock Rights by substituting on an equitable basis for the Shares
then subject to such Stock Rights either the consideration payable with
respect to the outstanding shares of Common Stock in connection with
the Acquisition or securities of any successor or acquiring entity; or
(ii) upon written notice to the Participants, provide that all Stock
Rights must be exercised, to the extent then exercisable (as the
Options may have been amended), within a specified number of days of
the date of such notice, at the end of which period the Stock Rights
shall terminate; or (iii) terminate all Stock Rights in exchange for a
cash payment equal to the excess of the Fair Market Value of the Shares
subject to such Stock Rights (to the extent then exercisable, as the
Options may have been amended) over the exercise price thereof.
(c) RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a
transaction described in subparagraph (b) above) pursuant to which
securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, a Participant upon
exercising a Stock Right shall be entitled to receive for the purchase
price paid upon such exercise the securities he or she would have
received if he or she had exercised such Stock Right prior to such
recapitalization or reorganization.
(d) MODIFICATION OF ISOS. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraph (a), (b) or (c) with respect
to ISOs shall be made only after the Administrator, after consulting
with counsel for the Company, determines whether such adjustments would
constitute a "modification" of such ISOs (as that term is defined in
Section 424(h) of the Code) or would cause any adverse tax consequences
for the holders of such ISOs. If the Administrator determines that such
adjustments made with respect to ISOs would constitute a modification
of such ISOs, it may refrain from making such adjustments, unless the
holder of an ISO specifically requests in writing that such adjustment
be made and such writing indicates that the holder has full knowledge
of the consequences of such "modification" on his or her income tax
treatment with respect to the ISO.
19. ISSUANCES OF SECURITIES. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to Stock Rights. Except as expressly provided herein,
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no adjustments shall be made for dividends paid in cash or in property
(including without limitation, securities) of the Company.
20. FRACTIONAL SHARES. No fractional share shall be issued under the
Plan and the person exercising such right shall receive from the Company cash in
lieu of such fractional share equal to the Fair Market Value thereof determined
in good faith by the Board of Directors of the Company.
21. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOS.
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's
ISOs (or any installments or portions thereof) that have not been exercised on
the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the Participant is an employee of
the Company or an Affiliate at the time of such conversion. Such actions may
include, but not be limited to, extending the exercise period or reducing the
exercise price of the appropriate installments of such Options. At the time of
such conversion, the Administrator (with the consent of the Participant) may
impose such conditions on the exercise of the resulting Non-Qualified Options as
the Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any Participant the right to have such Participant's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Administrator takes appropriate action. The Administrator, with the consent of
the Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such termination.
22. WITHHOLDING. In the event that any federal, state, or local income
taxes, employment taxes, Federal Insurance Contributions Act ("F.I.C.A.")
withholdings or other amounts are required by applicable law or governmental
regulation to be withheld from the Participant's salary, wages or other
remuneration in connection with the exercise of a Stock Right or a Disqualifying
Disposition (as defined in Article 23), the Participant shall advance in cash to
the Company, or to any Affiliate of the Company which employs or employed the
Participant, the amount of such withholdings, unless a different withholding
arrangement, including the use of Shares of the Company's Common Stock, is
authorized by the Administrator (and permitted by law), provided, however, that
with respect to persons subject to Section 16 of the 1934 Act, any such
withholding arrangement shall be in compliance with any applicable provisions of
Rule 16b-3 promulgated under Section 16 of the 1934 Act. For purposes hereof,
the Fair Market Value of the Shares withheld for purposes of payroll withholding
shall be determined in the manner provided in Article 1 above, as of the most
recent practicable date prior to the date of exercise. If the Fair Market Value
of the Shares withheld is less than the amount of payroll withholdings required,
the Participant may be required to advance the difference in cash to the Company
or the Affiliate employer. The Administrator in its discretion may condition the
exercise of a Stock Right for less than the then Fair Market Value on the
Participant's payment of such additional withholding.
23. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each Key Employee
who receives an ISO must agree to notify the Company in writing immediately
after
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the Key Employee makes a Disqualifying Disposition of any Shares acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Shares before the later of (a) two
years after the date the Key Employee was granted the ISO, or (b) one year after
the date the Key Employee acquired Shares by exercising the ISO. If the Key
Employee has died before such Shares are sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
24. TERMINATION OF THE PLAN. The Plan will terminate on the date which
is ten (10) years from the earlier of the date of its adoption and the date of
its approval by the stockholders of the Company. The Plan may be terminated at
an earlier date by vote of the stockholders of the Company; provided, however,
that any such earlier termination will not affect any Stock Rights granted or
Stock Agreements executed prior to the effective date of such termination.
25. AMENDMENT OF THE PLAN. The Plan may be amended by the stockholders
of the Company. The Plan may also be amended by the Administrator, including,
without limitation, to the extent necessary to qualify any or all outstanding
Options granted under the Plan or Options to be granted under the Plan for
favorable federal income tax treatment (including deferral of taxation upon
exercise) as may be afforded incentive stock options under Section 422 of the
Code, to the extent necessary to ensure the qualification of the Plan under Rule
16b-3, at such time, if any, as the Company has a class of stock registered
pursuant to Section 12 of the Exchange Act, and to the extent necessary to
qualify the shares issuable upon exercise of any outstanding Options granted, or
Options to be granted, under the Plan for listing on any national securities
exchange or quotation in any national automated quotation system of securities
dealers. Any amendment approved by the Administrator which is of a scope that
requires stockholder approval in order to ensure favorable federal income tax
treatment for any incentive stock options or requires stockholder approval in
order to ensure the qualification of the Plan with Rule 16b-3, at such time, if
any, as the Company has a class of stock registered pursuant to Section 12 of
the Exchange Act, shall be subject to obtaining such stockholder approval. Any
modification or amendment of the Plan shall not, without the consent of a
Participant, affect his or her rights under a Stock Right previously granted to
him or her.
26. EMPLOYMENT OR OTHER RELATIONSHIP. Nothing in this Plan or any Stock
Agreement shall be deemed to either prevent the Company or an Affiliate from
terminating the employment, consultancy or director status of a Participant, or
to prevent a Participant from terminating his or her own employment, consultancy
or director status or to give any Participant a right to be retained in
employment or other service by the Company or any Affiliate for any period of
time.
27. GOVERNING LAW. This Plan shall be construed and enforced in
accordance with the law of the State of Delaware.
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EXHIBIT 10.2
GENOMETRIX INCORPORATED
2000 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK OPTION PLAN
1. DEFINITIONS. Unless otherwise specified or unless the context
otherwise requires, the following terms, as used in this Genometrix Incorporated
2000 Employee, Director and Consultant Stock Option Plan, have the following
meanings:
ADMINISTRATOR means the Board of Directors, unless it has delegated
power to act on its behalf to the Committee, in which case the Administrator
means the Committee.
AFFILIATE means a corporation which, for purposes of Section 424 of the
Code, is a parent or subsidiary of the Company, direct or indirect.
BOARD OF DIRECTORS means the Board of Directors of the Company.
CODE means the United States Internal Revenue Code of 1986, as amended.
COMMITTEE means the committee of the Board of Directors to which the
Board of Directors has delegated power to act under or pursuant to the
provisions of the Plan.
COMMON STOCK means shares of the Company's common stock, par value
$.0001 per share.
COMPANY means Genometrix Incorporated, a Delaware corporation.
DISABILITY or DISABLED means permanent and total disability as defined
in Section 22(e)(3) of the Code.
FAIR MARKET VALUE of a Share of Common Stock means:
(1) If the Common Stock is listed on a national securities
exchange or traded in the over-the-counter market and sales prices are
regularly reported for the Common Stock, the closing or last price of
the Common Stock on the Composite Tape or other comparable reporting
system for the trading day immediately preceding the applicable date;
(2) If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if sales prices
are not regularly reported for the Common Stock for the trading day
referred to in clause (1), and if bid and asked prices for the Common
Stock are regularly reported, the mean between the bid and the asked
price for the Common Stock at the close of trading in the
over-the-counter market for the trading day on which Common Stock was
traded immediately preceding the applicable date; and
<PAGE> 2
(3) If the Common Stock is neither listed on a national
securities exchange nor traded in the over-the-counter market, such
value as the Administrator, in good faith, shall determine.
ISO means an option meant to qualify as an incentive stock option under
Section 422 of the Code.
KEY EMPLOYEE means an employee of the Company or of an Affiliate
(including, without limitation, an employee who is also serving as an officer or
director of the Company or of an Affiliate), designated by the Administrator to
be eligible to be granted one or more Options under the Plan.
NON-QUALIFIED OPTION means an option which is not intended to qualify
as an ISO.
OPTION means an ISO or Non-Qualified Option granted under the Plan.
OPTION AGREEMENT means an agreement between the Company and a
Participant delivered pursuant to the Plan, in such form as the Administrator
shall approve.
PARTICIPANT means a Key Employee, director or consultant to whom one or
more Options are granted under the Plan. As used herein, "Participant" shall
include "Participant's Survivors" where the context requires.
PLAN means this Genometrix Incorporated 2000 Employee, Director and
Consultant Stock Option Plan.
SHARES means shares of the Common Stock as to which Options have been
or may be granted under the Plan or any shares of capital stock into which the
Shares are changed or for which they are exchanged within the provisions of
Paragraph 3 of the Plan. The Shares issued upon exercise of Options granted
under the Plan may be authorized and unissued shares or shares held by the
Company in its treasury, or both.
SURVIVORS means a deceased Participant's legal representatives and/or
any person or persons who acquired the Participant's rights to an Option by will
or by the laws of descent and distribution.
2. PURPOSES OF THE PLAN. The Plan is intended to encourage ownership of
Shares by Key Employees and directors of and certain consultants to the Company
in order to attract such people, to induce them to work for the benefit of the
Company or of an Affiliate and to provide additional incentive for them to
promote the success of the Company or of an Affiliate. The Plan provides for the
granting of ISOs and Non-Qualified Options.
3. SHARES SUBJECT TO THE PLAN. The number of Shares which may be issued
from time to time pursuant to this Plan shall be 5,000,000 or the equivalent of
such number of Shares after the Administrator, in its sole discretion, has
interpreted the effect of any stock split, stock dividend, combination,
recapitalization or similar transaction in accordance
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<PAGE> 3
with Paragraph 16 of the Plan. If an Option ceases to be "outstanding", in whole
or in part, the Shares which were subject to such Option shall be available for
the granting of other Options under the Plan. Any Option shall be treated as
"outstanding" until such Option is exercised in full, or terminates or expires
under the provisions of the Plan, or by agreement of the parties to the
pertinent Option Agreement.
4. ADMINISTRATION OF THE PLAN. The Administrator of the Plan will be
the Board of Directors, except to the extent the Board of Directors delegates
its authority to the Committee, in which case the Committee shall be the
Administrator. Subject to the provisions of the Plan, the Administrator is
authorized to:
a. Interpret the provisions of the Plan or of any Option or
Option Agreement and to make all rules and determinations which it
deems necessary or advisable for the administration of the Plan;
b. Determine which employees of the Company or of an Affiliate
shall be designated as Key Employees and which of the Key Employees,
directors and consultants shall be granted Options;
c. Determine the number of Shares for which an Option or
Options shall be granted, provided, however, that in no event shall
Options to purchase more than 1,000,000 Shares be granted to any
Participant in any fiscal year of the Company; and
d. Specify the terms and conditions upon which an Option or
Options may be granted;
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the tax
status under Section 422 of the Code of those Options which are designated as
ISOs. Subject to the foregoing, the interpretation and construction by the
Administrator of any provisions of the Plan or of any Option granted under it
shall be final, unless otherwise determined by the Board of Directors, if the
Administrator is the Committee.
5. ELIGIBILITY FOR PARTICIPATION. The Administrator will, in its sole
discretion, name the Participants in the Plan, provided, however, that each
Participant must be a Key Employee, director or consultant of the Company or of
an Affiliate at the time an Option is granted. Notwithstanding the foregoing,
the Administrator may authorize the grant of an Option to a person not then an
employee, director or consultant of the Company or of an Affiliate, provided,
however, that the actual grant of such Option shall be conditioned upon such
person becoming eligible to become a Participant at or prior to the time of the
delivery of the Option Agreement evidencing such Option. ISOs may be granted
only to Key Employees. Non-Qualified Options may be granted to any Key Employee,
director or consultant of the Company or an Affiliate. The granting of any
Option to any individual shall neither entitle that individual to, nor
disqualify him or her from, participation in any other grant of Options.
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<PAGE> 4
6. TERMS AND CONDITIONS OF OPTIONS. Each Option shall be set forth in
writing in an Option Agreement, duly executed by the Company and, to the extent
required by law or requested by the Company, by the Participant. The
Administrator may provide that Options be granted subject to such terms and
conditions, consistent with the terms and conditions specifically required under
this Plan, as the Administrator may deem appropriate including, without
limitation, subsequent approval by the shareholders of the Company of this Plan
or any amendments thereto.
A. NON-QUALIFIED OPTIONS: Each Option intended to be a
Non-Qualified Option shall be subject to the terms and conditions which
the Administrator determines to be appropriate and in the best interest
of the Company, subject to the following minimum standards for any such
Non-Qualified Option:
a. Option Price: Each Option Agreement shall state
the option price (per share) of the Shares covered by each
Option, which option price shall be determined by the
Administrator but shall not be less than the par value per
share of Common Stock.
b. Each Option Agreement shall state the number of
Shares to which it pertains;
c. Each Option Agreement shall state the date or
dates on which it first is exercisable and the date after
which it may no longer be exercised, and may provide that the
Option rights accrue or become exercisable in installments
over a period of months or years, or upon the occurrence of
certain conditions or the attainment of stated goals or
events; and
d. Exercise of any Option may be conditioned upon the
Participant's execution of a Share purchase agreement in form
satisfactory to the Administrator providing for certain
protections for the Company and its other shareholders,
including requirements that:
i. The Participant's or the Participant's
Survivors' right to sell or transfer the Shares may
be restricted; and
ii. The Participant or the Participant's
Survivors may be required to execute letters of
investment intent and must also acknowledge that the
Shares will bear legends noting any applicable
restrictions.
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<PAGE> 5
B. ISOs: Each Option intended to be an ISO shall be issued
only to a Key Employee and be subject to the following terms and
conditions, with such additional restrictions or changes as the
Administrator determines are appropriate but not in conflict with
Section 422 of the Code and relevant regulations and rulings of the
Internal Revenue Service:
a. Minimum standards: The ISO shall meet the minimum
standards required of Non-Qualified Options, as described in
Paragraph 6A above, except clause a and clause e thereunder.
b. Option Price: Immediately before the Option is
granted, if the Participant owns, directly or by reason of the
applicable attribution rules in Section 424(d) of the Code:
i. Ten percent (10%) OR LESS of the total
combined voting power of all classes of share capital
of the Company or an Affiliate, the Option price per
share of the Shares covered by each Option shall not
be less than one hundred percent (100%) of the Fair
Market Value per share of the Shares on the date of
the grant of the Option.
ii. More than ten percent (10%) of the total
combined voting power of all classes of stock of the
Company or an Affiliate, the Option price per share
of the Shares covered by each Option shall not be
less than one hundred ten percent (110%) of the said
Fair Market Value on the date of grant.
c. Term of Option: For Participants who own
i. Ten percent (10%) OR LESS of the total
combined voting power of all classes of share capital
of the Company or an Affiliate, each Option shall
terminate not more than ten (10) years from the date
of the grant or at such earlier time as the Option
Agreement may provide.
ii. More than ten percent (10%) of the total
combined voting power of all classes of stock of the
Company or an Affiliate, each Option shall terminate
not more than five (5) years from the date of the
grant or at such earlier time as the Option Agreement
may provide.
d. Limitation on Yearly Exercise: The Option
Agreements shall restrict the amount of Options which may be
exercisable in any calendar year (under this or any other ISO
plan of the Company or an Affiliate) so that the aggregate
Fair Market Value (determined at the time each ISO is granted)
of the stock with respect to which ISOs are exercisable for
the first time by the
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<PAGE> 6
Participant in any calendar year does not exceed one hundred
thousand dollars ($100,000), provided that this subparagraph
(d) shall have no force or effect if its inclusion in the Plan
is not necessary for Options issued as ISOs to qualify as ISOs
pursuant to Section 422(d) of the Code.
7. EXERCISE OF OPTIONS AND ISSUE OF SHARES. An Option (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal executive office address, together with provision for payment
of the full purchase price in accordance with this Paragraph for the Shares as
to which the Option is being exercised, and upon compliance with any other
condition(s) set forth in the Option Agreement. Such written notice shall be
signed by the person exercising the Option, shall state the number of Shares
with respect to which the Option is being exercised and shall contain any
representation required by the Plan or the Option Agreement. Payment of the
purchase price for the Shares as to which such Option is being exercised shall
be made (a) in United States dollars in cash or by check, or (b) at the
discretion of the Administrator, through delivery of shares of Common Stock
having a Fair Market Value equal as of the date of the exercise to the cash
exercise price of the Option, or (c) at the discretion of the Administrator, by
having the Company retain from the shares otherwise issuable upon exercise of
the Option, a number of shares having a Fair Market Value equal as of the date
of exercise to the exercise price of the Option, or (d) at the discretion of the
Administrator, by delivery of the grantee's personal recourse note bearing
interest payable not less than annually at no less than 100% of the applicable
Federal rate, as defined in Section 1274(d) of the Code, or (e) at the
discretion of the Administrator, in accordance with a cashless exercise program
established with a securities brokerage firm, and approved by the Administrator,
or (f) at the discretion of the Administrator, by any combination of (a), (b),
(c), (d) and (e) above. Notwithstanding the foregoing, the Administrator shall
accept only such payment on exercise of an ISO as is permitted by Section 422 of
the Code.
The Company shall then reasonably promptly deliver the Shares as to
which such Option was exercised to the Participant (or to the Participant's
Survivors, as the case may be). In determining what constitutes "reasonably
promptly", it is expressly understood that the delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation (including,
without limitation, state securities or "blue sky" laws) which requires the
Company to take any action with respect to the Shares prior to their issuance.
The Shares shall, upon delivery, be evidenced by an appropriate certificate or
certificates for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of
exercise of any installment of any Option; provided that the Administrator shall
not accelerate the exercise date of any installment of any Option granted to any
Key Employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to Paragraph 19) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in Paragraph
6.B.d.
The Administrator may, in its discretion, amend any term or condition
of an outstanding Option provided (i) such term or condition as amended is
permitted by the Plan, (ii) any such
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<PAGE> 7
amendment shall be made only with the consent of the Participant to whom the
Option was granted, or in the event of the death of the Participant, the
Participant's Survivors, if the amendment is adverse to the Participant, and
(iii) any such amendment of any ISO shall be made only after the Administrator,
after consulting the counsel for the Company, determines whether such amendment
would constitute a "modification" of any Option which is an ISO (as that term is
defined in Section 424(h) of the Code) or would cause any adverse tax
consequences for the holder of such ISO.
8. RIGHTS AS A SHAREHOLDER. No Participant to whom an Option has been
granted shall have rights as a shareholder with respect to any Shares covered by
such Option, except after due exercise of the Option and tender of the full
purchase price for the Shares being purchased pursuant to such exercise and
registration of the Shares in the Company's share register in the name of the
Participant.
9. ASSIGNABILITY AND TRANSFERABILITY OF OPTIONS. By its terms, an
Option granted to a Participant shall not be transferable by the Participant
other than (i) by will or by the laws of descent and distribution, or (ii) as
otherwise determined by the Administrator and set forth in the applicable Option
Agreement. The designation of a beneficiary of an Option by a Participant shall
not be deemed a transfer prohibited by this Paragraph. Except as provided above,
an Option shall be exercisable, during the Participant's lifetime, only by such
Participant (or by his or her legal representative) and shall not be assigned,
pledged or hypothecated in any way (whether by operation of law or otherwise)
and shall not be subject to execution, attachment or similar process. Any
attempted transfer, assignment, pledge, hypothecation or other disposition of
any Option or of any rights granted thereunder contrary to the provisions of
this Plan, or the levy of any attachment or similar process upon an Option,
shall be null and void.
10. EFFECT OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE" OR DEATH OR
DISABILITY. Except as otherwise provided in the pertinent Option Agreement, in
the event of a termination of service (whether as an employee, director or
consultant) with the Company or an Affiliate before the Participant has
exercised all Options, the following rules apply:
a. A Participant who ceases to be an employee, director or
consultant of the Company or of an Affiliate (for any reason other than
termination "for cause", Disability, or death for which events there
are special rules in Paragraphs 11, 12, and 13, respectively), may
exercise any Option granted to him or her to the extent that the Option
is exercisable on the date of such termination of service, but only
within such term as the Administrator has designated in the pertinent
Option Agreement.
b. Except as provided in Subparagraph (c) below, or in
Paragraph 12 or 13, in no event may an Option Agreement provide, if the
Option is intended to be an ISO, that the time for exercise be later
than three (3) months after the Participant's termination of
employment.
c. The provisions of this Paragraph, and not the provisions of
Paragraph 12 or 13, shall apply to a Participant who subsequently
becomes Disabled or dies after the
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<PAGE> 8
termination of employment, director status or consultancy, provided,
however, in the case of a Participant's Disability or death within
three (3) months after the termination of employment, director status
or consultancy, the Participant or the Participant's Survivors may
exercise the Option within one (1) year after the date of the
Participant's termination of employment, but in no event after the date
of expiration of the term of the Option.
d. Notwithstanding anything herein to the contrary, if
subsequent to a Participant's termination of employment, termination of
director status or termination of consultancy, but prior to the
exercise of an Option, the Board of Directors determines that, either
prior or subsequent to the Participant's termination, the Participant
engaged in conduct which would constitute "cause", then such
Participant shall forthwith cease to have any right to exercise any
Option.
e. A Participant to whom an Option has been granted under the
Plan who is absent from work with the Company or with an Affiliate
because of temporary disability (any disability other than a permanent
and total Disability as defined in Paragraph 1 hereof), or who is on
leave of absence for any purpose, shall not, during the period of any
such absence, be deemed, by virtue of such absence alone, to have
terminated such Participant's employment, director status or
consultancy with the Company or with an Affiliate, except as the
Administrator may otherwise expressly provide.
f. Except as required by law or as set forth in the pertinent
Option Agreement, Options granted under the Plan shall not be affected
by any change of a Participant's status within or among the Company and
any Affiliates, so long as the Participant continues to be an employee,
director or consultant of the Company or any Affiliate.
11. EFFECT OF TERMINATION OF SERVICE "FOR CAUSE". Except as otherwise
provided in the pertinent Option Agreement, the following rules apply if the
Participant's service (whether as an employee, director or consultant) with the
Company or an Affiliate is terminated "for cause" prior to the time that all his
or her outstanding Options have been exercised:
a. All outstanding and unexercised Options as of the time the
Participant is notified his or her service is terminated "for cause"
will immediately be forfeited.
b. For purposes of this Plan, "cause" shall include (and is
not limited to) dishonesty with respect to the Company or any
Affiliate, insubordination, substantial malfeasance or non-feasance of
duty, unauthorized disclosure of confidential information, and conduct
substantially prejudicial to the business of the Company or any
Affiliate. The determination of the Administrator as to the existence
of "cause" will be conclusive on the Participant and the Company.
c. "Cause" is not limited to events which have occurred prior
to a Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service but prior to the exercise of an Option, that either prior
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<PAGE> 9
or subsequent to the Participant's termination the Participant engaged
in conduct which would constitute "cause," then the right to exercise
any Option is forfeited.
d. Any definition in an agreement between the Participant and
the Company or an Affiliate, which contains a conflicting definition of
"cause" for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with respect
to such Participant.
12. EFFECT OF TERMINATION OF SERVICE FOR DISABILITY. Except as
otherwise provided in the pertinent Option Agreement, a Participant who ceases
to be an employee, director or consultant of the Company or of an Affiliate by
reason of Disability may exercise any Option granted to such Participant:
a. To the extent exercisable but not exercised on the date of
Disability; and
b. In the event rights to exercise the Option accrue
periodically, to the extent of a pro rata portion of any additional
rights as would have accrued had the Participant not become Disabled
prior to the end of the accrual period which next ends following the
date of Disability. The proration shall be based upon the number of
days of such accrual period prior to the date of Disability.
A Disabled Participant may exercise such rights only within the period
ending one (1) year after the date of the Participant's termination of
employment, directorship or consultancy, as the case may be, notwithstanding
that the Participant might have been able to exercise the Option as to some or
all of the Shares on a later date if the Participant had not become disabled and
had continued to be an employee, director or consultant or, if earlier, within
the originally prescribed term of the Option.
The Administrator shall make the determination both of whether
Disability has occurred and the date of its occurrence (unless a procedure for
such determination is set forth in another agreement between the Company and
such Participant, in which case such procedure shall be used for such
determination). If requested, the Participant shall be examined by a physician
selected or approved by the Administrator, the cost of which examination shall
be paid for by the Company.
13. EFFECT OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT. Except
as otherwise provided in the pertinent Option Agreement, in the event of the
death of a Participant while the Participant is an employee, director or
consultant of the Company or of an Affiliate, such Option may be exercised by
the Participant's Survivors:
a. To the extent exercisable but not exercised on the date of
death; and
b. In the event rights to exercise the Option accrue
periodically, to the extent of a pro rata portion of any additional
rights which would have accrued had the Participant not died prior to
the end of the accrual period which next ends following the
9
<PAGE> 10
date of death. The proration shall be based upon the number of days of
such accrual period prior to the Participant's death.
If the Participant's Survivors wish to exercise the Option, they must
take all necessary steps to exercise the Option within one (1) year after the
date of death of such Participant, notwithstanding that the decedent might have
been able to exercise the Option as to some or all of the Shares on a later date
if he or she had not died and had continued to be an employee, director or
consultant or, if earlier, within the originally prescribed term of the Option.
14. PURCHASE FOR INVESTMENT. Unless the offering and sale of the Shares
to be issued upon the particular exercise of an Option shall have been
effectively registered under the Securities Act of 1933, as now in force or
hereafter amended (the "1933 Act"), the Company shall be under no obligation to
issue the Shares covered by such exercise unless and until the following
conditions have been fulfilled:
a. The person(s) who exercise(s) such Option shall warrant to
the Company, prior to the receipt of such Shares, that such person(s)
are acquiring such Shares for their own respective accounts, for
investment, and not with a view to, or for sale in connection with, the
distribution of any such Shares, in which event the person(s) acquiring
such Shares shall be bound by the provisions of the following legend
which shall be endorsed upon the certificate(s) evidencing their Shares
issued pursuant to such exercise or such grant:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN TAKEN
FOR INVESTMENT AND THEY MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED BY ANY PERSON, INCLUDING A PLEDGEE, UNLESS (1)
EITHER (A) A REGISTRATION STATEMENT WITH RESPECT TO SUCH
SHARES SHALL BE EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) THE COMPANY SHALL HAVE RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO IT THAT AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT IS THEN AVAILABLE, AND (2) THERE SHALL HAVE
BEEN COMPLIANCE WITH ALL APPLICABLE STATE SECURITIES LAWS."
b. At the discretion of the Administrator, the Company shall
have received an opinion of its counsel that the Shares may be issued
upon such particular exercise in compliance with the 1933 Act without
registration thereunder.
15. DISSOLUTION OR LIQUIDATION OF THE COMPANY. Upon the dissolution or
liquidation of the Company, all Options granted under this Plan which as of such
date shall not have been exercised will terminate and become null and void;
provided, however, that if the rights of a Participant or a Participant's
Survivors have not otherwise terminated and expired, the Participant or the
Participant's Survivors will have the right immediately prior to such
dissolution or liquidation to exercise any Option to the extent that the Option
is exercisable as of the date immediately prior to such dissolution or
liquidation.
10
<PAGE> 11
16. ADJUSTMENTS. Upon the occurrence of any of the following events, a
Participant's rights with respect to any Option granted to him or her hereunder
which has not previously been exercised in full shall be adjusted as hereinafter
provided, unless otherwise specifically provided in the pertinent Option
Agreement:
A. STOCK DIVIDENDS AND STOCK SPLITS. If (i) the shares of
Common Stock shall be subdivided or combined into a greater or smaller
number of shares or if the Company shall issue any shares of Common
Stock as a stock dividend on its outstanding Common Stock, or (ii)
additional shares or new or different shares or other securities of the
Company or any other non cash assets are distributed with respect to
such shares of Common Stock, the number of shares of Common Stock
deliverable upon the exercise of such Option may be appropriately
increased or decreased proportionately, and appropriate adjustments may
be made in the purchase price per share to reflect such events. The
number of Shares subject to options to be granted to directors pursuant
to Paragraph 6Ae and the number of shares subject to the limitation in
Paragraph 4c shall also be proportionately adjusted upon the occurrence
of such events.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be
consolidated with or acquired by another entity in a merger, sale of
all or substantially all of the Company's assets or otherwise (an
"Acquisition"), the Administrator or the board of directors of any
entity assuming the obligations of the Company hereunder (the
"Successor Board"), shall, as to outstanding Options, either (i) make
appropriate provision for the continuation of such Options by
substituting on an equitable basis for the Shares then subject to such
Options either the consideration payable with respect to the
outstanding shares of Common Stock in connection with the Acquisition
or securities of any successor or acquiring entity; or (ii) upon
written notice to the Participants, provide that all Options must be
exercised (either to the extent then exercisable or, at the discretion
of the Administrator, all Options being made fully exercisable for
purposes of this Subparagraph), within a specified number of days of
the date of such notice, at the end of which period the Options shall
terminate; or (iii) terminate all Options in exchange for a cash
payment equal to the excess of the Fair Market Value of the shares
subject to such Options (either to the extent then exercisable or, at
the discretion of the Administrator, all Options being made fully
exercisable for purposes of this Subparagraph) over the exercise price
thereof.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a
transaction described in Subparagraph B above) pursuant to which
securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, a Participant upon
exercising an Option shall be entitled to receive for the purchase
price paid upon such exercise the securities which would have been
received if such Option had been exercised prior to such
recapitalization or reorganization.
D. MODIFICATION OF ISOs. Notwithstanding the foregoing, any
adjustments made pursuant to Subparagraph A, B or C with respect to
ISOs shall be made only after
11
<PAGE> 12
the Administrator, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification"
of such ISOs (as that term is defined in Section 424(h) of the Code) or
would cause any adverse tax consequences for the holders of such ISOs.
If the Administrator determines that such adjustments made with respect
to ISOs would constitute a modification of such ISOs, it may refrain
from making such adjustments, unless the holder of an ISO specifically
requests in writing that such adjustment be made and such writing
indicates that the holder has full knowledge of the consequences of
such "modification" on his or her income tax treatment with respect to
the ISO.
17. ISSUANCES OF SECURITIES. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Options. Except as expressly provided herein, no adjustments shall be
made for dividends paid in cash or in property (including without limitation,
securities) of the Company.
18. FRACTIONAL SHARES. No fractional shares shall be issued under the
Plan and the person exercising such right shall receive from the Company cash in
lieu of such fractional shares equal to the Fair Market Value thereof.
19. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs.
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's
ISOs (or any portions thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the Participant is an employee of the Company
or an Affiliate at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the exercise price
of the appropriate installments of such Options. At the time of such conversion,
the Administrator (with the consent of the Participant) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any Participant the right to have such Participant's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Administrator takes appropriate action. The Administrator, with the consent of
the Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such conversion.
20. WITHHOLDING. In the event that any federal, state, or local income
taxes, employment taxes, Federal Insurance Contributions Act ("F.I.C.A.")
withholdings or other amounts are required by applicable law or governmental
regulation to be withheld from the Participant's salary, wages or other
remuneration in connection with the exercise of an Option or a Disqualifying
Disposition (as defined in Paragraph 21), the Company may withhold from the
Participant's compensation, if any, or may require that the Participant advance
in cash to the Company, or to any Affiliate of the Company which employs or
employed the Participant, the amount of such withholdings unless a different
withholding arrangement, including the use of
12
<PAGE> 13
shares of the Company's Common Stock or a promissory note, is authorized by the
Administrator (and permitted by law). For purposes hereof, the fair market value
of the shares withheld for purposes of payroll withholding shall be determined
in the manner provided in Paragraph 1 above, as of the most recent practicable
date prior to the date of exercise. If the fair market value of the shares
withheld is less than the amount of payroll withholdings required, the
Participant may be required to advance the difference in cash to the Company or
the Affiliate employer. The Administrator in its discretion may condition the
exercise of an Option for less than the then Fair Market Value on the
Participant's payment of such additional withholding.
21. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each Key Employee
who receives an ISO must agree to notify the Company in writing immediately
after the Key Employee makes a Disqualifying Disposition of any shares acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such shares before the later of (a) two
years after the date the Key Employee was granted the ISO, or (b) one year after
the date the Key Employee acquired Shares by exercising the ISO. If the Key
Employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
22. TERMINATION OF THE PLAN. The Plan will terminate on June 30, 2007.
The Plan may be terminated at an earlier date by vote of the shareholders of the
Company, provided, however, that any such earlier termination shall not affect
any Option Agreements executed prior to the effective date of such termination.
23. AMENDMENT OF THE PLAN AND AGREEMENTS. The Plan may be amended by
the shareholders of the Company. The Plan may also be amended by the
Administrator, including, without limitation, to the extent necessary to qualify
any or all outstanding Options granted under the Plan or Options to be granted
under the Plan for favorable federal income tax treatment (including deferral of
taxation upon exercise) as may be afforded incentive stock options under Section
422 of the Code, and to the extent necessary to qualify the shares issuable upon
exercise of any outstanding Options granted, or Options to be granted, under the
Plan for listing on any national securities exchange or quotation in any
national automated quotation system of securities dealers. Any amendment
approved by the Administrator which the Administrator determines is of a scope
that requires shareholder approval shall be subject to obtaining such
shareholder approval. Any modification or amendment of the Plan shall not,
without the consent of a Participant, adversely affect his or her rights under
an Option previously granted to him or her. With the consent of the Participant
affected, the Administrator may amend outstanding Option Agreements in a manner
which may be adverse to the Participant but which is not inconsistent with the
Plan. In the discretion of the Administrator, outstanding Option Agreements may
be amended by the Administrator in a manner which is not adverse to the
Participant.
24. EMPLOYMENT OR OTHER RELATIONSHIP. Nothing in this Plan or any
Option Agreement shall be deemed to prevent the Company or an Affiliate from
terminating the employment, consultancy or director status of a Participant, nor
to prevent a Participant from terminating his or her own employment, consultancy
or director status or to give any Participant
13
<PAGE> 14
a right to be retained in employment or other service by the Company or any
Affiliate for any period of time.
25. GOVERNING LAW. This Plan shall be construed and enforced in
accordance with the law of the State of Delaware.
14
<PAGE> 1
EXHIBIT 10.3 CONFIDENTIAL TREATMENT
GENOMETRIX INCORPORATED HAS REQUESTED
THAT THE MARKED PORTIONS OF THIS DOCUMENT
BE ACCORDED CONFIDENTIAL TREATMENT PURSUANT
TO RULE 406 UNDER THE SECURITIES ACT OF 1933,
AS AMENDED.
May 19, 1994
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
GENOMETRIX, INCORPORATED
PATENT LICENSE AGREEMENT
(EXCLUSIVE)
<PAGE> 2
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
GENOMETRIX INCORPORATED
PATENT LICENSE AGREEMENT
This Agreement is made and entered into this May 27, 1994, (the
"Effective Date") by and between MASSACHUSETTS INSTITUTE OF TECHNOLOGY, a
corporation duly organized and existing under the laws of the Commonwealth of
Massachusetts and having its principal office at 77 Massachusetts Avenue,
Cambridge, Massachusetts 02139, U.S.A. (hereinafter referred to as "M.I.T."),
and GENOMETRIX INCORPORATED, a corporation duly organized and existing under the
laws of Delaware and a company having its principal office at c/o Houston
Advanced Research Center, 4800 Research Forest Drive, The Woodlands, TX 77381
(hereinafter referred to as "LICENSEE").
WITNESSETH
WHEREAS, M.I.T., the Houston Advanced Research Center, having its
principle address at 4800 Research Forest Dr., The Woodlands, TX 77381
(hereinafter "HARC"), and the Baylor College of Medicine, having its principle
address at 1709 Dryden, Houston, TX 77030 (hereinafter "BMC") are the owners of
and have the right to grant licenses under certain PATENT RIGHTS (as later
defined herein) relating to M.I.T. Case No. Case 5722L "Genosensors For DNA
Decoding" By Kenneth Beattie, Barry Burke, Change-Lee Chen, Mitchell Eggers,
Daniel Ehrlich, Michael Hogan, Mark Hollis, Bernard Kosicki, Richard Mathews,
Ralph Murphy, Dennis Rathman, and John Shumaker and M.I.T. Case No. Case 6394L
"Methods And Apparatus For Detecting And Imaging Particles Using Large Format
Solid State Imaging Techniques" By Mitchell Eggers, Daniel Ehrlich, Michael
Hogan, Mark Hollis, Bernard Kosicki,
1
<PAGE> 3
and Robert Reich and has the right to grant licenses under said PATENT RIGHTS,
subject only to a royalty-free, nonexclusive license heretofore granted to the
United States Government;
WHEREAS, M.I.T. desires to have the PATENT RIGHTS developed and
commercialized to benefit the public and is willing to grant a license
thereunder;
WHEREAS, LICENSEE has represented to M.I.T., to induce M.I.T. to enter
into this Agreement, that LICENSEE is knowledgeable with respect to products
similar to the LICENSED PRODUCT(s) (as later defined herein) and/or the use of
the LICENSED PROCESS(es) (as later defined herein) and that it shall commit
itself to a thorough, vigorous and diligent program of exploiting the PATENT
RIGHTS so that public utilization shall result therefrom; and
WHEREAS, LICENSEE desires to obtain a license under the PATENT RIGHTS
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following words and phrases
shall have the following meanings: 1.1 "LICENSEE" shall include a related
company of GENOMETRIX INCORPORATED, the voting stock of which is directly or
indirectly at least fifty percent (50%) owned or controlled by GENOMETRIX
INCORPORATED, an organization which directly or indirectly controls more than
fifty percent (50%) of the voting stock of GENOMETRIX INCORPORATED and an
organization, the majority ownership of which is directly or indirectly common
to the ownership of GENOMETRIX INCORPORATED.
2
<PAGE> 4
1.2 "PATENT RIGHTS" shall mean all of the following M.I.T., HARC, and
BCM intellectual property:
a. the United States and foreign patents and/or patent
applications listed in Appendices A and B;
b. United States and foreign patents issued from the
applications listed in Appendices A and B and from
divisionals, continuations, revisions and
reexaminations of these applications;
c. claims of U.S. and foreign continuation-in-part
applications, and of the resulting patents, which are
directed to subject matter specifically described in
the U.S. and foreign applications listed in
Appendices A and B;
d. claims of all foreign patent applications, and of the
resulting patents, which are directed to subject
matter specifically described in the United States
patents and/or patent applications described in a, b
or c above; and
e. any reissues of United States and foreign patents
described in a, b or c above.
1.3 A "LICENSED PRODUCT" shall mean any product or part thereof which:
a. is covered in whole or in part by a VALID CLAIM or a
pending claim asserted in good faith contained in the
PATENT RIGHTS in the country in which any such
product or part thereof is made, used or sold; or
b. is manufactured by using a process which is covered
in whole or in part by a VALID CLAIM or pending claim
asserted in good faith contained in the PATENT RIGHTS
in the country in which any LICENSED PROCESS is used
or in which such product or part thereof is used or
sold.
1.4 A "LICENSED PROCESS" shall mean any process which is covered in
whole or in part by a VALID CLAIM or a pending claim asserted in good faith
contained in the PATENT RIGHTS.
3
<PAGE> 5
CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
1.5 "NET SALES" shall mean LICENSEE's and its sublicensees' billings
for LICENSED PRODUCTS and LICENSED PROCESSES sold hereunder less the sum of the
following:
a. discounts allowed in amounts customary in the trade;
b. sales, tariff duties and/or use taxes directly
imposed and with reference to particular sales;
c. packing and crating charges separately stated;
d. outbound transportation prepaid or allowed;
e. amounts allowed or credited on returns, and
f. amounts paid to third parties to collect monies due
from sublicensees.
No deductions shall be made for commissions paid to individuals whether
they be with independent sales agencies or regularly employed by LICENSEE and on
its payroll, or except as provided above, for cost of collections. LICENSED
PRODUCTS shall be considered "sold" when billed out or invoiced.
1.6 "TERRITORY" shall mean worldwide.
1.7 A "VALID CLAIM" shall mean a claim of an issued, unexpired patent
contained in the PATENT RIGHTS so long as such claim shall not have been held
invalid in an unappealed or unappealable decision rendered by a court of
competent jurisdiction.
1.8 "FIELD OF USE" shall mean all fields of use except the field
of use of a
*********************************************************************, which
term "GENOSENSOR SYSTEM" is defined in a Collaboration Agreement among M.I.T.,
Beckman Instruments, Inc., GENOMETRIX and certain others, dated May 28, 1993 and
amended November 5, 1993 to read:
4
<PAGE> 6
"the system developed by the PARTIES as generally described in
the AWARD proposal for detecting hybridization of target
DNA/RNA to known DNA/RNA, PNA or other nucleic acid analog
probes. The system will be used only for high and/or low
resolution sequence determination and will consist of a
microfabricated semiconductor device ("GENOSENSOR CHIP" or
"CHIP") designed to be used with an array of probes attached
to a solid support, means for exposing the array of probes to
target DNA/RNA (the sample), means for detecting whether or
not (and where) hybridization has occurred and means for
reporting the results. The solid support can be the GENOSENSOR
CHIP itself or a separable support."
2. GRANT
2.1 M.I.T. hereby grants to LICENSEE the right and license in the
TERRITORY for the FIELD OF USE to practice under the PATENT RIGHTS and, to the
extent not prohibited by other patents, to make, have made, use, lease, sell and
import LICENSED PRODUCTS and to practice the LICENSED PROCESSES, until the end
of the term for which the PATENT RIGHTS are granted unless this Agreement shall
be sooner terminated according to the terms hereof.
2.2 LICENSEE agrees that LICENSED PRODUCTS leased or sold in the United
States shall be manufactured substantially in the United States.
2.3 In order to establish a period of exclusivity for LICENSEE, M.I.T.
hereby agrees that it shall not grant any other license to make, have made, use,
lease, sell or import LICENSED PRODUCTS or to utilize LICENSED PROCESSES in the
TERRITORY for the FIELD OF USE during the period of time commencing with the
Effective Date of this Agreement and terminating with the expiration of ten (10)
years after the Effective Date of this Agreement. If at the end of the exclusive
period, LICENSEE has achieved all milestones within this agreement and has not
breached this agreement, M.I.T. shall negotiate to extend the exclusive period,
such negotiations shall be in good faith.
5
<PAGE> 7
2.4 At the end of the exclusive period, the license granted hereunder
shall become nonexclusive and shall extend to the end of the term or terms for
which any PATENT RIGHTS are issued, unless sooner terminated as hereinafter
provided.
2.5 M.I.T., HARC, and BCM reserve the right to practice under the
PATENT RIGHTS for noncommercial research purposes.
2.6 LICENSEE shall have the right to enter into sublicensing agreements
for the rights, privileges and licenses granted hereunder only during the
exclusive period of this Agreement. Such sublicenses may extend past the
expiration date of the exclusive period of this Agreement, but any exclusivity
of such sublicenses shall expire upon the expiration of LICENSEE's exclusivity.
Upon any termination of this Agreement, sublicensees' rights shall also
terminate, subject to Article 13.6 hereof.
2.7 LICENSEE agrees that any sublicenses granted hereunder by it shall
provide that the obligations to M.I.T. of Articles 2, 5, 7, 8, 9, 10, 12, 13,
and 15 of this Agreement shall be binding upon the sublicensee as if it were a
party to this Agreement. LICENSEE further agrees to attach copies of these
Articles to sublicense agreements.
2.8 LICENSEE agrees to forward to M.I.T. a copy of any and all
sublicense agreements promptly upon execution by the parties.
2.9 LICENSEE shall not receive from sublicensees anything of value in
lieu of cash payments in consideration for any sublicense under this Agreement,
without the express prior written permission of M.I.T., which shall not be
unreasonably withheld, provided M.I.T. receives its share of value.
6
<PAGE> 8
2.10 The license granted hereunder shall not be construed to confer any
rights upon LICENSEE by implication, estoppel or otherwise as to any technology
not specifically set forth in Appendices A and B hereof or not otherwise within
the definition of PATENT RIGHTS.
3. DUE DILIGENCE
3.1 LICENSEE shall use its commercially reasonable best efforts to
bring one or more LICENSED PRODUCTS or LICENSED PROCESSES to market through a
thorough, vigorous and diligent program for exploitation of the PATENT RIGHTS
and to continue active, diligent marketing efforts for one or more LICENSED
PRODUCTS or LICENSED PROCESSES throughout the life of this Agreement.
3.2 In addition, LICENSEE shall adhere to the following milestones:
a. LICENSEE shall deliver to M.I.T. on or before July 1,
1994 a business plan showing the amount of money,
number and kind of personnel and time budgeted and
planned for each phase of development of the LICENSED
PRODUCTS and LICENSED PROCESSES and shall provide
similar reports to M.I.T. on or before January 1 of
each year.
b. LICENSEE shall raise Three Hundred Thousand Dollars
($300,000) in equity financing by October 1, 1994.
c. LICENSEE shall pay HARC one half (1/2) of the
expenses LICENSEE has incurred at HARC by the earlier
of the date of LICENSEE's initial funding outlined in
3.2b or by October 1, 1994. Said amount shall be no
less than Twenty Thousand Dollars ($20,000).
d. LICENSEE shall pay HARC the remaining portion of the
expenses LICENSEE has incurred at HARC and not paid
under 3.2c in twelve (12) equal monthly installments.
Said payments shall be due on the first day of the
month and shall begin in the first full month
following the date of LICENSEE's initial funding
outlined in 3.2b.
3.3 LICENSEE's failure to perform in accordance with Paragraphs 3.1 and
3.2 above shall be grounds for M.I.T. to terminate this Agreement pursuant to
Paragraph 13.3 hereof.
7
<PAGE> 9
CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
3.4 In addition, to maintain the provisions of this license relating to
M.I.T. Case 6394 "Methods And Apparatus For Detecting And Imaging Particles
Using Large Format Solid State Imaging Techniques," LICENSEE shall adhere to the
following milestone:
LICENSEE shall make NET SALES relating to M.I.T. Case 6394
according to the following schedule:
1997 ********
1998 ********
1999 and each year thereafter ********
3.5 LICENSEE's failure to perform in accordance with Article 3.4 above
shall be grounds for M.I.T. upon written notice to terminate all the provisions
of this Agreement relating to M.I.T. Case 6394 "Methods And Apparatus For
Detecting And Imaging Particles Using Large Format Solid State Imaging
Techniques."
3.6 In addition, to maintain the provisions of this license relating to
M.I.T. Case 5722L "Genosensors For DNA Decoding," LICENSEE shall adhere to the
following milestone:
LICENSEE shall make NET SALES relating to M.I.T. Case 5722L
according to the following schedule:
1998 ********
1999 ********
2000 and each year thereafter ********
8
<PAGE> 10
CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
3.7 LICENSEE's failure to perform in accordance with Article 3.6 above
shall be grounds for M.I.T. upon written notice to terminate all the provisions
of this Agreement that relate to M.I.T. Case 5722L "Genosensors For DNA
Decoding."
3.8 In addition, in order to maintain exclusive rights to the PATENT
RIGHTS relating to M.I.T. Case 6394 "Methods And Apparatus For Detecting And
Imaging Particles Using Large Format Solid State Imaging Techniques," LICENSEE
shall adhere to the following milestones:
a. LICENSEE shall develop a working model on or before
January 1, 1996 and permit an in-plant inspection by
M.I.T. on or before January 1, 1996, and thereafter
permit in-plant inspections by M.I.T. at regular
intervals with at least twelve (12) months between
each such inspection.
b. LICENSEE shall make NET SALES relating to M.I.T. Case
6394 according to the following schedule:
1997 ********
1998 ********
1999 and each year thereafter ********
3.9 LICENSEE's failure to perform in accordance with Article 3.8 above
shall be grounds for M.I.T. upon written notice to terminate the exclusive
provisions of this Agreement relating to M.I.T. Case 6394 "Methods And Apparatus
For Detecting And Imaging Particles Using Large Format Solid State Imaging
Techniques" and to convert the license granted to M.I.T. Case 6394 by this
Agreement to nonexclusive.
3:10 In addition, in order to maintain exclusive rights to the PATENT
RIGHTS relating to M.I.T. Case 5722L, LICENSEE shall adhere to the following
milestones:
9
<PAGE> 11
CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
a. LICENSEE shall raise One Million Five Hundred
Thousand Dollars ($1,500,000) in equity financing by
December 31, 1995. Said financing to be used to
commercialize M.I.T. Case 5722L.
b. LICENSEE shall make NET SALES relating to M.I.T. Case
5722L according to the following schedule:
1998 ********
1999 ********
2000 and each year thereafter ********
3.11 LICENSEE's failure to perform in accordance with Article 3.10
above shall be grounds for M.I.T. upon written notice to terminate the exclusive
provisions of this Agreement that relate to M.I.T. Case 5722L "Genosensors For
DNA Decoding" and to convert the license granted to M.I.T. Case 5722L by this
Agreement to nonexclusive.
4. ROYALTIES
4.1 For the rights, privileges and license granted hereunder, LICENSEE
shall pay royalties to M.I.T. in the manner hereinafter provided to the end of
the term of the PATENT RIGHTS or if earlier until this Agreement shall be
terminated:
a. Shares of common stock of LICENSEE due upon the
closing of the first round of equity investment in
LICENSEE for Ten Percent (10%) of the total
outstanding common and preferred shares of LICENSEE
at the completion of said first round of equity
investment, which first round of equity investment is
no less than One Million Dollars ($1,000,000). Said
shares of Common Stock shall be transferred to M.I.T.
at no charge. M.I.T. agrees to make to the LICENSEE
customary representations required of investors in
the first round of equity financing of LICENSEE.
Thereafter, no additional shares shall be due to
M.I.T., provided that in subsequent rounds of
financing, M.I.T. shall have the right to invest in
that number of additional shares of common or
preferred stock of the
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<PAGE> 12
CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
LICENSEE as are issued by the LICENSEE in any
subsequent financing in an amount equal to the
percentage of the outstanding Common Stock owned by
M.I.T. immediately prior to such financing provided
that for purposes of determining such percentage, any
shares of convertible preferred stock shall be
included on an as converted basis provided, however,
in any event, M.I.T.'s right of participation shall
not apply to any issuance of shares of capital stock
or grant of an option or other right to purchase
shares of capital stock to employees, directors,
officers, advisors or consultants of or to LICENSEE
or in connection with license, joint venture,
corporate partnering or research and development
agreement or equipment or lease financing
arrangements. M.I.T.'s right of purchase shall be at
the same price payable by other investors in such
financing. LICENSEE shall provide M.I.T. written
notice of such a financing and the purchase terms and
M.I.T. shall have ten (10) days to elect by written
notice to the LICENSEE, to participate in such
financing. M.I.T. shall be required in the event of
its participation to make customary investment
representations in connection with such purchase,
including meeting any accreditation or suitability
standards imposed by federal or state securities law.
The right of purchase set forth herein shall no apply
to any securities offered in a public offering and
shall terminate upon the consummation of an initial
public offering of the LICENSEE registered under the
Securities Act of 1933.
b. Running Royalties in an amount equal to ************
NET SALES of the LICENSED PRODUCTS and LICENSED
PROCESSES sold by the LICENSEE during the period of
this Agreement.
c. ************* of any licensee fee received by
LICENSEE from a non-affiliated sublicensee during the
period of this Agreement, which said connection with
sublicense.
d. ************ of any running and/or minimum royalty
received by LICENSEE from a non-affiliated
sublicensee during the period of this Agreement. In
the case of running royalties received said amount
shall in no event be less than ********* or more than
*********** of the NET SALES of the LICENSED PRODUCTS
and LICENSED PROCESSES sold by said non-affiliated
sublicensee.
4.2 All payments due hereunder shall be paid in full, without deduction
of taxes or other fees which may be imposed by any government and which shall be
paid by LICENSEE.
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CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
4.3 No multiple royalties shall be payable because any LICENSED
PRODUCT, its manufacture, use, lease, sale or import are or shall be covered by
more than one PATENT RIGHTS patent application and/or PATENT RIGHTS patent
licensed under this Agreement.
4.4 If LICENSEE pays royalties to a third party for patents necessary
to the manufacture, use or sale of a LICENSED PRODUCT or LICENSED PROCESS, then
LICENSEE may credit *************** of the third party royalties paid against
the royalties otherwise due to M.I.T. for the LICENSED PRODUCT or LICENSED
PROCESS under Article 4.1 b. above; provided, however, that the royalties paid
to M.I.T. for that LICENSED PRODUCT or LICENSED PROCESS shall not be less than
fifty percent (50%) of those otherwise due under Article 4.1 above.
4.5 Royalty payments shall be paid in United States dollars in
Cambridge, Massachusetts, or at such other place as M.I.T. may reasonably
designate consistent with the laws and regulations controlling in any foreign
country. If any currency conversion shall be required in connection with the
payment of royalties hereunder, such conversion shall be made by using the
exchange rate prevailing at the Chase Manhattan Bank (N.A.) on the last business
day of the calendar semiannual reporting period to which such royalty payments
relate.
5. REPORTS AND RECORDS
5.1 LICENSEE shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of showing the
amounts payable to M.I.T. hereunder. Said books of account shall be kept at
LICENSEE's principal place of business or the principal place of business of the
appropriate division of LICENSEE to which this
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Agreement relates. Said books and the supporting data shall be open at all
reasonable times and upon reasonable notice for three (3) years following the
end of the calendar year to which they pertain, to the inspection of M.I.T. or
by an independent auditor selected by M.I.T. who is acceptable to LICENSEE
(which acceptance shall not be unreasonably withheld) for the purpose of
verifying LICENSEE's royalty statement or compliance in other respects with this
Agreement. Should such inspection lead to the discovery of a greater than ten
percent (10%) discrepancy in reporting to M.I.T.'s detriment, LICENSEE agrees to
pay the full cost of such inspection. M.I.T. shall not inspect such books more
than once in any twelve (12) month period and any inspection following
termination of this Agreement shall be conducted within twelve (12) months of
the effective date of such termination.
5.2 Before the first commercial sale by LICENSEE or any sublicensee of
a LICENSED PRODUCT or LICENSED PROCESS, LICENSEE shall submit the reports due
under Article 3.2(a) on January 1 of each year. After the first commercial sale
of a LICENSED PRODUCT or LICENSED PROCESS, LICENSEE, within sixty (60) days
after June 30 and December 31, of each year, shall deliver to M.I.T. true and
accurate reports, giving such particulars of the business conducted by LICENSEE
and its sublicensees during the preceding six-month period under this Agreement
as shall be pertinent to a royalty accounting hereunder. These shall include at
least the following:
a. number of LICENSED PRODUCTS manufactured and sold by
LICENSEE and all sublicensees;
b. total billings for LICENSED PRODUCTS sold by LICENSEE
and all sublicensees;
c. accounting for all LICENSED PROCESSES used or sold by
LICENSEE and all sublicensees;
d. deductions applicable as provided in Article 1.5;
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e. royalties due on additional payments from
sublicensees under Article 4.1(c) and 4.1(d);
f. total royalties due; and
g. names and addresses of all sublicensees of LICENSEE.
5.3 With each such report submitted, LICENSEE shall pay to M.I.T. the
royalties due and payable under this Agreement, if no royalties shall be due,
LICENSEE shall so report.
5.4 On or before the ninetieth (90th) day following the close of
LICENSEE's fiscal year, LICENSEE shall provide M.I.T. with LICENSEE's certified
financial statements for the preceding fiscal year including, at a minimum, a
Balance Sheet and an Operating Statement.
5.5 The royalty payments set forth in this Agreement and amounts due
under Article 6 shall, if overdue, bear interest until payment at a per annum
rate two percent (2%) above the prime rate in effect at the Chase Manhattan Bank
(N.A.) on the due date or the highest rate allowed by law, whichever is less on
the due date. The payment of such interest shall not foreclose M.I.T. from
exercising any other rights it may have as a consequence of the lateness of any
payment.
6. PATENT PROSECUTION
6.1 M.I.T. shall apply for, seek prompt issuance of, and maintain
during the term of this Agreement the PATENT RIGHTS in the United States and in
the foreign countries listed in Appendix B hereto. Appendix B may be amended by
verbal agreement of both parties, such agreement to be confirmed in writing
within ten (10) days. The prosecution, filing and maintenance of all PATENT
RIGHTS patents and applications shall be the primary responsibility of M.I.T.;
provided, however, LICENSEE shall have reasonable opportunities to
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<PAGE> 16
advise M.I.T. and shall cooperate with M.I.T. in such prosecution, filing and
maintenance. M.I.T. shall promptly provide LICENSEE with (i) a copy of all
applications filed with the various patent offices (together with a translation
thereof if available or if requested by LICENSEE); (ii) a copy of each
communication from a patent office relating to each such application (together
with a translation thereof if available or if requested by LICENSEE); and, (iii)
a copy of each response to the patent office communication relating to each such
application (together with a translation thereof if available or if requested by
LICENSEE). At LICENSEE's request, LICENSEE shall have the right to file,
prosecute and maintain the patent applications for M.I.T. Case No. Case 6394L
"Methods And Apparatus For Detecting And Imaging Particles" in M.I.T.'s name in
such foreign jurisdictions other than those listed on Appendix B as it may deem
appropriate, at LICENSEE's own cost and expense. M.I.T. shall cooperate with
LICENSEE in any such filing, prosecution and maintenance.
6.2 Payment of all fees and costs relating to the filing, normal
prosecution, and maintenance of the PATENT RIGHTS not required to be paid by
Beckman Instruments, Inc. shall be the responsibility of LICENSEE, whether such
fees and costs were incurred before or after the date of this Agreement. Normal
prosecution shall not include appeals, interferences and oppositions unless
separately agreed to by LICENSEE in each instance before expense therefore is
incurred.
7. INFRINGEMENT
7.1 Each party shall inform the other party promptly in writing of any
alleged infringement of the PATENT RIGHTS by a third party and of any available
evidence thereof.
7.2 During the term of this Agreement, M.I.T., HARC, and BCM shall have
the right, but shall not be obligated, to prosecute at its own expense all
infringements of the PATENT
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<PAGE> 17
RIGHTS and, in furtherance of such right, LICENSEE hereby agrees that M.I.T.,
HARC, and BCM may include LICENSEE as a party plaintiff if required by law in
any such suit, without expense to LICENSEE. The total cost of any such
infringement action commenced or defended solely by M.I.T., HARC, and BCM shall
be borne by M.I.T., HARC, and BCM and M.I.T., HARC, and BCM shall keep any
recovery or damages for past infringement derived therefrom. M.I.T., HARC, and
BCM shall indemnify LICENSEE against any order for costs that may be made
against LICENSEE in such proceedings.
7.3 If within six (6) months after having been notified of any alleged
infringement, M.I.T., HARC, and BCM shall have been unsuccessful in persuading
the alleged infringer to desist and shall not have brought and shall not be
diligently prosecuting an infringement action, or if M.I.T., HARC, and BCM shall
notify LICENSEE at any time prior thereto of its intention not to bring suit
against any alleged infringer in the TERRITORY for the FIELD OF USE, then, and
in those events only, LICENSEE shall have the right, but shall not be obligated,
to prosecute at its own expense any infringement of the PATENT RIGHTS in the
TERRITORY for the FIELD OF USE, and LICENSEE may, for such purposes, use the
name of M.I.T., HARC, and BCM as party plaintiff if required by law; provided,
however, that such right to bring such an infringement action shall remain in
effect only for so long as the license granted herein remains exclusive. No
settlement, consent judgment or other voluntary final disposition of the suit
may be entered into without the consent of M.I.T., HARC, and BCM, which consent
shall not unreasonably be withheld or delayed, but nothing herein shall require
LICENSEE to continue prosecuting any such suit beyond the time which LICENSEE
deems, in its sole judgment, desirable. LICENSEE shall indemnify M.I.T., HARC,
and BCM, as appropriate, against any order for costs that may be made against
M.I.T., HARC, and BCM in such proceedings.
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7.4 In the event that LICENSEE shall undertake the enforcement and/or
defense of the PATENT RIGHTS by litigation, LICENSEE may withhold up to fifty
percent (50%) of the payments otherwise thereafter due M.I.T. under Article 4
hereof and apply the same toward reimbursement of up to half of LICENSEE's
expenses, including reasonable attorneys' fees, in connection therewith. Any
recovery of damages by LICENSEE for each such suit shall be applied first in
satisfaction of any unreimbursed expenses and legal fees of LICENSEE relating to
such suit, and next toward reimbursement of M.I.T. for any payments under
Article 4 past due or withheld and applied pursuant to this Article 7. The
balance remaining from any such recovery shall be divided equally between
LICENSEE and M.I.T.
7.5 In the event that a declaratory judgment action alleging invalidity
or noninfringement of any of the PATENT RIGHTS shall be brought against
LICENSEE, M.I.T., HARC, and BCM, respectively at its option, shall have the
right, within thirty (30) days after commencement of such action to intervene
and take over the sole defense of the action at its own expense.
7.6 In any infringement suit as either party may institute to enforce
the PATENT RIGHTS pursuant to this Agreement, the other party hereto shall, at
the request and expense of the party initiating such suit, cooperate in all
respects and, to the extent possible, have its employees testify when requested
and make available relevant records, papers, information, samples, specimens,
and the like.
7.7 LICENSEE, during the exclusive period of this Agreement, shall have
the sole right in accordance with the terms and conditions herein to sublicense
any alleged infringer in the TERRITORY for the FIELD OF USE for future use of
the PATENT RIGHTS.
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CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
8. PRODUCT LIABILITY AND WARRANTIES
8.1 LICENSEE shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold M.I.T., HARC, and BCM, their trustees,
directors, officers, employees and affiliates, harmless against all claims,
proceedings, demands and liabilities of any kind whatsoever, including legal
expenses and reasonable attorneys' fees, arising out of the death of or injury
to any person or persons or out of any damage to property, resulting from the
production, manufacture, sale, use, lease, consumption or advertisement of the
LICENSED PRODUCT(s) and/or LICENSED PROCESS(es) by LICENSEE.
8.2 Prior to the first use of a LICENSED PRODUCT and/or LICENSED
PROCESS for a commercial application involving human subjects LICENSEE shall
obtain and carry in full force and effect commercial, general liability
insurance which shall protect LICENSEE and M.I.T., HARC, and BCM with respect to
events covered by Article 8.1 above. Such insurance shall be written by a
reputable insurance company authorized to do business in the Commonwealth of
Massachusetts, shall list M.I.T., HARC, and BCM as additional named insured
thereunder, shall be endorsed to include product liability coverage and shall
require thirty (30) days written notice to be given to M.I.T., HARC, and BCM
prior to any cancellation or material change thereof. The limits of such
insurance shall not be less than ****************** per occurrence with an
aggregate of ****************** for personal injury or death, and
**************** per occurrence with an aggregate of *************** for
property damage. LICENSEE shall provide M.I.T., HARC, and BCM with Certificates
of Insurance evidencing the same.
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8.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, M.I.T.,
HARC, AND BCM, THEIR TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES, AND AFFILIATES
MAKE NO REPRESENTATIONS AND EXTENDED NO WARRANTIES OF ANY KIND, EITHER EXPRESS
OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING,
AND THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. NOTHING
IN THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION MADE OR WARRANTY GIVEN
BY M.I.T., HARC, AND BCM THAT THE PRACTICE BY LICENSEE OF THE LICENSE GRANTED
HEREUNDER SHALL NOT INFRINGE THE PATENT RIGHTS OF ANY THIRD PARTY. IN NO EVENT
SHALL M.I.T., HARC, AND BCM, THEIR TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES AND
AFFILIATES BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND,
INCLUDING ECONOMIC DAMAGE OR INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF
WHETHER M.I.T., HARC, OR BCM SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW,
OR IN FACT SHALL KNOW OF THE POSSIBILITY.
8.4 M.I.T. warrants and represents that it is the exclusive owner of
the entire right, title in and to the inventions included in the PATENT RIGHTS
or that it has acquired the right to grant licenses to the patent applications
and patents included in the PATENT RIGHTS of the scope herein granted.
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9. EXPORT CONTROLS
It is understood that M.I.T. is subject to United States laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes and other commodities (including the Arms Export Control
Act, as amended and the Export Administration Act of 1979), and that its
obligations hereunder are contingent on compliance with applicable United States
export laws and regulations. The transfer of certain technical data and
commodities may require a license from the cognizant agency of the United States
Government and/or written assurances by LICENSEE that LICENSEE shall not export
data or commodities to certain foreign countries without prior approval of such
agency. M.I.T. neither represents that a license shall not be required nor that,
if required, it shall be issued.
10. NON-USE OF NAMES
Except as otherwise required by law LICENSEE shall not use the names or
trademarks of the Massachusetts Institute of Technology, Lincoln Laboratory,
HARC or BCM, nor any adaptation thereof, nor the names of any of their
employees, in any advertising, promotional or sales literature without prior
written consent obtained from M.I.T., or said employee, in each case, except
that (a) LICENSEE may state that it is licensed by M.I.T. under one or more of
the patents and/or applications comprising the PATENT RIGHTS and (b) LICENSEE
may use the name of any employee of M.I.T., Lincoln Laboratory, HARC or BCM who
is a consultant to and/or member of an advisory board of LICENSEE, with the
permission of such consultant or advisory board member, and making clear their
affiliation with LICENSEE.
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11. ASSIGNMENT
This Agreement is not assignable and any attempt to do so shall be
void, except that any LICENSEE may assign this Agreement to any person, firm or
corporation succeeding to that portion of its business to which this Agreement
pertains as a result of sale, merger, consolidation, reorganization or otherwise
provided such person, firm or corporation shall, without delay, accept in
writing the provisions of this Agreement and agree to become in all respects
bound thereby in the place and stead of the assigning party and provided further
that LICENSEE may assign this Agreement to (or grant an exclusive license to)
any special purpose entity, partnership or joint venture in which LICENSEE has
an interest or the rights to acquire developed technology.
12. DISPUTE RESOLUTION
12.1 Except for the right of either party to apply to a court of
competent jurisdiction for a temporary restraining order, a preliminary
injunction, or other equitable relief to preserve the status quo or prevent
irreparable harm, any and all claims, disputes or controversies arising under,
out of, or in connection with the Agreement, including any dispute relating to
patent validity or infringement, which the parties shall be unable to resolve
within sixty (60) days shall be mediated in good faith. The party raising such
dispute shall promptly advise the other party of such claim, dispute or
controversy in a writing which describes in reasonable detail the nature of such
dispute. If the parties are unable to resolve such dispute within such sixty
(60) day period, either party may demand mediation by written notice to the
other party. By not later than ten (10) business days after the recipient has
received such demand for mediation, each party shall have selected for itself a
representative who shall have the authority to bind such party, and
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shall additionally have advised the other party in writing of the name and title
of such representative. By not later than twenty (20) business days after the
date of such demand for mediation, the party against whom the dispute shall be
raised shall select a mediation firm in the Boston area which is acceptable to
the other party (which acceptance shall not be unreasonably withheld) and such
representatives shall schedule a date with such firm for a mediation hearing.
Within thirty (30) days after the selection of the mediation firm, the parties
shall enter into good faith mediation and shall share the costs equally. If the
representatives of the parties have not been able to resolve the dispute within
fifteen (15) business days after such mediation hearing, the parties shall have
the right to pursue any other remedies legally available to resolve such dispute
in either the Courts of the Commonwealth of Massachusetts or in the United
States District Court for the District of Massachusetts, to whose jurisdiction
for such purposes M.I.T. and LICENSEE each hereby irrevocably consents and
submits.
12.2 Notwithstanding the foregoing, nothing in this Article shall be
construed to waive any rights or timely performance of any obligations existing
under this Agreement.
13. TERMINATION
13.1 If LICENSEE shall cease to carry on its business with respect to
the rights granted in this Agreement, this Agreement shall terminate upon notice
by M.I.T.
13.2 Should LICENSEE fail to make any payment whatsoever due and
payable to M.I.T. or HARC hereunder, M.I.T. shall have the right to terminate
this Agreement effective on thirty (30) days notice, unless LICENSEE shall make
all such payments to M.I.T. within said thirty (30) day period; provided,
however, that if LICENSEE in good faith shall dispute all or any part of such
payment and shall invoke the provisions of Article 12 hereof, M.I.T. shall have
no right to terminate this Agreement until M.I.T. shall have a favorable result
from any such
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mediation and LICENSEE shall thereafter continue to refuse to make any such
payment. Upon the expiration of the thirty (30) day period, if LICENSEE shall
not have made all such payments to M.I.T., the rights, privileges and license
granted hereunder shall automatically terminate.
13.3 Upon any material breach or default of this Agreement by LICENSEE
(excluding Articles 3), other than those occurrences set out in Articles 13.1
and 13.2 hereinabove, which shall always take precedence in that order over any
material breach or default referred to in this Article 13.3, M.I.T. shall have
the right to terminate this Agreement and the rights, privileges and license
granted hereunder effective on ninety (90) days' notice to LICENSEE. Upon any
material breach or default of Article 3, M.I.T. shall have the right to
terminate LICENSEE's rights as provided in Article 3. Such termination shall
become automatically effective unless LICENSEE shall have cured or have begun
substantial efforts toward curing any such breach or default prior to the
expiration of the ninety (90) day period. If, prior to the expiration of the
ninety (90) day notice from M.I.T. of intent to terminate LICENSEE has begun
substantial efforts toward curing such breach or default and has documented such
efforts in writing to M.I.T., LICENSEE shall have an additional ninety (90) days
to complete the cure. If the breach or default is not cured within a total of
one hundred eighty (180) days from the original notice of intent to terminate,
this Agreement shall then terminate.
13.4 LICENSEE shall have the right to terminate this Agreement at any
time on three (3) months' notice to M.I.T., and upon payment of all amounts due
M.I.T. through the effective date of the termination.
13.5 Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that matured
prior to the effective date of such termination; and Articles 1, 8, 9, 10, 13.5,
13.6, and 16 shall survive any such termination.
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LICENSEE and any sublicensee thereof may, however, after the effective
date of such termination, sell all LICENSED PRODUCTS, and complete LICENSED
PRODUCTS in the process of manufacture at the time of such termination and sell
the same, provided that LICENSEE shall make the payments to M.I.T. as required
by Article 4 of this Agreement and shall submit the reports required by Article
5 hereof.
13.6 No sublicense agreement which may have been entered into by
LICENSEE hereunder prior to any surrender or termination of this Agreement or of
any of the licenses herein granted under the provisions of this Article 13 shall
be affected by any surrender or termination of the licenses herein granted
except that M.I.T. shall be substituted for LICENSEE in all of such sublicense
agreements and LICENSEE shall be discharged of all obligations accrued or to
accrue thereafter under all such sublicense agreements and under this Agreement
with respect to such sublicense agreements.
14. IMPROVEMENTS
Ownership of all other Intellectual Property (including patents,
copyrights, mask works, tangible research property, improvements, and
trademarks) will be as follows:
a. Ownership of Intellectual Property developed in the course of
or pursuant to a M.I.T. sponsored research or other agreement
will be determined according to the terms of such agreement.
b. Ownership of Intellectual Property created by a person
providing services to M.I.T. in the course of such services as
a "work-for-hire" by operation of the copyright law, or
created pursuant to a written agreement with M.I.T. providing
for transfer of copyright or ownership to M.I.T., will vest
with M.I.T.
c. Ownership of Intellectual Property developed by faculty,
students, staff and others participating in M.I.T. will vest
with M.I.T.
d. Ownership of Intellectual Property made by or on behalf of
LICENSEE and not covered under subparagraphs 14(a), 14(b), or
14(c) will vest with LICENSEE.
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15. PAYMENTS, NOTICES AND OTHER COMMUNICATIONS
Any payment, notice or other communication pursuant to this Agreement
shall be sufficiently made or given if sent to such party by certified first
class mail, postage prepaid, or nationally recognized air carrier service,
addressed to it at its address below or as it shall designate by written notice
given to the other party:
All such payments, notices or communications shall be deemed given on
the date of actual receipt or, if earlier, five (5) business days after sending
in accordance with this Article 15. All notices hereunder shall be in writing.
In the case of M.I.T.:
Director
Technology Licensing Office
Massachusetts Institute of Technology
77 Massachusetts Avenue, Room E32-300
Cambridge, Massachusetts 02139
In the case of LICENSEE:
President
GENOMETRIX, INCORPORATED
c/o Houston Advanced Research Center
4800 Research Forest Drive
The Woodlands, TX 77381
16. MISCELLANEOUS PROVISIONS
16.1 This Agreement shall be construed, governed, interpreted and
applied in accordance with the laws of the Commonwealth of Massachusetts,
U.S.A., except that questions affecting the construction and effect of any
patent shall be determined by the law of the country in which the patent was
granted.
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16.2 The parties hereto acknowledge that this Agreement sets forth the
entire Agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change or modification except by
the execution of a written instrument subscribed to by the parties hereto.
16.3 The provisions of this Agreement are severable, and in the event
that any provisions of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of the law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.
16.4 LICENSEE agrees to mark the LICENSED PRODUCTS sold in the United
States with all applicable United States patent numbers to the extent reasonably
practical. All LICENSED PRODUCTS shipped to or sold in other countries shall be
marked in such a manner as to conform with the patent laws and practice of the
country of manufacture or sale.
16.5 The failure of either party to assert a right hereunder or to
insist upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
16.6 The headings and captions of the various Articles of this
Agreement are for the convenience of reference only and shall in no way modify
or affect the meaning or construction of any of the terms or provisions hereof.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement the
day and year set forth below.
MASSACHUSETTS INSTITUTE OF GENOMETRIX, INCORPORATED
TECHNOLOGY
By: /s/ John T. Preston By: /s/ Mitchell D. Eggers
------------------------------------ ---------------------------------
Name: John T. Preston Name: Mitchell D. Eggers
Title: Director of Technology Transfer Title: Chief Executive Officer
Date: 6/22/94 Date: 6/20/94
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APPENDIX A
UNITED STATES PATENT RIGHTS
M.I.T. Case No. Case 5722L
"Genosensors For DNA Decoding"
By Barry Burke, Chang-Lee Chen, Mitchell Eggers, Daniel Ehrlich, Michael Hogan,
Mark Hollis, Bernard Kosicki, Richard Matthews, Ralph Murphy, and Dennis Rathman
that includes patent applications:
USSN 07/794,036
"Method and Apparatus for Molecule Detection"
By Mitchell Eggers, Daniel Ehrlich, Michael Hogan, Kenneth Beanie, John
Shumaker, Mark Hollis
Filed November 19, 1991.
USSN 07/872,582
"Optical and Electrical Methods and Apparatus for Molecule Detection"
By Mark Hollis, Daniel Ehrlich, Allen Murphy, Bernard Kosicki, Dennis Rathman,
Chang-Lee Chen, Richard Mathews, Barry Burke, Mitchell Eggers, Michael Hogan,
Rajender Varma
Filed April 23, 1992.
M.I.T. Case No. Case 6394L
"Methods And Apparatus For Detecting And Imaging Particles Using Large Format
Solid State Imaging Techniques"
By Mitchell Eggers, Daniel Ehrlich, Michael Hogan, Mark Hollis, Bernard Kosicki,
and Robert Reich
that includes patent application
USSN 08/201,651
"Methods and Apparatus for Detecting and Imaging Particles"
By Mitchell Eggers, Daniel Ehrlich, Michael Hogan, Mark Horns, Bernard Kosicki,
and Robert Reich and Barry Burke
Filed February 25, 1994
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APPENDIX B
1. Foreign patent applications and patents within the PATENT RIGHTS as of
Effective Date:
For
M.I.T. Case No. Case 5722L
"Genosensors For DNA Decoding"
By Barry Burke, Clang-Lee Chen, Mitchell Eggers, Daniel Ehrlich,
Michael Hogan, Mark Hollis, Bernard Kosicki, Richard Mathews, Ralph
Murphy, and Dennis Rathman
that includes patent applications:
USSN 07/794,036
"Method and Apparatus for Molecule Detection"
By Mitchell Eggers, Daniel Ehrlich, Michael Hogan, Kenneth Beattie,
John Shumaker, Mark Hollis
Filed November 19, 1991
in Japan, Israel, Mexico, and Europe (Austria, Belgium, Denmark,
France, France, Germany, Greece, Ireland, Italy, Luxembourg, Monaco,
Netherlands, Portugal, Spain, Sweden, Switzerland, United Kingdom).
USSN 07/872,582
PCT/US93/03829
"Optical and Electrical Methods and Apparatus for Molecule Detection"
By Mark Hollis, Daniel Ehrlich, Allen Murphy, Bernard Kosicki, Dennis
Rathman, Chang-Lee Chen, Richard Mathews, Barry Burke, Mitchell Eggers,
Michael Hogan, Rajender Varma
Filed April 23, 1992.
in Europe, Canada, and Japan
M.I.T. Case No. Case 6394L
"Methods And Apparatus For Detecting And Imaging Particles Using Large
Format Solid State Imaging Techniques"
By Mitchell Eggers, Daniel Ehrlich, Michael Hogan, Mark Hollis, Bernard
Kosicki, and Robert Reich
that includes patent application
USSN 08/201,651
"Methods and Apparatus for Detecting and Imaging Particles"
By Mitchell Eggers, Daniel Ehrlich, Michael Hogan, Mark Hollis, Bernard
Kosicki, and Robert Reich and Barry Burke
29
<PAGE> 31
Filed February 25, 1994
2. Foreign countries in which PATENT RIGHTS shall be filed, prosecuted and
maintained in accordance with Article 6:
For
M.I.T. Case No. Case 5722L
"Genosensors For DNA Decoding"
By Barry Burke, Chang-Lee Chen, Mitchell Eggers, Daniel Ehrlich,
Michael Hogan, Mark Hollis, Bernard Kosicki, Richard Mathews, Ralph
Murphy, and Dennis Rathman
that includes patent applications:
USSN 07/794,036
"Method and Apparatus for Molecule Detection"
By Mitchell Eggers, Daniel Ehrlich, Michael Hogan, Kenneth Beattie,
John Shumaker, Mark Hollis
Filed November 19, 1991.
in Japan, Israel, Mexico, and Europe (Austria, Belgium, Denmark,
France, France, Germany, Greece, Ireland, Italy, Luxembourg, Monaco,
Netherlands, Portugal, Spain, Sweden, Switzerland, United Kingdom).
USSN 07/872,582
PCT/US93/03829
"Optical and Electrical Methods and Apparatus for Molecule Detection"
By Mark Hollis, Daniel Ehrlich, Allen Murphy, Bernard Kosicki, Dennis
Rathman, Chang-Lee Chen, Richard Mathews, Barry Burke, Mitchell Eggers,
Michael Hogan, Rajender Varma
Filed April 23, 1992.
30
<PAGE> 32
in Europe, Canada, and Japan
M.I.T. Case No. Case 6394L
"Methods And Apparatus For Detecting And Imaging Particles Using Large
Format Solid State Imaging Techniques"
By Mitchell Eggers, Daniel Ehrlich, Michael Hogan, Mark Horns, Bernard
Kosicki, and Robert Reich
that includes patent application
USSN 08/201,651
"Methods and Apparatus for Detecting and Imaging Particles"
By Mitchell Eggers, Daniel Ehrlich, Michael Hogan, Mark Hollis, Bernard
Kosicki, and Robert Reich and Barry Burke
Filed February 25, 1994
31
<PAGE> 1
EXHIBIT 10.4 CONFIDENTIAL TREATMENT
GENOMETRIX INCORPORATED HAS REQUESTED
THAT THE MARKED PORTIONS OF THIS DOCUMENT
BE ACCORDED CONFIDENTIAL TREATMENT PURSUANT
TO RULE 406 UNDER THE SECURITIES ACT OF 1933,
AS AMENDED.
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
GENOMETRIX, INCORPORATED
PATENT LICENSE AGREEMENT
(EXCLUSIVE)
<PAGE> 2
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
GENOMETRIX INCORPORATED
PATENT LICENSE AGREEMENT
This Agreement is made and entered into this April 1, 1996, (the
"Effective Date") by and between MASSACHUSETTS INSTITUTE OF TECHNOLOGY, a
corporation duly organized and existing under the laws of the Commonwealth of
Massachusetts and having its principal office at 77 Massachusetts Avenue,
Cambridge, Massachusetts 02139, U.S.A. (hereinafter referred to as "M.I.T."),
and GENOMETRIX INCORPORATED, a corporation duly organized and existing under the
laws of Delaware and a company having its principal office at 3608 Research
Forest Drive, Suite B-7, the Woodlands, TX 77381 (hereinafter referred to as
"LICENSEE").
WITNESSETH
WHEREAS, M.I.T., the Houston Advanced Research Center, having its
principal address at 3608 Research Forest Dr., Suite B-7, The Woodlands, TX
77381 (hereinafter "HARC") and the Baylor College of Medicine, having its
principal address at 1709 Dryden, Houston, TX 77030 (hereinafter "BCM") are the
owners of and have the right to grant licenses under certain PATENT RIGHTS (as
later defined herein) relating to M.I.T. Case No. 5722L, "Genosensors For DNA
Decoding," by Barry Burke, Chang-Lee Chen, Mitchell Eggers, Daniel Ehrlich,
Michael Hogan, Mark Hollis, Bernard Kosicki, Richard Mathews, Ralph Murphy and
Dennis Rathman and related to M.I.T. Case NO. 6838L, "Optical and Electrical
Methods and Apparatus for Molecule Detection" (Formerly part of 5722L), by Mark
Hollis, Chang-Lee Chen, Richard Mathews, Ralph Murphy, Barry Burke, Bernard
Kosicki, Daniel Ehrlich, Dennis Rathman, Michael E. Hogan and Rajender S. Varma
and has the right to grant licenses under said PATENT RIGHTS, subject only to a
royalty-free, nonexclusive license heretofore granted to the United States
Government;
WHEREAS, HARC and BCM have appointed M.I.T. as their licensing agent
for M.I.T. Case 5722L in the Technology Transfer and Royalty-Sharing Agreement
by and between M.I.T., HARC and BCM dated July 16, 1992;
<PAGE> 3
WHEREAS, LICENSEE AND M.I.T. entered into an exclusive license
agreement dated May 27, 1994 (attached hereto and referenced as ATTACHMENT R)
which the parties now wish to terminate and replace with two license agreements,
one for intellectual property related to M.I.T. Case 5722L and M.I.T. Case 6838L
the "5722L Agreement", which is this Agreement, and one for intellectual
property related to M.I.T. Case 6394L the "6394L Agreement";
WHEREAS, M.I.T. to induce M.I.T. to enter into this Agreement, that
LICENSEE is knowledgeable with respect to products similar to the LICENSED
PRODUCT(s) (as later defined herein) and/or the use of the LICENSED PROCESS(es)
(as later defined herein) and that it shall commit itself to a thorough,
vigorous and diligent program of exploiting the PATENT RIGHTS so that public
utilization shall result therefrom; and
WHEREAS, LICENSEE desires to obtain a license under the PATENT RIGHTS
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
DEFINITIONS
For the purposes of this Agreement, the following words and phrases
shall have the following meanings:
1.1 "LICENSEE" shall mean GENOMETRIX INCORPORATED, shall include a
related company of GENOMETRIX INCORPORATED, the voting stock
of which is directly or indirectly at least fifty percent
(50%) owned or controlled by GENOMETRIX INCORPORATED, an
organization which directly or indirectly controls more than
fifty percent (50%) of the voting stock of GENOMETRIX
INCORPORATED and an organization, the majority ownership of
which is directly or indirectly common to the ownership of
GENOMETRIX INCORPORATED.
1.2 "PATENT RIGHTS" shall mean all of the following M.I.T., HARC,
and BCM intellectual property:
a. the United States and foreign patents and/or patent
applications listed in Appendices A and B;
b. United States and foreign patents issued from the
applications listed in Appendices A and B an from
divisionals, continuations, revisions and
reexaminations of these applications;
2
<PAGE> 4
c. Claims of U.S. and foreign continuation-in-part
applications, and of the resulting patents, which are
directed to subject matter specifically described in
the U.S. and foreign applications listed in
Appendices A and B;
d. claims of all foreign patent applications, and of the
resulting patents, which are directed to subject
matter specifically described in the United States
patents and/or patent applications described in a, b
or c above; and
e. any reissues of United States and foreign patents
described in a, b or c above.
1.3 A "LICENSED PRODUCT" shall mean any product or part thereof which:
a. is covered in whole or in part by a VALID CLAIM or a
pending claim asserted in good faith contained in the
PATENT RIGHTS in the country in which any such
product or part thereof is made, used or sold; or
b. is manufactured by using a process which is covered
in whole or in part by a VALID CLAIM or pending claim
asserted in good faith contained in the PATENT RIGHTS
in the country in which any LICENSED PROCESS is used
or in which such product or part thereof is used or
sold.
1.4 A "LICENSED PROCESS" shall mean any process which is covered in
whole in part by a VALID CLAIM or a pending claim asserted in good faith
contained in the PATENT RIGHTS.
1.5 "NET SALES" shall mean LICENSEE's and its sublicensees' billings
for LICENSED PRODUCTS and LICENSED PROCESSES sold hereunder less the sum of the
following:
a. discounts allowed in amounts customary in the trade;
b. sales, tariff duties and/or use taxes directly
imposed and with reference to particular sales;
c. packing and crating charges separately stated;
d. outbound transportation prepaid or allowed;
e. amounts allowed or credited on returns, and
f. amounts paid to third parties to collect monies due
from sublicensees.
3
<PAGE> 5
CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
No deductions shall be made for commissions paid to individuals whether
they be with independent sales agencies or regularly employed by LICENSEE and on
its payroll, or except as provided above, for cost of collections. LICENSED
PRODUCTS shall be considered "sold" when billed out or invoiced.
1.6 "TERRITORY" shall mean worldwide.
1.7 A "VALID CLAIM" shall mean a claim of an issued, unexpired patent
contained in the PATENT RIGHTS so long as such claim shall not have been held
invalid in an unappealed or unappealable decision rendered by a court of
competent jurisdiction.
1.8 "FIELD OR USE" shall mean all fields of use
****************************************************************************** ,
which term `GENOSENSOR SYSTEM' is defined in a Collaboration Agreement among
M.I.T., Beckman Instruments, Inc., GENOMETRIX and certain others, dated May 28,
1993 and amended November 5, 1993 to read:
"the system developed by the PARTIES as generally described in
the AWARD proposal for detecting hybridization of target
DNA/RNA to known DNA/RNA, PNA or other nucleic acid analog
probes. The system will be used only for high and/or low
resolution sequence determination and will consist of a
microfabricated semiconductor device ("GENOSENSOR CHIP") or
("CHIP") designed to be used with an array of probes attached
to a solid support, means for exposing the array of probes to
target DNA/RNA (the sample), means for detecting whether or
not (and where) hybridization has occurred and means for
reporting the results. The solid support can be the GENOSENSOR
CHIP itself or a separable support."
1.9 "5722L Agreement" shall mean this Agreement for the intellectual
property related to M.I.T. Case 5722L and M.I.T. Case 6838L and listed in
Appendices A and B.
1.10 "6394L Agreement" shall mean a license agreement by and between
M.I.T. and LICENSEE for intellectual property related to M.I.T. Case No. 6394L,
and executed on the Effective Date of this Agreement.
2 - GRANT
2.1 M.I.T. hereby grants to LICENSEE the right and license in the
TERRITORY for the FIELD OF USE to practice under the PATENT RIGHTS and, to the
extent not prohibited by other patents, to make, have made, use, lease, sell and
import LICENSED PRODUCTS and to
4
<PAGE> 6
practice the LICENSED PROCESSES, until the end of the term, for which the PATENT
RIGHTS are granted unless this Agreement shall be sooner terminated according to
the terms hereof.
2.2 LICENSEE agrees that LICENSED PRODUCTS leased or sold in the United
States shall be manufactured substantially in the United States.
2.3 In order to establish a period of exclusivity for LICENSEE, M.I.T.
hereby agrees that it shall not grant any other license to make, have made, use,
lease, sell or import LICENSED PRODUCTS or to utilize LICENSED PROCESSES in the
TERRITORY for the FIELD Of USE during the period of time commencing with the
Effective Date of this Agreement and terminating with the expiration of ten (10)
years after the Effective Date of this Agreement. If at the end of the exclusive
period, LICENSEE has achieved all milestones within this agreement and has not
breached this agreement, M.I.T. shall negotiate to extend the exclusive period,
such negotiations shall be in good faith.
2.4 At the end of the exclusive period, the license granted hereunder
shall become nonexclusive and shall extend to the end of the term or terms for
which any PATENT RIGHTS are issued, unless sooner terminated as hereinafter
provided.
2.5 M.I.T., HARC, and BCM reserve the right to practice under the
PATENT RIGHTS for noncommercial research purposes.
2.6 LICENSEE shall have the right to enter into sublicensing agreements
for the rights, privileges and licenses granted hereunder only during the
exclusive period of this Agreement. Such sublicenses may extend past the
expiration date of the exclusive period of this Agreement, but any exclusivity
of such sublicenses shall expire upon the expiration of LICENSEE's exclusivity.
Upon any termination of this Agreement, sublicensees' rights shall also
terminate, subject to Article 13.6 hereof.
2.7 LICENSEE agrees that any sublicenses granted hereunder by it shall
provide that the obligations to M.I.T. of Articles 2, 5, 7, 8, 9, 10. 12, 13,
and 15 of this Agreement shall be binding upon the sublicensee as if it were a
party to this Agreement. LICENSEE further agrees to attach copies of these
Articles to sublicense agreements.
2.8 LICENSEE agrees to forward to M.I.T. a copy of any and all
sublicense agreements promptly upon execution by the parties.
5
<PAGE> 7
CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
2.9 LICENSEE shall not receive from sublicensees anything of value in
lieu of cash payments in consideration for any sublicense under this Agreement,
without the express prior written permission of M.I.T., which shall not be
unreasonably withheld, provided M.I.T. receives its share of value.
2.10 The license granted hereunder shall not be construed to confer any
rights upon LICENSEE by implication, estoppel or otherwise as to any technology
not specifically set forth in Appendices A and B hereof or not otherwise within
the definition of PATENT RIGHTS.
3 - DUE DILIGENCE
3.1 LICENSEE shall use its commercially reasonable best efforts to
bring one or more LICENSED PRODUCTS or LICENSED PROCESSES to market through a
thorough, vigorous and diligent program for exploitation of the PATENT RIGHTS
and to continue active, diligent marketing efforts for one or more LICENSED
PRODUCTS or LICENSED PROCESSES throughout the life of this Agreement.
3.2 In addition, LICENSEE shall adhere to the following milestones:
a. LICENSEE shall deliver to M.I.T. on or before January
1 of each year of this License a business plan
showing the amount of money, number and kind of
personnel and time budgeted and planned for each
phase of development of the LICENSED PRODUCTS and
LICENSED PROCESSES.
b. LICENSEE shall make NET SALES of LICENSED PRODUCTS
under M.I.T. Case 5722L and M.I.T. Case 6838L
according to the following schedule:
1998 ************
1999 ************
2000 and each year thereafter ************
3.3 LICENSEE's failure to perform in accordance with Paragraphs 3.1 and
3.2 above shall be grounds for M.I.T. to terminate this Agreement pursuant to
Paragraph 13.3 hereof.
3.4 In addition, in order to maintain exclusive rights to the PATENT
RIGHTS, LICENSEE shall adhere to the following milestones:
6
<PAGE> 8
CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
a. LICENSEE shall raise One Million Five Hundred
Thousand Dollars ($1,500,000) in equity financing by
May 1, 1996, said financing to be used to
commercialize M.I.T Case 5722L and M.I.T. Case 6838L.
b. LICENSEE shall make NET SALES of LICENSED PRODUCTS
relating to M.I.T. Case 5722L and M.I.T. Case 6838L
and according to the following schedule:
1998 ************
1999 *************
2000 and each year thereafter *************
3.5 LICENSEE's failure to perform in accordance with Article 3.4 above
shall be grounds for M.I.T. upon written notice to terminate the exclusive
provisions of this Agreement and to convert the license granted by this
Agreement to nonexclusive.
4- ROYALTIES
4.1 For the rights, privileges and license granted hereunder, LICENSEE
shall pay royalties to M.I.T. in the manner hereinafter provided to the end of
the term of the PATENT RIGHTS or if earlier until this Agreement shall be
terminated:
(a) Shares of common stock of LICENSEE equal to ten
percent (10%) of the total outstanding common and
preferred shares of LICENSEE. Said shares shall be
due with thirty (30) days of LICENSEE'S raising One
Million Dollars ($1,000,000), cumulative, of equity
financing and shall be transferred to M.I.T. at no
charge to M.I.T. M.I.T. agrees to make to the
LICENSEE customary representations required of equity
investors which have equity in LICENSEE. Thereafter,
no additional shares shall be due to M.I.T., provided
that in subsequent rounds of financing. M.I.T. shall
have the right to invest in that number of additional
shares of common or preferred stock of the LICENSEE
as are issued by the LICENSEE in any subsequent
financing in an amount equal to the percentage of the
outstanding Common Stock owned by M.I.T. immediately
prior to such financing provided that for purposes of
determining such percentage, any shares of
convertible preferred stock shall be included on an
as converted basis provided, however, in any event,
M.I.T.'s right of participation shall not apply to
any issuance of shares of capital stock or grant of
an option or other right to purchase shares of
capital stock to employees, directors, officers,
advisors or consultants of or to LICENSEE or in
connection with license, joint venture, corporate
partnering or research and development agreement or
equipment or lease financing arrangements. M.I.T.'s
right of
7
<PAGE> 9
CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
purchase shall be at the same price payable by other
investors in such financing. LICENSEE shall provide
M.I.T. written notice of such a financing and the
purchase terms and M.I.T. shall have ten (10)
business days to elect by written notice to the
LICENSEE to participate in such financing. M.I.T.
shall be required in the event of its participation
to make customary investment representations in
connection with such purchase, including meeting any
accreditation or suitability standards imposed by
federal or state securities law. The right of
purchase set forth herein shall not apply to any
securities offered in a public offering and shall
terminate upon the consummation of an initial public
offering of the LICENSEE registered under the
Securities Act of 1933. This stock provision applies
in the aggregate to funds raised under this Agreement
and to funds raised under the 6394L Agreement, and
funds raised under the now terminated May 27, 1994
Agreement.
(b) Running Royalties in an amount equal to ***********
of the NET SALES of the LICENSED PRODUCTS and
LICENSED PROCESSES sold by the LICENSEE during the
period of this Agreement.
(c) ********** of any sublicense fee received by LICENSEE
from a sublicensee during the period of this
Agreement.
(d) ********** of any running and/or minimum royalty
received by LICENSEE from a sublicensee during the
period of this Agreement. In no event shall the
amount due M.I.T. under the above provision be less
than ********** or more than *********** of the NET
SALES of the LICENSED PRODUCTS and LICENSED PROCESSES
sold by said sublicensee.
4.2 All payments due hereunder shall be paid in full, without deduction
of taxes or other fees which may be imposed by any government and which shall be
paid by LICENSEE.
4.3 No multiple royalties shall be payable because any LICENSED
PRODUCT, its manufacture, use, lease, sale or import are or shall be covered by
more than one PATENT RIGHTS patent application and/or PATENT RIGHTS patent
licensed under this Agreement.
4.4 If LICENSEE pays royalties to a third party for patents necessary
to the manufacture, use or sale of a LICENSED PRODUCT or LICENSED PROCESS, then
LICENSEE may credit ************ of the third party royalties paid against the
royalties otherwise due to M.I.T. for the LICENSED PRODUCT or LICENSED PROCESS
under Article 4.1 b. above; provided, however, that the royalties paid to M.I.T.
for that LICENSED
8
<PAGE> 10
CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
PRODUCT or LICENSED PROCESS shall not be less than ************* of those
otherwise due under Article 4.1(b) above.
4.5 Royalty payments shall be paid in United States dollars in
Cambridge, Massachusetts, or at such other place as M.I.T. may reasonably
designate consistent with the laws and regulations controlling in any foreign
country. If any currency conversion shall be required in connection with the
payment of royalties hereunder, such conversion shall be made by using the
exchange rate prevailing at the Chase Manhattan Bank (N.A.) on the last business
day of the calendar semiannual reporting period to which such royalty payments
relate.
5- REPORTS AND RECORDS
5.1 LICENSEE shall keep full, true, and accurate books of account
containing all particulars that may be necessary for the purpose of showing the
amounts payable to M.I.T. hereunder and books of account shall be kept at
LICENSEE's principal place of business or the principal place of business of the
appropriate division of LICENSEE to which this Agreement relates. Said books and
the supporting data shall be open at all reasonable times and upon reasonable
notice for three (3) years following the end of the calendar year to which they
pertain, to the inspection of M.I.T. or by an independent auditor selected by
M.I.T. who is acceptable to LICENSEE (which acceptance shall not be unreasonably
withheld) for the purpose of verifying LICENSEE's royalty statement or
compliance in other respects with this Agreement. Should such inspect on lead to
the discovery of a greater than ten percent (10%) discrepancy in reporting to
M.I.T.'s detriment, LICENSEE agrees to pay the full cost of such inspection.
M.I.T. shall not inspect such books more than once in any twelve (12) month
period and any inspection following termination of this Agreement shall be
conducted within twelve (12) months of the effective date of such termination.
5.2 Before the first commercial sale by LICENSEE or any sublicensee of
a LICENSED PRODUCT or LICENSED PROCESS, LICENSEE shall submit the reports due
under Article 3.2(a) on January 1 of each year. After the first commercial sale
of a LICENSED PRODUCT or LICENSED PROCESS, LICENSEE, within sixty (60) days
after June 30 and
9
<PAGE> 11
December 31, of each year, shall deliver to M.I.T. true and accurate reports,
giving such particulars of the business conducted by LICENSEE and its
sublicensees during the preceding six-month period under this Agreement as shall
be pertinent to a royalty accounting hereunder. These shall include at least the
following:
a. number of LICENSED PRODUCTS manufactured and sold by
LICENSEE and all sublicensees;
b. total billings for LICENSED PRODUCTS sold by LICENSEE
and all sublicensees;
c. accounting for all LICENSED PROCESSES used or sold by
LICENSEE and all sublicensees;
d. deductions applicable as provided in Article 1.5;
e. royalties due on additional payments from
sublicensees under Article 4.1(c) and 4.1(d).
f. total royalties due; and
g. names and addresses of all sublicensees of LICENSEE.
5.3 With each such report submitted, LICENSEE shall pay to M.I.T. the
royalties due and payable under this Agreement. If no royalties shall be due,
LICENSEE shall so report.
5.4 On or before the ninetieth (90th) day following the close of
LICENSEE's fiscal year, LICENSEE shall provide M.I.T. with LICENSEE's certified
financial statements for the preceding fiscal year including, at a minimum, a
Balance Sheet and an Operating Statement.
5.5 The royalty payments set forth in this Agreement and amounts due
under Article 6 shall, if overdue, bear interest until payment at a per annum
rate two percent (2%) above the prime rate in effect at the Chase Manhattan Bank
(N.A.) on the due date or the highest rate allowed by law, whichever is less on
the due date. The payment of such interest shall not foreclose M.I.T. from
exercising any other rights it may have as a consequence of the lateness of any
payment.
6 - PATENT PROSECUTION
6.1 M.I.T. shall apply for, seek prompt issuance of, and maintain
during the term of this Agreement the PATENT RIGHTS in the United States and in
the foreign countries listed in
10
<PAGE> 12
Appendix B hereto. Appendix B may be amended by verbal agreement of both
parties, such agreement to be confirmed in writing within ten (10) days. The
prosecution, filing and maintenance of all PATENT RIGHTS patents and
applications shall be the primary responsibility of M.I.T.; provided, however,
LICENSEE shall have reasonable opportunities to advise M.I.T. and shall
cooperate with M.I.T. in such prosecution, filing and maintenance. M.I.T. shall
promptly provide LICENSEE with (i) a copy of all applications filed with the
various patent offices (together with a translation thereof if available and if
requested by LICENSEE); (ii) a copy of each communication from a patent office
relating to each such application (together with a translation thereof if
available and if requested by LICENSEE); and, (iii) a copy of each response to
the patent office communication relating to each such application (together with
a translation thereof if available and if requested by LICENSEE).
6.2 Payment of all fees and costs relating to the filing, normal
prosecution, and maintenance of the PATENT RIGHTS not required to be paid by
Beckman Instruments, Inc. shall be the responsibility of LICENSEE, whether such
fees and costs were incurred before or after the date of this Agreement. Normal
prosecution shall not include appeals, interferences and oppositions unless
separately agreed to by LICENSEE in each instance before expense therefor is
incurred. M.I.T. is not obligated to pay for such appeals, interferences and
oppositions.
7 - INFRINGEMENT
7.1 Each party shall inform the other party promptly in writing of any
alleged infringement of the PATENT RIGHTS by a third party and of any available
evidence thereof.
7.2 During the term of this Agreement, M.I.T. shall have the right, but
shall not be obligated, to prosecute at its own expense all infringements of the
PATENT RIGHTS and, in furtherance of such right, LICENSEE hereby agrees that
M.I.T. may include LICENSEE as a party plaintiff if required by law in any such
suit, without expense to LICENSEE. The total cost of any such infringement
action commenced or defended solely by M.I.T., shall be borne by M.I.T. and
M.I.T., shall keep any recovery or damages for past infringement derived
therefrom.
7.3 If within six (6) months after having been notified of any alleged
infringement, M.I.T. shall have been unsuccessful in persuading the alleged
infringer to desist and shall not have brought and shall not be diligently
prosecuting an infringement action, or if M.I.T. shall notify LICENSEE at any
time prior thereto of its intention not to bring suit against any alleged
11
<PAGE> 13
infringer in the TERRITORY for the FIELD OF USE, then, and in those events only,
LICENSEE shall have the right, but shall no be obligated, to prosecute at its
own expense any infringement of the PATENT RIGHTS in the TERRITORY for the FIELD
OF USE, and LICENSEE may, for such purposes, use the name of M.I.T. as party
plaintiff if required by law; provided, however, that such right to bring such
an infringement action shall remain in effect only for so long as the license
granted herein remains exclusive. No settlement, consent judgment or other
voluntary final disposition of the suit may be entered into without the consent
of M.I.T. which consent shall not unreasonably be withheld or delayed, but
nothing herein shall require LICENSEE to continue prosecuting any such suit
beyond the time which LICENSEE deems, in its sole judgment. desirable. LICENSEE
shall indemnify M.I.T. as appropriate, against any order for costs that may be
made against M.I.T. in such proceedings.
7.4 In the event that LICENSEE shall undertake the enforcement and/or
defense of the PATENT RIGHTS by litigation. LICENSEE may withhold up to fifty
percent (50%) of the payments otherwise thereafter due M.I.T. under Article 4
hereof and apply the same toward reimbursement of up to half of LICENSEE's
expenses, including reasonable attorneys' fees, in connection therewith. Any
recovery of damages by LICENSEE for each such suit shall be applied first in
satisfaction of any unreimbursed expenses and legal fees of LICENSEE relating to
such suit, and next toward reimbursement of M.I.T. for any payments under
Article 4 past due or withheld and applied pursuant to this Article 7. The
balance remaining from any such recovery shall be divided equally between
LICENSEE and M.I.T.
7.5 In the event that a declaratory judgment action alleging invalidity
or noninfringement of any of the PATENT RIGHTS shall be brought against
LICENSEE, M.I.T., at its sole option, shall have the right, within thirty (30)
days after commencement of such action, to intervene and take over the sole
defense of the action at its own expense.
7.6 In any infringement suit as either party may institute to enforce
the PATENT RIGHTS pursuant to this Agreement, the other party hereto shall, at
the request and expense of the party initiating such suit, cooperate in all
respects and, to the extent possible, have its employees testify when requested
and make available relevant records, papers information, samples, specimens, and
the like.
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CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
7.7 LICENSEE, during the exclusive period of this Agreement, shall have
the sole right in accordance with the terms and conditions herein to sublicense
any alleged infringer in the TERRITORY for the FIELD OF USE for future use of
the PATENT RIGHTS.
8 - PRODUCT LIABILITY AND WARRANTIES
8.1 LICENSEE shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold M.I.T., HARC, and BCM, their trustees,
directors, officers, employees and affiliates, harmless against all claims,
proceedings, demands and liabilities of any kind whatsoever, including legal
expenses and reasonable attorneys' fees, arising out of the death of or injury
to any person or persons or out of any damage to property, resulting from the
production, manufacture, sale, use, lease, consumption or advertisement of the
LICENSED PRODUCT(s) and/or LICENSED PROCESS(es) by LICENSEE.
8.2 Prior to the first use of a LICENSED PRODUCT and/or LICENSED
PROCESS for a commercial application involving human subjects LICENSEE shall
obtain and carry in full force and effect commercial, general liability
insurance which shall protect LICENSEE and M.I.T., HARC, and BCM with respect to
events covered by Article 8.1 above. Such insurance shall be written by a
reputable insurance company authorized to do business in the Commonwealth of
Massachusetts, shall list M.I.T.. HARC, and BCM as additional named insured
thereunder, shall be endorsed to include product liability coverage and shall
require thirty (30) days written notice to be given to M.I.T., HARC, and BCM
prior to any cancellation or material change thereof. The limits of such
insurance shall not be less than ************ per occurrence with an aggregate
of ********************* for personal injury or death, and ********************
per occurrence with an aggregate of ************* for property damage. LICENSEE
shall provide M.I.T., HARC, and BCM with Certificates of Insurance evidencing
the same.
8.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, M.I.T.,
HARC, and BCM, THEIR TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES, AND AFFILIATES
MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, INCLUDING BUT NOT
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LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING, AND THE ABSENCE OF LATENT
OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. NOTHING IN THIS AGREEMENT SHALL
BE CONSTRUED AS A REPRESENTATION MADE OR WARRANTY GIVEN BY M.I.T. HARC, AND BCM
THAT THE PRACTICE BY LICENSEE OF THE LICENSE GRANTED HEREUNDER SHALL NOT
INFRINGE THE PATENT RIGHTS OF ANY THIRD PARTY. IN NO EVENT SHALL M.I.T., HARC,
AND BCM, THEIR TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES AND AFFILIATES BE LIABLE
FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING ECONOMIC DAMAGE
OR INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF WHETHER M.I.T., HARC, OR
BCM SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW OR IN FACT SHALL KNOW OF
THE POSSIBILITY.
8.4 M.I.T. warrants and represents that it is an owner of the right,
title in and to the inventions included in the PATENT RIGHTS and that it has
acquired the right to grant licenses to the patent applications and patents
included in the PATENT RIGHTS of the scope herein granted. M.I.T.'s liability
under this provision shall be limited to the total sum paid to M.I.T. by
LICENSEE under this Agreement.
9 - EXPORT CONTROLS
It is understood that M.I.T. is subject to United States laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes and other commodities (including the Arms Export Control
Act, as amended and the Export Administration Act of 1979), and that its
obligations hereunder are contingent on compliance with applicable United States
export laws and regulations. The transfer of certain technical data and
commodities may require a license from the cognizant agency of the United States
Government and/or written assurances by LICENSEE that LICENSEE shall not export
data or commodities to certain foreign countries without prior approval of such
agency. M.I.T. neither represents that a license shall not be requited nor that,
if required, it shall be issued.
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<PAGE> 16
10 - NON-USE OF NAMES
Except as otherwise required by law LICENSEE shall not use the names or
trademarks of the Massachusetts Institute of Technology, Lincoln Laboratory,
HARC or BCM, nor any adaptation thereof, nor the names of any of their
employees, in any advertising, promotional or sales literature without prior
written consent obtained from M.I.T., or said employee, in each case, except
that (a) LICENSEE may state that it is licensed by M.I.T. under one or more of
the patents and/or applications comprising the PATENT RIGHTS and (b) LICENSEE
may use the name of any employee of M.I.T., Lincoln Laboratory, HARC or BCM who
is a consultant to and/or member of an advisory board of LICENSEE, with the
permission of such consultant or advisory board member, and making clear their
affiliation with LICENSEE.
11 - ASSIGNMENT
This agreement is not assignable and any attempt to do so shall be
void, except that any LICENSEE may assign this Agreement to any person, firm or
corporation succeeding to that portion of its business to which this Agreement
pertains as a result of sale, merger, consolidation, reorganization or otherwise
provided such person, firm or corporation shall, without delay, accept in
writing the provisions of this Agreement and agree to become in all respects
bound thereby in the place and stead of the assigning party and provided further
that LICENSEE may assign this Agreement to (or grant an exclusive license to)
any special purpose entity, partnership or joint venture in which LICENSEE has
an interest or the rights to acquire developed technology.
12 - DISPUTE RESOLUTION
12.1 Except for the right of either party to apply to a court of
competent jurisdiction for a temporary restraining order, a preliminary
injunction, or other equitable relief to preserve the status quo or prevent
irreparable harm, any and all claims, disputes or controversies arising under,
out of, or in connection with the Agreement, including any dispute relating to
patent validity or infringement, which the parties shall be unable to resolve
within sixty (60) days shall be mediated in good faith. The party raising such
dispute shall promptly advise the other party of such claim, dispute or
controversy in a writing which describes in reasonable detail the nature of such
dispute. If the parties are unable to resolve such dispute within such sixty
(60) day period,
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either parry may demand mediation by written notice to the other party. By not
later than ten (10) business days after the recipient has received such demand
for mediation, each party shall have selected for itself a representative who
shall have the authority to bind such party, and shall additionally have advised
the other party in writing of the name and title of such representative. By not
later than twenty (20) business days after the date of such demand for
mediation, the party against whom the dispute shall be raised shall select a
mediation firm in the Boston area which is acceptable to the other party (which
acceptance shall not be unreasonably withheld) and such representatives shall
schedule a date with such firm for a mediation hearing. Within thirty (30) days
after the selection of the mediation firm, the parties shall enter into good
faith mediation and shall share the costs equally. If the representatives of the
parties have not been able to resolve the dispute within fifteen (15) business
days after such mediation hearing, the parties shall have the right to pursue
any other remedies legally available to resolve such dispute in either the
Courts of the Commonwealth of Massachusetts or in the United States District
Court for the District of Massachusetts, to whose jurisdiction for such purposes
M.I.T. and LICENSEE each hereby irrevocably consents and submits.
12.2 Notwithstanding the foregoing, nothing in this Article shall be
construed to waive any rights or timely performance of any obligations existing
under this Agreement.
13 - TERMINATION
13.1 LICENSEE shall cease to carry on its business with respect to the
rights granted in this Agreement, this Agreement shall terminate upon notice by
M.I.T.
13.2 Should LICENSEE fail to make any payment whatsoever due and
payable to M.I.T. hereunder, M.I.T. shall have the right to terminate this
Agreement effective on thirty (30) days' notice, unless LICENSEE shall make all
such payments to M.I.T. within said thirty (30) day period; provided, however,
that if LICENSEE in good faith shall dispute all or any part of such payment and
shall invoke the provisions of Article 12 hereof, M.I.T. shall have no right to
terminate this Agreement until M.I.T. shall have a favorable result from any
such mediation and LICENSEE shall thereafter continue to refuse to make any such
payment. Upon the expiration of the thirty (30) day period, if LICENSEE shall
not have made all such payments to M.I.T., the rights, privileges and license
granted hereunder shall automatically terminate.
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<PAGE> 18
13.3 Upon any material breach or default of this Agreement by LICENSEE
(excluding Articles 3), other than those occurrences set out in Articles 13.1
and 13.2 hereinabove, which shall always take precedence in that order over any
material breach or default referred to in this Article 13.3, M.I.T. shall have
the right to terminate this Agreement and the rights, privileges and license
granted hereunder effective on ninety (90) days' notice to LICENSEE. Upon any
material breach or default of Article 3, M.I.T. shall have the right to
terminate LICENSEE's rights as provided in Article 3. Such termination shall
become automatically effective unless LICENSEE shall have cured or have begun
substantial efforts toward curing any such breach or default prior to the
expiration of the ninety (90) day period. If, prior to the expiration of the
ninety (90) day notice from M.I.T. of intent to terminate LICENSEE has begun
substantial efforts toward curing such breach or default and has documented such
efforts in writing to M.I.T., LICENSEE shall have an additional ninety (90) days
to complete the cure. If the breach or default is not cured within a total of
one hundred eighty (180) days from the original notice of intent to terminate,
this Agreement shall then terminate.
13.4 LICENSEE shall have the right to terminate this Agreement at any
time on three (3) months' notice to M.I.T. and upon payment of all amounts due
M.I.T. through the effective date of the termination.
13.5 Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that matured
prior to the effective date of such termination; and Articles 1, 8, 9, 10, 13.5,
13,6. and 16 shall survive any such termination. LICENSEE and any sublicensee
thereof may, however, after the effective date of such termination, sell all
LICENSED PRODUCTS, and complete LICENSED PRODUCTS in the process of manufacture
at the time of such termination and sell the same, provided that LICENSEE shall
make the payments to M.I.T. as required by Article 4 of this Agreement and shall
submit the reports required by Article 5 hereof.
13.6 No sublicense agreement which may have been entered into by
LICENSEE hereunder prior to any surrender or termination of this Agreement or
for any of the licenses herein granted under the provisions of this Article 13
shall be affected by any surrender or termination of the licenses herein granted
except that M.I.T. shall be substituted for LICENSEE in all of such sublicense
agreements and LICENSEE shall be discharged of all obligations
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accrued or to accrue thereafter under all such sublicense agreements and under
this Agreement with respect to such sublicense agreements.
14- PAYMENTS, NOTICES AND OTHER COMMUNICATIONS
Any payment, notice or other communication pursuant to this Agreement
shall be sufficiently made or given if sent to such party by certified first
class mail, postage prepaid, or nationally recognized air carrier service.
addressed to it at its address below or as it shall designate by written notice
given to the other party:
All such payments, notices or communications shall be deemed given on
the date of actual receipt or, if earlier, five (5) business days after sending
in accordance with this Article 15. All notices hereunder shall be in writing.
In the case of M.I.T.:
Director
Technology Licensing Office
Massachusetts Institute of Technology
77 Massachusetts Avenue. Room E32-300
Cambridge, Massachusetts 02139
In the case of LICENSEE:
President
GENOMETRIX, INCORPORATED
3608 Research Forest Drive, Suite B-7
The Woodlands, TX 77381
15 - MISCELLANEOUS PROVISIONS
15.1 This Agreement shall be construed, governed, interpreted and
applied in accordance with the laws of the Commonwealth of Massachusetts,
U.S.A., except that questions affecting the construction and effect of any
patent shall be determined by the law of the country in which the patent was
granted.
15.2 The parties hereto acknowledge that this Agreement sets forth the
entire Agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change or modification except by
the execution of a written instrument subscribed to by the parties hereto.
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<PAGE> 20
15.3 The provisions of this Agreement are severable, and in the event
that any provisions of this Agreement shall be determined be invalid or
unenforceable under any controlling body of the law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.
15.4 LICENSEE agrees to mark the LICENSED PRODUCTS sold in the United
States with all applicable United States patent numbers to the extent reasonably
practical. All LICENSED PRODUCTS shipped to or sold in other countries shall he
marked in such a manner as to conform with the patent laws and practice of the
country of manufacture or sale.
15.5 The failure of either party to assert a right hereunder or to
insist upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
15.6 The headings and captions of the various Articles of this
Agreement are for convenience of reference only and shall in no way modify or
affect the meaning or construction of any of the terms or provisions hereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement the
day and year set forth below.
MASSACHUSETTS INSTITUTE OF GENOMETRIX, INCORPORATED
TECHNOLOGY
By: /s/ Lita L. Nelsen By: /s/ Mitchell D. Eggers
------------------------------------------- ---------------------------
Name: Lita L. Nelsen Name: Mitchell D. Eggers
Title: Director, Technology Licensing Office Title: President and CEO
Date: 4/8/96 Date: 4/4/96
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APPENDIX A
UNITED STATES PATENT RIGHTS
M.I.T. CASE NO. 5722L
"Genosensors For DNA Decoding"
By Barry Burke, Chang-Lee Chen, Mitchell Eggers, Daniel Ehrlich, Michael Hogan,
Mark Hollis, Bernard Kosicki. Richard Mathews, Ralph Murphy, and Dennis Rathman
that includes patent applications:
USSN 07/794,036
(*ABANDONED*)
"Method and Apparatus for Molecule Detection"
By Mitchell Eggers, Daniel Ehrlich, Michael Hogan, Kenneth Beattie, John
Shumaker, Mark Hollis
Filed November 19, 1991.
USSN 08/353,957
(Divisional of 07/794,036)
"Multi-Site Molecule Detection Apparatus"
by Mitchell Eggers, Daniel Ehrlich, Michael Hogan, Kenneth Beattie, John
Shumaker, Mark Hollis
Filed December 12, 1994
USSN 08/457,096
(Divisional of 07/794,036)
"Multi-Site Molecule Detection Method"
by Mitchell Eggers, Daniel Ehrlich, Michael Hogan, Kenneth Beattie, John
Shumaker, Mark Hollis
Filed June 1, 1995
M.I.T. CASE NO. 6838L.
"Optical and Electrical Methods and Apparatus for Molecule Detection (formerly
part of 5722L)"
by Mark Hollis, Daniel Ehrlich. Allen Murphy, Bernard Kosicki, Dennis Rathman,
Chang-Lee Chen, Richard Mathews, Barry Burke, Mitchell Eggers, Michael Hogan.
Rajender Varma
USSN 07/872,582
(CIP of 07/794,036)
"Optical and Electrical Methods and Apparatus for Molecule Detection"
By Mark Hollis, Daniel Ehrlich, Allen Murphy, Bernard Kosicki, Dennis Rathman,
Chang-Lee Chen, Richard Mathews, Barry Burke, Mitchell Eggers, Michael Hogan,
Rajender Varma
Filed April 23, 1992.
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USSN 08/511,649
(Divisional of 07/872,582)
"Optical and Electrical Methods and Apparatus for Molecule Detection"
by Mark Hollis, Daniel Ehrlich, Allen Murphy. Bernard Kosicki, Dennis Rathman,
Chang-Lee Chen, Richard Mathews, Barry Burke, Mitchell Eggers, Michael Hogan,
Rajender Varma
Filed August 7, 1995
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APPENDIX B
1. Foreign patent applications and patents within the PATENT RIGHTS as of
Effective Date:
M.I.T. CASE NO. CASE 5722L
"Genosensors For DNA Decoding"
By Barry Burke, Chang-Lee Chen, Mitchell Eggers, Daniel Ehrlich, Michael Hogan,
Mark Hollis, Bernard Kosicki, Richard Mathews, Ralph Murphy, and Dennis Rathman
that includes patent applications:
European Serial No. 92310253.7
(based on USSN 07/794,036)
"Method and Apparatus for Molecule Detection"
By Mitchell Eggers, Daniel Ehrlich, Michael Hogan, Kenneth Beattie, John
Shumaker, Mark Hollis
Filed November 10, 1992
Designating: Austria, Belgium, Denmark, France, France, Germany, Greece,
Ireland, Italy, Luxembourg, Monaco, Netherlands, Portugal, Spain,
Sweden, Switzerland. United Kingdom
Israel Serial No. 103674
(based on USSN 07/794,036)
"Method and Apparatus for Molecule Detection"
By Mitchell Eggers. Daniel Ehrlich, Michael Hogan, Kenneth Beattie, John
Shumaker, Mark Hollis
Filed November 6, 1992
Japan Serial No. 310445/92
(based on USSN 07/794,036)
"Method and Apparatus for Molecule Detection"
By Mitchell Eggers, Daniel Ehrlich, Michael Hogan, Kenneth Beattie, John
Shumaker. Mark Hollis
Filed November 19, 1992
Mexico Serial No. 9206648
(based on USSN 07/794,036)
"Method and Apparatus for Molecule Detection"
By Mitchell Eggers, Daniel Ehrlich, Michael Hogan, Kenneth Beattie, John
Shumaker, Mark Hollis
Filed November 18, 1992
22
<PAGE> 24
M.I.T. CASE NO. 6838L
"Optical and Electrical Methods and Apparatus for Molecule Detection (formerly
part of 5722L)"
by Mark Hollis, Daniel Ehrlich. Allen Murphy. Bernard Kosicki. Dennis Rathman,
Chang-Lee Chen, Richard Mathews, Barry Burke, Mitchell Eggers, Michael Hogan,
Rajender Varma
that includes patent applications:
European Serial No. 93910751.2
(based on USSN 07/872,582)
"Optical and Electrical Methods and Apparatus for Molecule Detection"
By Mark Hollis, Daniel Ehrlich, Allen Murphy, Bernard Kosicki. Dennis Rathman,
Chang-Lee Chen, Richard Mathews, Barry Burke. Mitchell Eggers, Michael Hogan,
Rajender Varma
Filed April 23, 1993
Designating: France, Germany, Italy and United Kingdom
Japan Serial No. 5-519396
(based on USSN 07/872,582)
"Optical and Electrical Methods and Apparatus for Molecule Detection"
By Mark Hollis, Daniel Ehrlich, Allen Murphy, Bernard Kosicki, Dennis Rathman,
Chang-Lee Chen, Richard Mathews, Barry Burke, Mitchell Eggers, Michael Hogan,
Rajender Varma
Filed April 23, 1993
2. Foreign countries in which PATENT RIGHTS shall be filed, prosecuted and
maintained in accordance with Article 6:
For
M.I.T. CASE NO. CASE 5722L
"Genosensors For DNA Decoding"
By Barry Burke, Chang-Lee Chen. Mitchell Eggers, Daniel Ehrlich, Michael Hogan,
Mark Hollis, Bernard Kosicki, Richard Mathews, Ralph Murphy, and Dennis Rathman
NO ADDITIONAL COUNTRIES DESIGNATED OR FOREIGN FILINGS REQUESTED AS OF FEBRUARY
23,1996.
For
M.I.T. CASE NO. 6838L
"Optical and Electrical Methods and Apparatus for Molecule Detection (formerly
part of 5722L)" by Mark Hollis, Daniel Ehrlich, Allen Murphy, Bernard Kosicki.
Dennis Rathman, Chang-Lee Chen, Richard Mathews. Barry Burke, Mitchell Eggers,
Michael Hogan, Rajender Varma
23
<PAGE> 25
NO ADDITIONAL COUNTRIES DESIGNATED OR FOREIGN FILINGS REQUESTED AS OF FEBRUARY
23, 1996.
24
<PAGE> 1
EXHIBIT 10.5 CONFIDENTIAL TREATMENT
GENOMETRIX INCORPORATED HAS REQUESTED
THAT THE MARKED PORTIONS OF THIS
DOCUMENT BE ACCORDED CONFIDENTIAL
TREATMENT PURSUANT TO RULE 406 UNDER
THE SECURITIES ACT OF 1933, AS
AMENDED.
EXCLUSIVE LICENSE AGREEMENT
This Exclusive License Agreement (hereinafter called "Agreement"), to
be effective as of the 31st day of May, 1998 (hereinafter called "Agreement
Date"), is by and between Baylor College of Medicine (hereinafter called
"BAYLOR"), a Texas nonprofit corporation having its principal place of business
at One Baylor Plaza, Houston, Texas 77030, and Genometrix, Inc., a corporation
organized under the laws of Delaware and having a principal place of business at
3608 Research Forest Drive, Suite B7, The Woodlands, Texas 77381, and its
Affiliates (hereinafter, collectively referred to as "GENOMETRIX").
WITNESSETH:
WHEREAS, scientists at BAYLOR and GENOMETRIX have invented the Subject
Technology (as defined below) under and pursuant to that certain Collaboration
Agreement dated May 28, 1993, as amended November 5, 1993, among Houston
Advanced Research Center (hereinafter called "HARC"), Massachusetts Institute of
Technology (hereinafter called "MIT"), BAYLOR, Beckman Instruments, Inc.
(hereinafter called "BECKMAN"), Microfab Technologies, Inc., Genosys
Biotechnologies, Inc., Triplex Pharmaceutical Corporation, Laboratories for
Genetic Services and GENOMETRIX (hereinafter called "the Collaboration
Agreement") which agreement includes as Appendix C thereto the Technology
Transfer and Royalty-Sharing Agreement dated May 28, 1993 among HARC, MIT and
BAYLOR (the "Tech Transfer Agreement") under which inventions made by the
parties thereto are jointly pooled and administered, a copy of which agreements
are attached hereto as Exhibit A; and
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<PAGE> 2
WHEREAS, the aforementioned inventors have each assigned all their
respective rights to the invention to his/her respective employers; and
WHEREAS, pursuant to the Collaboration Agreement, BAYLOR notified MIT
of the making of the invention of the Subject Technology which is defined in the
Collaboration Agreement as a Foreground Invention, and MIT by its letter of
February 6, 1996, notified BECKMAN of the disclosure by BAYLOR of the making of
the invention of said Subject Technology; and
WHEREAS, BECKMAN by its letter of September 10, 1996, notified MIT that
BECKMAN had elected not to seek patent protection for the subject matter of the
Subject Technology, a copy of which letters are attached as Exhibit B; and
WHEREAS, pursuant to that certain Letter Agreement among BAYLOR, MIT
and HARC dated April 30, 1997, a copy of which is attached hereto as Exhibit C,
BAYLOR, MIT and HARC agreed: (i) that the Subject Technology is expressly
excluded from the Tech Transfer Agreement; and (ii) that BAYLOR may in
accordance therewith file patent applications on the Subject Technology and
execute an exclusive license agreement with GENOMETRIX with respect to BAYLOR's
rights in and to the Subject Technology; and
WHEREAS, BAYLOR is willing to grant an exclusive, worldwide, perpetual
license to BAYLOR's rights in and to the Subject Technology to GENOMETRIX on the
terms set forth herein; and
WHEREAS, GENOMETRIX desires to obtain said exclusive license to said
rights under the Subject Technology.
2
<PAGE> 3
NOW, THEREFORE, for and in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereto expressly agree as follows:
1. DEFINITIONS AS USED HEREIN
1.1 The term "Subject Technology" shall mean United States Patent
Application Serial No. 08/749,967, entitled "Integrated Nucleic Acid
Hybridization Devices Based Upon Active Surface Chemistry," which was filed on
November 14, 1996, on which Michael Hogan, Ph.D., Tom Powdrill, Ph.D., Bonnie
Iverson, Du Xiao and Nobuko Akiyama, employees of BAYLOR (hereinafter
collectively called "the Baylor Inventors") and Arnab Mallik, an employee of
GENOMETRIX, are listed as inventors, together with all other pending United
States patent applications or parts thereof and any United States patent which
issues from any such pending applications and any and all divisions, reissues,
re-examinations, renewals, continuations, continuations-in-part, and extensions
thereof, and all other counterpart, pending or issued patents in all other
countries.
1.2 The term "Licensed Product(s)" shall mean all products that
incorporate, utilize or are made with the use of the Subject Technology.
1.3 The term "Research Field" shall mean the research market.
1.4 The term "Clinical Field" shall mean the clinical diagnostic
market.
1.5 The term "Net Sales" shall mean the gross amount of monies or cash
equivalent or other consideration which is paid by unrelated third parties to
GENOMETRIX for the Licensed Products by sale or other mode of transfer, less all
trade, quantity and cash discounts actually allowed, credits, and allowances,
actually granted on account of rejections, returns, or billing errors, duties,
transportation and insurance, taxes and other governmental charges actually
3
<PAGE> 4
paid. The term "Net Sales" in the case of non-cash sales, shall mean the fair
market value of all equivalent or other consideration received by GENOMETRIX for
the Licensed Products.
1.6 The term "Affiliates" shall mean any corporation, partnership,
joint venture or other entity of which the common stock or other equity
ownership thereof is twenty five percent (25%) or more owned by GENOMETRIX.
1.7 The term "the Parties" shall mean GENOMETRIX and BAYLOR.
2. GRANT OF LICENSE
2.1 BAYLOR hereby grants to GENOMETRIX an exclusive, worldwide,
perpetual right and license to BAYLOR's rights under the Subject Technology,
with the right to grant sublicenses to make, have made, use, market, sell and
offer to sell Licensed Products.
2.2 The grant in Section 2.1 shall be further subject to and restricted
by the following reserved rights:
(i) the use of the Subject Technology by BAYLOR, MIT and HARC
for non-commercial research, patient care, teaching and other
educationally related purposes;
(ii) the use of the Subject Technology by the Baylor Inventors
for non-commercial research purposes at academic or research
institutions;
(iii) the freedom from assertion with respect to any patents
issued on the Subject Technology in-so-far as the use of the Subject
Technology relates to Genosensor Systems (as defined in the
Collaboration Agreement), specifically under and pursuant to Paragraph
2.3 of the Collaboration Agreement; and
(iv) any non-exclusive license of the Subject Technology that
BAYLOR, MIT, GENOMETRIX or any other party to the Collaboration
Agreement is required by law or
4
<PAGE> 5
CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
regulation to grant to the United States of America or any agency
thereof or to a foreign state pursuant to an existing or future treaty
with the United States of America.
3. PAYMENTS
3.1 As full consideration for the rights conveyed by BAYLOR under this
Agreement, GENOMETRIX shall pay BAYLOR a license fee of ******************** to
recover the costs of filing the provisional patent application on the invention
included within the Subject Technology upon reaching Net Sales of
******************.
3.2 Should GENOMETRIX fail to make any payment whatsoever due and
payable to BAYLOR hereunder, BAYLOR may, at its sole option, terminate this
Agreement as provided in Paragraph 6.2.
3.3 All payments due hereunder are expressed in and shall be paid by
check payable in United States of America currency, without deduction of
exchange, collection or other charges, to BAYLOR, or to the account of BAYLOR at
such other bank as BAYLOR may from time to time designate by notice to
GENOMETRIX.
3.4 All payments shall be sent to the address listed in Paragraph 10.1.
4. SUBLICENSES
All sublicenses granted by GENOMETRIX of its rights hereunder shall be
subject to the terms of this Agreement. GENOMETRIX shall be responsible for its
sublicensees and shall not grant any rights which are inconsistent with the
rights granted to and obligations of GENOMETRIX hereunder. Any act or omission
of a sublicensee which would be a breach of
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<PAGE> 6
this Agreement if performed by GENOMETRIX shall be deemed to be a breach by
GENOMETRIX of this Agreement. No such sublicense agreement shall contain any
provision which would cause it to extend beyond the term of this Agreement.
GENOMETRIX shall give BAYLOR prompt notification and address of each sublicensee
with whom it concludes a sublicense agreement and shall supply BAYLOR with a
copy of each such sublicense agreement.
5. PATENTS AND INFRINGEMENT
5.1 GENOMETRIX agrees to pay all costs incident to the filing,
prosecuting and maintaining of the Subject Technology in the United States and
elected foreign countries, and any and all costs incurred in filing
continuations, continuations-in-part, divisionals or related applications
thereon and any re-examination or reissue proceedings thereof.
5.2 In the event that GENOMETRIX decides not to: (i) continue
prosecution of the Subject Technology to issuance or (ii) maintain any United
States or foreign issued patent on the Subject Technology, GENOMETRIX shall
timely notify BAYLOR in writing thereof in order that BAYLOR may continue: (i)
said prosecution of such patent applications or (ii) said maintenance of issued
patents at its own expense. GENOMETRIX's right under this Agreement to make,
have made, use, market, sell or offer to sell the Subject Technology under this
patent shall immediately terminate upon the giving of such notice. If GENOMETRIX
fails to notify BAYLOR in sufficient time for BAYLOR to assume said costs,
GENOMETRIX shall be considered in default of this Agreement.
5.3 BAYLOR agrees to keep GENOMETRIX fully informed, at GENOMETRIX's
expense, of all prosecutions and other actions pursuant to this Section 5,
except for
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<PAGE> 7
applications/patents for which GENOMETRIX elects to discontinue
prosecution/maintenance, including submitting to GENOMETRIX copies of all
official actions and responses thereto.
5.4 BAYLOR agrees to reasonably cooperate with GENOMETRIX to whatever
extent is reasonably necessary to procure the Subject Technology, including
executing any and all documents reasonably required to provide GENOMETRIX the
full benefit of the license granted herein.
5.5 Each Party shall promptly inform the other of any suspected
infringement of any claims in the Subject Technology or the misuse,
misappropriation, theft or breach of confidence of other proprietary rights in
the Subject Technology by a third party and with respect to such activities as
are suspected, GENOMETRIX shall have the right, but not the obligation, to
institute an action for infringement, misuse, misappropriation, theft or breach
of confidence of the proprietary rights against such third party. If GENOMETRIX
fails to bring such an action or proceeding within a period of three (3) months
after receiving notice or otherwise having knowledge of such infringement, then
BAYLOR shall have the right, but not the obligation, to prosecute the same at
its own expense. Should either BAYLOR or GENOMETRIX commence suit under the
provisions of this Paragraph 5.5 and thereafter elect to abandon the same, it
shall give timely notice to the other Party who may, if it so desires, continue
prosecution of such action or proceeding. All recoveries, whether by judgment,
award, decree or settlement, from infringement or misuse of Subject Technology
shall be apportioned as follows; the Party bringing the action or proceeding
shall first recover an amount equal to two (2) times the costs and expenses
incurred by such Party directly related to the prosecution of such action or
proceeding and the remainder shall be divided equally between GENOMETRIX and
BAYLOR.
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<PAGE> 8
5.6 Neither BAYLOR nor GENOMETRIX shall settle any action covered by
Paragraph 5.5 without first obtaining the consent of the other Party, which
consent will not be unreasonably withheld.
5.7 BAYLOR shall not be liable for any losses incurred as the result of
an action for infringement brought against GENOMETRIX as the result of
GENOMETRIX's exercise of any right granted under this Agreement. The decision to
defend or not defend shall be in GENOMETRIX's sole discretion.
6. TERM AND TERMINATION
6.1 Unless earlier terminated as hereinafter provided, GENOMETRIX shall
have a perpetual, royalty-free license to the Subject Technology.
6.2 In the event of default or failure by GENOMETRIX to perform any of
the terms, covenants or provisions of this Agreement, GENOMETRIX shall have
thirty (30) days after the giving of written notice of such default by BAYLOR to
correct such default. If such default is not corrected within the said thirty
(30) day period, BAYLOR shall have the right, at its option, to cancel, and
terminate this Agreement. The failure of BAYLOR to exercise such right of
termination for non-payment of fees or otherwise, shall not be deemed to be a
waiver of any right BAYLOR might have, nor shall such failure preclude BAYLOR
from exercising or enforcing said right upon any subsequent failure by
GENOMETRIX.
6.3 BAYLOR shall have the right, at its option, to cancel and terminate
this Agreement in the event that GENOMETRIX shall (i) become involved in
insolvency, dissolution, bankruptcy or receivership proceedings affecting the
operation of its business or (ii)
8
<PAGE> 9
make an assignment of all or substantially all of its assets for the benefit of
creditors, or in the event that (iii) a receiver or trustee is appointed for
GENOMETRIX and GENOMETRIX shall, after the expiration of thirty (30) days
following any of the events enumerated above, have been unable to secure a
dismissal, stay or other suspension of such proceedings. In the event of
termination of this Agreement, all of BAYLOR's rights in and to the Subject
Technology shall revert to BAYLOR.
6.4 At the date of any termination of this Agreement pursuant to
Paragraph 6.2 hereof for breach by GENOMETRIX or pursuant to Paragraph 6.3
hereof, as of the receipt by GENOMETRIX of notice of such termination, all of
BAYLOR's rights in and to the Subject Technology shall revert to BAYLOR.
6.5 No termination of this Agreement shall constitute a termination or
a waiver of any rights of either Party against the other Party accruing at or
prior to the time of such termination. The obligations of Sections 4 and 11
shall survive termination of this Agreement.
7. ASSIGNABILITY
This Agreement shall be binding upon and shall inure to the benefit of
BAYLOR and its assigns and successors in interest, and shall be binding upon and
shall inure to the benefit of GENOMETRIX and the successor to all or
substantially all of its assets or business to which this Agreement relates, but
shall not otherwise be assignable or assigned by GENOMETRIX without prior
written approval by BAYLOR being first obtained, which approval shall not be
unreasonably withheld.
9
<PAGE> 10
8. GOVERNMENTAL COMPLIANCE
GENOMETRIX shall at all times during the term of this Agreement and for
so long as it shall use the Subject Technology or sell Licensed Products comply
and cause its sublicensees to comply with all laws that may control the import,
export, manufacture, use, sale, marketing, distribution and other commercial
exploitation of Licensed Products or any other activity undertaken pursuant to
this Agreement.
9. GOVERNING LAW
This Agreement shall be deemed to be subject to, and have been made
under, and shall be construed and interpreted in accordance with the laws of the
State of Texas. This Agreement is expressly acknowledged to be subject to all
federal laws including, but not limited to, the Export Administration Act of the
United States of America. No conflict-of-laws rule or law that might refer such
construction and interpretation to the laws of another state, republic, or
country shall be considered.
This Agreement is performable in part in Harris County Texas. and the
Parties mutually agree that personal jurisdiction and venue shall be proper in
the state and federal courts situated in Harris County, Texas, and agree that
any litigated dispute will be conducted solely in such courts.
10. ADDRESSES
10.1. All payments should be made payable to "Baylor College of
Medicine" and should he sent to the address below:
10
<PAGE> 11
BAYLOR Tax ID # 741613878
Vice President & Director of Licensing
BCM Technologies, Inc.
1709 Dryden Road. Suite 901
Houston, TX 77030
10.2 All notices or other communication pursuant to this Agreement
shall be sufficiently made or given on the date of mailing if sent to such
Party by first class mail, postage prepaid, addressed to it at its address below
or as it shall designate by written notice given to the other Party:
In the case of BAYLOR: With a copy to:
Senior Vice President & General Counsel Vice President & Director
Baylor College of Medicine of Licensing
One Baylor Plaza BCM Technologies. Inc.
Houston, TX 77030 1709 Dryden Road, Suite 901
Houston, TX 77030
In the case of GENOMETRIX
President
Genometrix, Inc.
3608 Research Forest Drive
Suite B7
The Woodlands, TX 77381
11. ADDITIONAL PROVISIONS
11.1 USE OF BAYLOR/MIT/HARC NAME. GENOMETRIX agrees that it shall not
use in any way the names "Baylor College of Medicine," Massachusetts Institute
of Technology" or Houston Advanced Research Center" or any logotypes or symbols
associated with BAYLOR. MIT or HARC or the names of any of the scientists or
other researchers at BAYLOR. MIT or HARC, respectively, without the prior
written consent of BAYLOR, MIT or HARC, as the case may be.
11.2 REPRESENTATION OF GENOMETRIX. GENOMETRIX represents and warrants
that as a party thereto, it has read and understands (i) the Collaboration
Agreement and all exhibits
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<PAGE> 12
thereto, (ii) all of the rights and obligations of the parties thereto and (iii)
the Letter Agreement and the letters referenced in the "whereas" clauses at the
beginning of this Agreement.
11.3 INDEMNITY. Each Party shall notify the other of any claim, lawsuit
or other proceeding related to the Subject Technology. SUBJECT TO THE FOLLOWING
SENTENCE, GENOMETRIX AGREES THAT IT WILL DEFEND, INDEMNIFY AND HOLD HARMLESS
BAYLOR, MIT, HARC, AND EACH OF THEIR RESPECTIVE FACULTY MEMBERS, SCIENTISTS,
RESEARCHERS, EMPLOYEES, OFFICERS, TRUSTEES, DIRECTORS, AND AGENTS AND EACH OF
THEM (THE "INDEMNIFIED PARTIES"), FROM AND AGAINST ANY AND ALL CLAIMS, CAUSES OF
ACTION, LAWSUITS OR OTHER PROCEEDINGS FILED OR OTHERWISE INSTITUTED AGAINST ANY
OF THE INDEMNIFIED PARTIES RELATED DIRECTLY OR INDIRECTLY TO OR ARISING OUT OF
THE DESIGN, PROCESS, MANUFACTURE OR USE BY ANY PERSON OR PARTY OF THE SUBJECT
TECHNOLOGY, OR ANY OTHER EMBODIMENT OF THE SUBJECT TECHNOLOGY EVEN THOUGH SUCH
CLAIMS, CAUSES OF ACTION, LAWSUITS OR OTHER PROCEEDINGS AND THE COSTS (INCLUDING
ATTORNEY'S FEES) RELATED THERETO RESULT IN WHOLE OR IN PART FROM THE NEGLIGENCE
OF ANY OF THE INDEMNIFIED PARTIES OR ARE BASED UPON DOCTRINES OF STRICT
LIABILITY. Notwithstanding any provisions herein to the contrary, BAYLOR shall
indemnify GENOMETRIX for any claims for injuries to persons or property damage
which occur on BAYLOR premises or premises under the exclusive control of
BAYLOR. GENOMETRIX will also assume responsibility for all costs and expenses
related to such claims and lawsuits for which it is obligated to indemnify the
Indemnified Parties pursuant to this Paragraph 11.3, including, but not limited
to, the payment of all reasonable attorneys' fees and costs of litigation or
other defense.
11.4 INSURANCE.
(i) GENOMETRIX shall, for so long as GENOMETRIX manufactures,
uses or sells any Licensed Product(s) in the Research Field, maintain
in fill force and effect
12
<PAGE> 13
CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
policies of (i) worker's compensation and/or employers' liability
insurance within statutory limits and (ii) general liability insurance
(with Broad Form General Liability endorsement) with limits of not less
than ********************* per occurrence with an annual aggregate of
*********************. Such coverage(s) shall be purchased from a
carrier or carriers deemed acceptable to BAYLOR. Upon request by
BAYLOR. GENOMETRIX shall provide to BAYLOR copies of said policies of
insurance.
(ii) GENOMETRIX shall, for so long as GENOMETRIX manufactures,
uses or sells any Licensed Product(s) in the Clinical Field, maintain
in full force and effect policies of (i) worker's compensation and/or
employers' liability insurance within statutory limits and (ii) general
liability insurance (with Broad Form General Liability endorsement)
with limits of not less than ********************** per occurrence with
an annual aggregate of *********************** and (iii) products
liability insurance, with limits of not less than
************************ per occurrence with an annual aggregate of
*********************. Such coverage(s) shall be purchased from a
carrier or carriers deemed acceptable to BAYLOR and shall name BAYLOR
as an additional insured. Upon request by BAYLOR, GENOMETRIX shall
provide to BAYLOR copies of said policies of insurance.
11.5 BAYLOR'S DISCLAIMERS. Neither BAYLOR, MIT, HARC nor any of their
respective faculty members, researchers, trustees, officers, employees,
directors, or agents assume any responsibility for the manufacture, product
specifications, sale or use of the Subject Technology or the Licensed Products
which are manufactured by or sold by GENOMETRIX.
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<PAGE> 14
11.6 INDEPENDENT CONTRACTORS. The Parties hereby acknowledge and agree
that each is an independent contractor and that neither Party shall be
considered to be the agent. representative, master or servant of the other Party
for any purpose whatsoever, and that neither Party has any authority to enter
into a contract, to assume any obligation or to give warranties or
representations on behalf of the other Party. Nothing in this relationship shall
be construed to create a relationship of joint venture, partnership, fiduciary
or other similar relationship between the Parties.
11.7 DISCLAIMER OF WARRANTY. BAYLOR, MIT AND HARC MAKE NO WARRANTIES OR
REPRESENTATIONS EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
FITNESS OR MERCHANTABILITY, REGARDING OR WITH RESPECT TO THE SUBJECT TECHNOLOGY
OR LICENSED PRODUCTS AND BAYLOR, MIT AND HARC MADE NO WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED, OF THE PATENTABILITY OF THE SUBJECT
TECHNOLOGY OR LICENSED PRODUCTS OR OF THE ENFORCEABILITY OF ANY PATENTS ISSUING
THEREUPON, IF ANY, OR THAT THE SUBJECT TECHNOLOGY OR LICENSED PRODUCTS ARE OR
SHALL BE FREE FROM INFRINGEMENT OF ANY PATENT OR OTHER RIGHTS OF THIRD PARTIES.
11.8 NON-WAIVER. The Parties covenant and agree that if a Party fails
or neglects for any reason to take advantage of any of the terms provided for
the termination of this Agreement or if a Party, having the right to declare
this Agreement terminated, shall fail to do so, any such failure or neglect by
such Party shall not be a waiver or be deemed or be construed to be a waiver of
any cause for the termination of this Agreement subsequently arising, or as a
waiver of any of the terms, covenants or conditions of this Agreement or of the
performance thereof. None of the
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<PAGE> 15
terms, covenants and conditions of this Agreement may be waived by a Party
except by its written consent.
11.9 REFORMATION. The Parties hereby agree that neither Party intends
to violate any public policy, statutory or common law, rule, regulation, treaty
or decision of any government agency or executive body thereof of any country or
community or association of countries, and that if any word, sentence, paragraph
or clause or combination thereof of this Agreement is found, by a court or
executive body with judicial powers having jurisdiction over this Agreement or
any of the Parties hereto, in a final, unappealable order to be in violation of
any such provision in any country or community or association of countries, such
words. sentences, paragraphs or clauses or combination shall be inoperative in
such country or community or association of countries, and the remainder of this
Agreement shall remain binding upon the Parties hereto.
11.10 FORCE MAJEURE. No liability hereunder shall result to a Party by
reason of delay in performance caused by force majeure, that is circumstances
beyond the reasonable control of the Party, including, without limitation, acts
of God, fire, flood, war, civil unrest, labor unrest, or shortage of or
inability to obtain material or equipment.
11.11 ENTIRE AGREEMENT. The terms and conditions herein constitute the
entire agreement between the Parties and shall supersede all previous
agreements, either oral or written, between the Parties hereto with respect to
the subject matter hereof. No agreement of understanding bearing on this
Agreement shall be binding upon either Party hereto unless it shall be in
writing and signed by the duly authorized officer or representative of each of
the Parties and shall expressly refer to this Agreement.
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<PAGE> 16
IN WITNESS WHEREOF, the Parties hereto have executed and delivered this
Agreement in multiple originals be their duly authorized officers and
representatives on the respective dates shown below, but effective as of the
Agreement Date.
GENOMETRIX, INC. BAYLOR COLLEGE OF MEDICINE
Name: /s/Mitchell D. Eggers Name: /s/W. Dalton Tomlin
--------------------------- ------------------------------
Title: President & CEO Title: Senior Vice President &
General Counsel
Date: 7/20/98 Date: 6/1/98
16
<PAGE> 1
EXHIBIT 10.6 CONFIDENTIAL TREATMENT
GENOMETRIX INCORPORATED HAS REQUESTED
THAT THE MARKED PORTIONS OF THIS DOCUMENT
BE ACCORDED CONFIDENTIAL TREATMENT PURSUANT
TO RULE 406 UNDER THE SECURITIES ACT OF 1933,
AS AMENDED
LICENSE AGREEMENT
BETWEEN
XENOMETRIX, INC.
AND
GENOMETRIX INCORPORATED
AUGUST 27,1999
<PAGE> 2
LICENSE AGREEMENT
This License Agreement (the "Agreement") is made this 27th day of
August, 1999 (the "Effective Date"), by and between Xenometrix, Inc., a Delaware
corporation with principal offices at 2425 North 55th Street, Suite 111,
Boulder, CO 80301-5700 ("XENO") and Genometrix Incorporated, a Delaware
corporation with principal offices at 3608 Research Forest Drive, Suite B7, The
Woodlands, Texas, 77381 ("GENOMETRIX").
RECITALS
WHEREAS, XENO is the joint owner of and the exclusive licensee of the
XENO Patents (as hereinafter defined), and desires to non-exclusively license
the same to GENOMETRIX; and
WHEREAS, GENOMETRIX seeks to obtain certain non-exclusive rights and
licenses under the XENO Patents, according to the terms contained herein.
NOW THEREFORE, in consideration of the foregoing and the covenants and
promises contained herein, the parties agree as follows:
1. DEFINITIONS
1.1. "AFFILIATE" means any corporation or other business entity
controlling, controlled by, or in common control with the designated party.
Control, as used in the context of a business entity, means the ownership
directly or indirectly of greater than fifty percent (50%) of the voting
securities of the corporation or other entity, or greater than a fifty percent
(50%) interest in the income of such corporation or other entity, or the ability
otherwise to secure that the affairs of such corporation or other entity are
managed in accordance with the such entity's wishes.
1.2. "CHIP" means a microarray of biological probes designed to carry
out or enable genomic sequencing, mutation detection, assays, syntheses,
reactions, analyses or sample preparation. The term "Chip" also includes
assemblies of multiple Chips that are interconnected in close physical proximity
to each other. Chips may incorporate other electrical, electronic,
electromechanical and mechanical components when said components are an integral
part of the Chip.
1.3. "CONFIDENTIAL INFORMATION" means all information, compounds, data,
know-how, trade secrets, technical data, specifications, testing methods,
protocols, standard operating procedures, product and marketing plans' customer
and supplier information, and Materials disclosed by one party (the "Disclosing
Party") to the other party (the "Receiving Party") pursuant to this Agreement
and specifically designated as confidential, regardless of whether such
information is in written, oral, electronic, or other form; provided, that,
Confidential Information that is disclosed orally or visually shall be
documented in a written notice to the Receiving Party within fifteen (15) days
of the date of disclosure.
<PAGE> 3
CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
1.4. "FIELD" means *** ****** ** ***, including without limitation
********* *******, **********, **** ********** ********* and ******* *********
*********, and the *************** ** ************ ** **** ************ ***
******* *********** **********.
1.5. "HARVARD" means the President and Fellows of Harvard College, a
nonprofit Massachusetts educational corporation having offices at the Office for
Technology and Trademark Licensing, Holyoke Center, Suite 727, 1350
Massachusetts Avenue, Cambridge, Massachusetts 02138.
1.6. "HARVARD LICENSE AGREEMENT" means the license agreement between
the President and Fellows of Harvard College and Venmark Ltd., having an
effective date of January 18, 1992, and any amendments thereto. A true and
accurate copy of the Harvard License Agreement and the amendment thereto dated
January 18, 1992 and having an effective date of January 21, 1993, is attached
hereto as EXHIBIT B.
1.7. "LICENSED PRODUCT(S)" means a Chip where (i) the Chip or a
functional component thereof is claimed in the XENO Patents or (ii) the Chip is
manufactured or used in accordance with or by means of the Licensed Process, or
(iii) the Chip makes use of the technology claimed in the XENO Patents in its
manufacture, testing, use or sale.
1.8. "LICENSE PROCESS(ES)" means the process(es) claimed in XENO
Patents.
1.9. "LICENSED SERVICE(S)" means services performed on a commercial
basis for third parties or components thereof utilizing Licensed Product(s) or
Licensed Process(es) as defined herein.
1.10. "NET SALES" means the amounts received in consideration for the
sale, transfer or use of Licensed Products covered by a Valid Claim less the sum
of the following actual and customary deductions: (i) customary trade, quantity
or cash discounts and non-affiliated brokers' or agents' commissions actually
allowed and taken; (ii) amounts repaid or credited by reason of rejection or
return; and (iii) any tax (including sales and use taxes) or government charges
(other than an income tax) levied on the sale, transportation or delivery of a
Licensed Product; (iv) import or export duties and/or taxes; and (v)
transportation charges, including any prepaid or invoiced charges for freight,
postage, shipping, insurance or charges for returnable containers.
In the event that Licensed Products are sold, used or provided in
combination with other products, components or processes, or in the event a
Licensed Product is one component among a combination of functional elements,
then Net Sales, for purposes of determining royalty payments on the combination,
shall be calculated using one of the following methods:
(i) By multiplying the Net Sales of the combination product or
process by the fraction A/A+B, where A is the gross selling price,
during the royalty period in question, of the Licensed Product sold
separately, and B is the aggregate gross selling price, during the
royalty period in question, of all other products, components,
processes or elements when sold separately; or
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<PAGE> 4
(ii) In the event that no such separate sales are made of the
Licensed Product or such other products, components, elements or
processes in such combination during the royalty period in question,
Net Sales, for the purposes of determining royalty payments, shall be
calculated using the above formula where A is the reasonably estimated
commercial value of the Licensed Product when sold separately, and B is
the reasonably estimated aggregate commercial value of all other
products, processes, components or elements when sold separately. Any
such estimates shall be determined using criteria to be mutually agreed
upon by the parties.
1.11. "SERVICE INCOME" means (A) the total number of distinct Chips
which are (i) Licensed Products, and (ii) which are covered by a Valid Claim of
the XENO Patents, and (iii) which are used by GENOMETRIX to provide a Licensed
Service to a Third Party, multiplied by (B) the Net Sales that would be
attributable to the sale of each such Chip pursuant to Section 1.10. above if,
such Chip had been sold to such Third Party during the period in question.
1.12. "TERM" has the meaning set forth in Section 6.1.1.
1.13. "THIRD PARTY" means any entity other than (i) GENOMETRIX and any
of its Affiliates, and (ii) XENO and any of its Affiliates.
1.14. "VALID CLAIM" means (i) a pending claim of a patent application
comprising the XENO Patents, which (A) has been asserted in good faith and can
be reasonably considered to be patentable in view of any and all references and
prior art known to the parties at any time, (B) has not been abandoned or
finally rejected without the possibility of appeal or refiling, and (C) has been
pending for less than seven (7) years from the applicable priority date; or (ii)
a claim of an issued or granted and unexpired patent comprising the XENO
Patents, which has not been held unenforceable, unpatentable or invalid by a
decision of a court or governmental body of competent jurisdiction, unappealable
or unappealed within the time allowed for appeal, which has not been rendered
unenforceable through disclaimer or otherwise, which has not been abandoned, or
which has not been lost through an interference proceeding.
1.15. "XENO PATENTS" means the patents and patent applications listed
on EXHIBIT A hereto, any patent applications filed prior or subsequent to the
Effective Date that claim the benefit of an early filing date to any of the
patent applications listed in EXHIBIT A, and any improvements, reissues,
extensions, substitutions, confirmations, re-registrations, reexaminations,
continuations, divisionals or continuations-in-part of the foregoing patents and
patent applications, as well as all foreign counterparts, or equivalents
thereof.
2. LICENSES
2.1. GRANT OF LICENSES UNDER THE XENO PATENTS FROM XENO TO GENOMETRIX
2.1.1. Non-Exclusive License Under XENO's Interest in the XENO
Patents. XENO hereby grants to GENOMETRIX and its Affiliates a non-exclusive,
worldwide license in the Field under XENO's ownership interest in the XENO
Patents, to make, use, sell, offer for
3
<PAGE> 5
CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
sale, import, and export, or otherwise exploit any process, composition of
matter or other invention claimed in the XENO Patents. Such right shall include,
without limitation, the right to make, use, sell, offer for sale, import, and
export Licensed Products and Licensed Services.
2.1.2. Non-Exclusive Sublicense to XENO Patents Under the
Harvard License Agreement. XENO hereby grants to GENOMETRIX and its Affiliates a
non-exclusive, worldwide sublicense in the Field under XENO's license to
Harvard's interest in the XENO Patents pursuant to the Harvard License
Agreement, to make, use, sell, offer for sale, import, and export, or otherwise
exploit any process, composition of matter or other invention claimed in the
XENO Patents. Such license shall include, without limitation, the right to make,
use, sell, offer for sale, import, and export Licensed Products and Licensed
Services. GENOMETRIX acknowledges the Harvard License Agreement and obligations
imposed by Section 2.2(e) thereof; provided that, the obligation of Section
2.2(e) of the Harvard License Agreement shall not be construed to affect
GENOMETRIX's right to freely determine pricing for Licensed Products and
Licensed Services hereunder. GENOMETRIX agrees that any Licensed Products or
Licensed Services produced for sale or use in the United States will be
manufactured substantially in the United States.
2.2. RIGHT TO GRANT SUBLICENSES. The rights and licenses granted to
GENOMETRIX pursuant to Section 2.1. above, ***** ******* *** ***** ** GENOMETRIX
and its Affiliates ** ***** *********** ** ***** ********** *********, *******,
************ and ************** ** ******** ******** ****** ******** ********
****** *** *** **** ********** ****** ** ********** ** **********.
2.3. RETAINED RIGHTS; RIGHTS OF UNITED STATES GOVERNMENT.
2.3.1. GENOMIETRIX recognizes that, pursuant to Section 2.2(b)
of the Harvard License Agreement, Harvard has retained certain rights to make
and to use, for its own research purposes only and not for any commercial
purpose, the subject matter described and claimed in the XENO Patents.
2.3.2. GENOMETRIX recognizes that the rights granted to it
under the XENO Patents which are owned jointly by XENO and Harvard and which are
the subject of the Harvard License Agreement are subject to the rights of the
United States Government as set forth in Public Laws 96-517 and 98-620.
3. COMPENSATION
3.1. COMPENSATION FOR THE XENO PATENTS LICENSE. As consideration for
the licenses and rights granted to GENOMETRIX herein, GENOMETRIX shall pay to
XENO:
3.1.1. A non-refundable, up-front license issue fee of
*************** , less the Option Fee of **************** paid by GENOMETRIX
prior to the Effective Date pursuant to the Option Agreement dated May 27, 1999,
leaving an outstanding balance of
4
<PAGE> 6
CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
****************** payable by GENOMETRIX as follows: (i) ************** upon
execution of this Agreement, and (ii) **************** within three (3) months
of the Effective Date of this Agreement.
3.1.2. With respect to Licensed Products only (and not
Licensed Services), a royalty of ************ of the Net Sales of Licensed
Products covered by a Valid Claim of the XENO Patents and sold by GENOMETRIX,
its Affiliates or sublicensees.
3.1.3. With respect to Licensed Services only (and not
Licensed Products), a royalty of ************ of Service Income covered by a
Valid Claim of the XENO Patents and received by GENOMETRIX, its Affiliates or
sublicensees.
3.1.4. For the avoidance of doubt, the royalty payments
outlined in Sections 3.1.2. and 3.1.3. are intended to be mutually exclusive.
Only one royalty payment for each specific sale of a Licensed Product or the
provision of a Licensed Service shall be payable to XENO, regardless of the
number of Valid Claims of the XENO Patents covering the manufacture, use or sale
of the applicable Licensed Product or the provision of the Licensed Service.
3.1.5. The royalties set forth in Sections 3.1.2. and 3.1.3.
shall be paid to XENO within sixty (60) days after the end of each calendar
quarter.
3.1.6. If, in the reasonable judgment of GENOMETRIX, it should
prove impractical or impossible for GENOMETRIX or any of its Affiliates or
sublicensees to develop, make, use, sell or import a Licensed Product or provide
a Licensed Service without first obtaining a royalty-bearing license from a
Third Party under one or more pending patent applications or issued patents
owned or controlled by such Third Party in any country, then, effective upon
obtaining a license from such Third Party, GENOMETRIX shall be entitled to a
credit against the payments due hereunder of an amount equal to ************ of
the royalty paid to any such Third Party by GENOMETRIX, its Affiliates or
sublicensees in such country, not to exceed ********** of the royalty payment
otherwise due under this Agreement, arising from the development, manufacture,
use, sale or import of the Licensed Product or Licensed Service covered by such
Third Party patent or patent application in such country. If such *************
of the Third Party royalty owed by GENOMETRIX's exceeds the amount of royalties
deducted by GENOMETRIX for any calendar year, GENOMETRIX may to that extent
reduce the royalties due to XENO in succeeding calendar years, but never by more
than ********* of the total royalty due in any one year until such Third Party
royalties have been fully carried forward and credited to GENOMETRIX.
3.1.7. GENOMETRIX shall not be obligated to make any further
royalty payments in a country for any Licensed Product or Licensed Service after
the end-of the period commencing on the date of the first commercial transaction
of the Licensed Product or provision of Licensed Service in that country by
GENOMETRIX, its Affiliates or sublicensees and ending
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<PAGE> 7
on the expiration of the last to expire Valid Claim covering the Licensed
Product or Licensed Service in that country.
4. REPRESENTATIONS AND WARRANTIES
4.1. REPRESENTATIONS AND WARRANTIES OF GENOMETRIX AND XENO. Each party
hereby represents and warrants:
4.1.1. Corporate Power. Such party is duly organized and
validly existing and in good standing under the laws of the state and/or country
of its incorporation and has all requisite corporate power and authority to
enter into this Agreement and to carry out the provisions hereof.
4.1.2. Due Authorization. Such party is duly authorized to
execute and deliver this Agreement and to perform its obligations hereunder.
4.1.3. Binding Agreement. This Agreement is a legal and valid
obligation binding upon it and enforceable in accordance with its terms. The
execution, delivery and performance of this Agreement by such party does not
conflict with any agreement, instrument or understanding, oral or written, to
which it is a party or by which it may be bound, nor violate any law or
regulation of any court, governmental body or administrative or other agency
having jurisdiction over it.
4.2. NEGATION OF WARRANTIES. Except as expressly set forth in this
Agreement, XENO MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND,
EITHER EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF THE
LICENSED PRODUCTS OR THE PROVISION OF LICENSED SERVICES WILL NOT INFRINGE ANY
PATENT, COPYRIGHT, TRADEMARK, OR, OTHER INTELLECTUAL PROPERTY RIGHT OF ANY THIRD
PARTY. HOWEVER, XENO HAS NO REASON TO BELIEVE THAT THE XENO PATENTS ARE INVALID
OR THAT EXPLOITATION OF THE XENO PATENTS BY GENOMETRIX, ITS AFFILIATES OR
SUBLICENSEES WILL INFRINGE THE PATENT OR OTHER INTELLECTUAL PROPERTY RIGHTS OF
XENO, HARVARD OR ANY THIRD PARTY.
4.3. HARVARD LICENSE AGREEMENT. XENO represents and warrants that the
Harvard License Agreement has not, as of the Effective Date, been terminated by
either XENO or the President and Fellows of Harvard College and that XENO has
not, as of the Effective Date, received nor given notice of termination for
breach of the Harvard License Agreement, and neither XENO nor Harvard is in
default or breach of the Harvard License Agreement. XENO represents and warrants
that it will use its best efforts to maintain the Harvard License Agreement and
the exclusive licenses granted to XENO therein in full force and effect, which
shall include, without limitation, (a) complying with its obligations to pay the
royalties and other amounts owed Harvard pursuant to the Harvard License
Agreement, and complying with all due diligence and commercialization
obligations and milestones set forth in the Harvard License Agreement, (b)
refraining from entering into any modification or amendment to the Harvard
License Agreement that would in any way affect the rights under the XENO Patents
granted to
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<PAGE> 8
GENOMETRIX hereunder, and (c) taking no action or making no omission which will
cause Harvard to have the right to terminate the Harvard License Agreement
pursuant to its terms or rendering the exclusive licenses granted thereunder
non-exclusive, and (d) taking any action to terminate the Harvard License
Agreement. XENO agrees to notify GENOMETRIX of any written or oral notification
by Harvard that XENO has breached the Harvard License Agreement or that Harvard
wishes to terminate the Harvard License Agreement or render the exclusive
licenses granted thereunder non-exclusive. XENO represents and warrants that it
has the right under the Harvard License Agreement to grant to GENOMETRIX the
rights and licenses granted herein. XENO represents and warrants that, should
the Harvard License Agreement be terminated or rendered non-exclusive by
Harvard, (i) the rights and licenses granted to GENOMETRIX under XENO's interest
in the XENO Patents shall remain in full force and effect, and (ii) as set forth
in EXHIBIT C hereof, GENOMETRIX shall continue to have a non-exclusive,
worldwide, royalty bearing (as set forth in this Agreement) license under XENO's
interest in the XENO Patents.
4.4. ENFORCEMENT OF THE XENO PATENTS. GENOMETRIX and XENO each agree to
notify the other promptly of any infringement of the XENO Patents of which it
becomes aware. XENO shall have the right, but not the obligation, to bring an
enforcement action against any Third Party infringer of the XENO Patents in the
FIELD; provided, that, if XENO does bring such action, GENOMETRIX at its option
may elect to join in any such action at GENOMETRIX's expense, and the parties
shall agree on a reasonable allocation of any damages recovered pursuant to such
action. If XENO fails to bring any such enforcement action against any such
alleged infringer within ninety (90) days of notification of such alleged
infringement, (pursuant in this Section 4.4) GENOMETRIX shall have the right,
but not the obligation, to bring such action, and in such case, XENO shall
provide GENOMETRIX with all reasonable assistance or technical support
reasonably requested by GENOMETRIX, including, without limitation and only to
the extent it has the right to do so pursuant to the Harvard License Agreement,
causing Harvard to provide assistance in such action. XENO agrees that it shall
not sublicense any alleged infringer of the XENO Patents in the Field, without
the prior written consent of GENOMETRIX, if the alleged infringer is in active
settlement discussions, and/or active litigation with GENOMETRIX regarding
infringement of the XENO Patents, such consent not to be unreasonably withheld.
In the event that an action is brought against GENOMETRIX by a Third Party
alleging infringement of such Third Party's patent rights, XENO shall provide
GENOMETRIX, at GENOMETRIX's expense, with all reasonable assistance or technical
support reasonably requested by GENOMETRIX, including, without limitation and
only to the extent it has the right to do so pursuant to the Harvard License
Agreement, causing Harvard to provide assistance in such action.
5. CONFIDENTIALITY
5.1. CONFIDENTIAL INFORMATION. Except as otherwise expressly provided
herein, the parties agree that, during the Term and for a period of five (5)
years thereafter, the Receiving Party shall keep completely confidential and
shall not publish or otherwise disclose to any Third Party, and shall not use
for any purpose other than (i) to perform the purposes contemplated by this
Agreement and to exercise the rights and licenses granted hereunder, and (ii)
where
7
<PAGE> 9
reasonably necessary, for the filing or prosecution of patent applications
comprising the XENO Patents, and to prosecute alleged infringers or the XENO
Patents or to defend the XENO Patents.
The foregoing obligations shall not apply to Confidential Information
that the Receiving Party can demonstrate by written records:
(a) was in the public domain prior to the time of its
disclosure under this Agreement;
(b) entered the public domain after the time of its disclosure
under this Agreement through means other than an unauthorized
disclosure resulting from an act or omission of the Receiving Party,
its directors, officers or employees;
(c) was independently developed or discovered by the Receiving
Party prior to the time of its disclosure under this Agreement;
(d) is or was disclosed to the Receiving Party at any time,
whether prior to or after the time of its disclosure under this
Agreement, by a Third Party who had no fiduciary relationship with the
Disclosing Party and had no obligation of confidentiality with respect
to such Confidential Information; or
(e) is required to be disclosed to comply with applicable laws
or regulations, or with a court or administrative order, provided that,
the Receiving Party notifies the Disclosing Party promptly upon receipt
of such court or administrative order and/or prior to any disclosure,
thereby giving the Disclosing Party sufficient advance notice to permit
the Disclosing Party to seek a protective order or other similar order
with respect to such Confidential Information; and provided further,
that the Receiving Party shall take all reasonable and lawful actions
to obtain confidential treatment for such disclosure and to minimize
the extent of the disclosure, and that the Receiving Party furnishes
only that portion of the Confidential Information which it is advised
by its legal counsel is legally required to be disclosed, regardless of
whether a protective order or other similar order is obtained by the
Disclosing Party.
5.2. CONFIDENTIAL TERMS. The terms and conditions of this Agreement,
including without limitation the financial terms, shall be considered
Confidential Information hereunder, and shall be treated in accordance with the
provisions of this Article 5. The foregoing notwithstanding, the parties
recognize and agree that, pursuant to Section 2.2(e) of the Harvard License
Agreement, XENO is obligated to provide Harvard with a copy of this Agreement,
and XENO agrees that in fulfilling such obligation XENO shall notify Harvard in
writing that this Agreement shall be treated by Harvard as Proprietary
Information pursuant to Section 4.4(a) of the Harvard License Agreement
5.3. PRESS RELEASE. The provisions of Sections 5.1. and 5.2.
notwithstanding, the parties shall agree upon a press release to announce the
execution of this Agreement Thereafter, XENO and GENOMETRIX may each disclose to
Third Parties the information contained in such press release without the need
for further approval by the other.
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<PAGE> 10
6. TERMINATION
6.1. TERMINATION OF AGREEMENT.
6.1.1. Unless earlier terminated, this Agreement shall remain
in full force and effect until the expiration or disallowance of the last claim
of a patent or patent application comprising the XENO Patents (hereinafter the
"Term").
6.1.2. Either party shall have the right to terminate this
Agreement for a material breach of this Agreement by the other party by
providing the breaching party with written notification of the nature of the
default and requiring it to cure the default. If such default is not cured
within thirty (30) days after receipt of such notice (or, if such default cannot
be cured or remedied within such thirty (30) day period, if the party in default
does not commence and diligently continue actions to cure or remedy the
default), the non-breaching party shall be entitled, without prejudice to any of
its other rights under this Agreement, to terminate this Agreement by giving
written notice to take effect within thirty (30) days after such notice, unless
the breaching party shall cure such default within such thirty (30) day period.
The right of either party to terminate this Agreement pursuant to this Section
6.1.2. shall not be affected in any way by its waiver or failure to take action
with respect to any previous default, subject to applicable statutes of
limitation.
6.1.3. GENOMETRIX may terminate this Agreement without cause
at any time by providing written notice thereof to XENO and such termination
will be. effective ninety (90) days thereafter.
6.1.4. If (i) GENOMETRIX loses the rights under XENO's
interest in the XENO Patents granted to it pursuant to this Agreement as a
result of the bankruptcy or insolvency of XENO, or (ii) if XENO makes an
assignment for the benefit of creditors, appoints or suffers appointment of a
receiver or trustee or files a petition under any bankruptcy or insolvency act
or has any such petition filed against it, and such action causes GENOMETRIX to
lose the rights under XENO's interest in the XENO Patents granted to it under
this Agreement, then Harvard has agreed (as set forth in EXHIBIT C hereof), to
the extent it is legally able to do so, to negotiate with GENOMETRIX in good
faith regarding the grant to GENOMETRIX of a non-exclusive license under
Harvard's interest in the XENO Patents, such license to have commercially
reasonable terms; provided, that, the terms (including the applicable royalty
rate) shall be at least as favorable to GENOMETRIX as the terms (including the
applicable royalty rate) of this Agreement.
6.1.5. Upon any termination of this Agreement, all sublicenses
granted by GENOMETRIX under this Agreement shall terminate, unless any
sublicensee shall agree in writing thereto to be bound directly to XENO by the
provisions of the relevant sublicense agreement, in which event such sublicense
shall survive. The foregoing not withstanding, any sublicense granted to
customers or clients of GENOMETRIX shall survive only to the extent necessary to
permit such sublicensees to continue in its use of Licensed Product(s) sold to
it or Licensed Service(s) provided to it pursuant to this Agreement prior to the
effective date of termination.
9
<PAGE> 11
6.1.6. The following Articles and Sections shall survive the
expiration or early termination of this Agreement: Articles 5 and 7, and
Sections 3.1.7., 4.2., 4.3., 6.1.4., 6.1.5., this Section 6.1.6., and Section
6.1.7.
6.1.7. Any termination, relinquishment or expiration of this
Agreement for any reason shall be without prejudice to any rights, which shall
have accrued, to the benefit of either party under this Agreement prior to such
termination, relinquishment or expiration. Such termination, relinquishment or
expiration shall not relieve either party from obligations, which are expressly
indicated to survive termination or expiration of this Agreement.
7. MISCELLANEOUS
7.1. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
the parties' respective successors and permitted assigns. Neither party may
assign this Agreement or any of its rights or obligations hereunder without the
prior written consent of the other party (not to be unreasonably withheld), and
any such attempted assignment shall be void; provided, that, XENO or GENOMETRIX,
respectively, may assign this Agreement to a successor to the business interest
of such party relating to the XENO Patents; provided, that, such assignee agrees
to assume all of the obligations of the assigning party hereunder.
7.2. EFFECT OF WAIVER. No waiver of any default, condition, provisions
or breach of this Agreement shall be deemed to imply or constitute a waiver of
any other like default, condition, provision or breach of this Agreement.
7.3. LIMITATION OF LIABILITY. EXCEPT AS OTHERWISE PROVIDED HEREIN,
NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL, CONSEQUENTIAL,
INCIDENTAL, OR INDIRECT DAMAGES ARISING OUT OF THIS LICENSE AGREEMENT, HOWEVER
CAUSED, UNDER ANY THEORY OF LIABILITY.
7.4. INDEMNIFICATION. GENOMETRIX will defend, indemnify and hold XENO,
its officers, directors, employees, Affiliates and agents harmless against any
and all liability, loss, damage, claim or expense (including attorney's fees)
arising out of a suit by a Third Party from the performance under this Agreement
by GENOMETRIX; except to the extent such claim is caused by the negligence or
willful misconduct of XENO or a breach of a representation of XENO. XENO will
defend, indemnify and hold GENOMETRIX, its officers, directors, employees,
Affiliates and agents harmless against any and all liability, loss, damage,
claim or expense (including attorney's fees) arising out of a suit by a Third
Party from the performance under this Agreement by XENO; except to the extent
such claim is caused by the negligence or willful misconduct of GENOMETRIX or a
breach of a representation of GENOMETRIX.
7.5. PRODUCT LIABILITY INSURANCE; INDEMNITY. GENOMIETRIX agrees that,
to the extent it has insurance coverage therefore, it shall indemnify, defend
and hold XENO harmless from any claim, demand or action by any Third Party
arising out of or relating to the sale by GENOMIETRIX hereunder of products
licensed in the Field herein by XENO, services
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<PAGE> 12
performed by GENOMETRIX in the Field, or the performance of any activity as
GENOMETRIX under this Agreement, except to the extent such claim, demand or
action resulted from the negligence of misconduct of XENO.
7.6. FORCE MAJEURE. Neither party shall lose any rights hereunder or be
liable to the other party for damages or losses (except for payment obligations)
on account of failure of performance by the defaulting party if the failure is
occasioned by war, strike, fire, act of God, earthquake, flood, lockout,
embargo, governmental acts or orders or restrictions, failure of suppliers, or
any other reason where failure to perform is beyond the reasonable control and
not caused by the negligence or intentional conduct or misconduct of the
nonperforming party, and such party has exerted all reasonable efforts to avoid
or remedy such force majeure; provided however, that in no event shall a party
be required to settle any labor dispute or disturbance.
7.7. AMENDMENT. No modification, supplement to or waiver of this
Agreement or any Addendum hereto or any of their provisions shall be binding
upon a party hereto unless made in writing and duly signed by an authorized
representative of both XENO and GENOMETRIX. In no event may the terms of this
Agreement be changed, deleted, supplemented or waived by any notice, purchase
order; receipt, acceptance, bill of lading or other similar form of document. A
failure of either party to exercise any right or remedy hereunder, in whole or
in part, or on one or more occasions, shall not be deemed either a waiver of
such right or remedy to the extent not exercised, or of any other right or
remedy, on such occasion or a waiver of any right or remedy on any succeeding
occasion.
7.8. ENTIRE AGREEMENT. This Agreement, together with EXHIBIT A, EXHIBIT
B and Exhibit C attached hereto, sets forth the entire understanding and
agreement of the parties as to the subject matter thereof, and there are no
other understandings, representations or promises, written or verbal, not set
forth herein or on which either party has relied.
7.9. NOTICES. All Notices under this Agreement shall be given in
writing and shall be addressed to the parties at the following addresses:
FOR XENO:
Pauline Gee, Ph.D.
President and Chief Scientific Officer
Xenometrix, Inc.
2425 North 55th Street, Suite 111
Boulder, Colorado 80301-5700
FOR GENOMETRIX:
Mitchell D. Eggers, Ph.D.
Chief Executive Officer
Genometrix Incorporated
3608 Research Forest Drive, Suite B7
The Woodlands, TX 77381
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<PAGE> 13
Notices shall be in writing and shall be deemed delivered when
received, if delivered by a courier, overnight mail service or the like, or a
week following mailing, if sent by first-class certified or registered mail,
postage prepaid.
7.10 ARBITRATION.
7.10.1. In the event of any controversy or claim arising out
of or relating to any provision of this Agreement or the breach thereof,
including any dispute relating to patent validity or infringement (hereinafter a
"Dispute"), the parties shall try to settle such disputes amicably between
themselves, and it is the objective of the parties to establish procedures to
facilitate the resolution of disputes arising under this Agreement in an
expedient manner by mutual cooperation and without resort to arbitration.
Promptly after the identification of a Dispute, the party raising the Dispute
shall promptly advise the other party thereof in writing, which writing shall
describe the nature of the Dispute in reasonable detail. The parties shall
thereafter attempt to resolve the Dispute by good faith negotiations between
XENO's President and GENOMETRIX's Chief Executive Officer within thirty (30)
days after such notice is received. If the Dispute is not resolved within such
thirty (30) day period (or any mutually agreed extension), or if the parties
fail to meet within such thirty (30) days, the Dispute shall be submitted to
binding arbitration as provided in Section 7.10.2. below.
7.10.2. Any Dispute which the parties are unable to resolve
pursuant to Section 7.10.1. shall be settled through binding arbitration
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "Association"). The demand for arbitration shall be
filed within a reasonable time after the Dispute has arisen, and in no event
after the date upon which institution of legal proceedings based on such Dispute
would be barred by the applicable statute of limitations. Unless other wise
agreed by the parties, such arbitration shall be held in Santa Fe, New Mexico.
The arbitration shall be conducted before three (3) arbitrators chosen according
to the following procedure: each of the parties shall appoint one arbitrator,
and the two so nominated shall choose the third. If the arbitrators chosen by
the parties cannot agree on the choice of the third arbitrator within twenty
(20) days of their appointment, then the selection shall be made by the
Association pursuant to its rules; provided, that, under no circumstances shall
the third arbitrator be an employee, director, or shareholder of either party or
any of its Affiliates. Unless otherwise agreed by the parties, the arbitration
proceedings will be conducted in the utmost secrecy; in such case, all
documents, testimony and records shall be received, heard and maintained by the
arbitrators in secrecy under seal, available for the inspection only of the
parties and their respective attorneys and their respective experts who shall
agree in advance and in writing to receive all such information confidentially
and to maintain such information in secrecy until such information shall become
generally known. The decision reached by the arbitrators shall be conclusive and
binding upon the parties hereto and may be filed with the clerk of any court of
competent jurisdiction, and a judgment confirming such decision may, if desired
by any party to the arbitration, be entered in such court. Each of the parties
shall pay its own expenses of arbitration and the expenses of the arbitrator(s)
shall be equally shared; provided, however, that if in the opinion of the
arbitrator(s) any claim hereunder or any defense or objection thereto was
unreasonable, the arbitrator(s) may assess, as part of the award, all or any
part of the arbitration expenses (including reasonable attorneys' fees) against
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<PAGE> 14
the party raising such unreasonable claim, defense or objection. Nothing herein
set forth shall prevent the parties from settling any Dispute by mutual
agreement at any time.
7.11. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without regard or giving
effect to its principles of conflict of laws.
7.12. SEVERABILITY AND SURVIVAL. This Agreement is intended to be
severable. If any provision(s) of this Agreement are or become invalid, are
ruled illegal by a court of competent jurisdiction or are deemed unenforceable
under the current applicable law from time to time in effect during the term
hereof, it is the intention of the parties that the remainder of this Agreement
shall not be affected thereby and shall continue to be construed to the maximum
extent permitted by law at such time. It is further the intention of the parties
that in lieu of each such provision which is invalid, illegal, or unenforceable,
there shall be substituted or added as part of this Agreement by such court of
competent jurisdiction a provision which shall be as similar as possible, in
economic and business objectives as intended by the parties to such invalid,
illegal or unenforceable provision, but shall be valid, legal and enforceable.
Unless expressly stated otherwise, any provision intended by its meaning to
survive, will survive the expiration or any other termination of this Agreement.
7.13. INDEPENDENT CONTRACTORS. The parties hereto are acting as
independent contractors and shall not be considered partners, joint venturers or
agents of the other. Neither shall have the right to act on behalf of, or to
bind, the other.
7.14. HEADINGS. Captions and paragraph headings are for convenience
only and shall not form an interpretative part of this Agreement. Unless
otherwise specifically provided herein, all references to an Article incorporate
all Articles or subsections thereunder. This Agreement shall not be strictly
construed against either party hereto and maybe executed in two or more
counterparts, each of which will be deemed an original and the same instrument.
7.15. ACTIONS OF PARTIES. Each party agrees to execute, acknowledge and
deliver such further instructions, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.
7.16. COUNTERPARTS. This Agreement may be executed in a series of
counterparts, all of which when taken together, shall constitute one and the
same instrument.
7.17. RIGHTS IN BANKRUPTCY. All rights and licenses granted under or
pursuant to this Agreement are, and shall otherwise be deemed to be, for
purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of rights to
"intellectual property" as defined under Section 101 of the U.S. Bankruptcy
Code. The Parties agree that GENOMETRIX shall retain and may fully exercise all
of its rights and elections under the U.S. Bankruptcy Code.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
XENOMETRIX, INC.
By: /s/Pauline Gee
------------------------------------------
Pauline Gee, Ph.D.
President and Chief Scientific Officer
GENOMETRIX INCORPORATED
By: /s/Mitchell D. Eggers
------------------------------------------
Mitchell D. Eggers Ph.D.
Chief Executive Officer
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<PAGE> 16
EXHIBIT A
(TO BE UPDATED)
<TABLE>
<CAPTION>
PATENT/ FILING ISSUE
APPLICATION # DATE COUNTRY DATE TITLE
<S> <C> <C> <C> <C>
08/008,896 1/21/93 US
5,811,231 7/21/95 US 9/22/9S Methods and Kits for Mammalian Gene
692434 1/21/94 Australia 6/11/98 Profiling
E160178 1/21/94 Austria 11/12/97
0 680 517 1/21/94 Belgium 11/12/97
2154265 1/21/94 Canada
0 680 517 1/21/94 Denmark 11/12/97
0 680 517 1/21/94 EPC 11/12/97
0 680 517 1/21/94 France 11/12/97
694 06 772.5-08 1/21/94 Germany 11/12/97
980400301 1/21/94 Greece 11/12/97
0 680 517 Hong Kong
E77394 1/21/94 Ireland 11/12/97
20035BE/98 1/21/94 Italy 11/12/97
6-517147 1/21/94 Japan
0 680 517 1/21/94 Luxembourg 11/12/97
0 680 517 1/21/94 Monaco 11/12/97
0 680 517 1/21/94 Netherlands 11/12/97
US94/00583 1/21/94 PCT
0 680 517 1/21/94 Portugal 1/19/98
9601405-5 2/13/96 Singapore
0 680 517 1/21/94 Spain 11/12/97
0 680 517 1/21/94 Sweden 11/12/97
0 680 517 1/21/94 Switzerland 11/12/97
0 680 517 1/21/94 UK 11/12/97
</TABLE>
15
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EXHIBIT B
HARVARD LICENSE AGREEMENT
16
<PAGE> 18
EXHIBIT C
HARVARD LETTER AGREEMENT
17
<PAGE> 1
EXHIBIT 10.7 CONFIDENTIAL TREATMENT
GENOMETRIX INCORPORATED HAS REQUESTED
THAT THE MARKED PORTIONS OF THIS DOCUMENT
BE ACCORDED CONFIDENTIAL TREATMENT PURSUANT
TO RULE 406 UNDER THE SECURITIES ACT OF 1933,
AS AMENDED.
LICENSE AND OPTION AGREEMENT
THIS LICENSE AND OPTION AGREEMENT (the "Agreement") is dated as of the
28th day of December, 1998 (the "Effective Date"), by and between MOTOROLA,
INC., a Delaware corporation having an office at 4088 Commercial Drive,
Northbrook, Illinois 60062 (hereinafter, together with its SUBSIDIARIES,
"MOTOROLA"), and GENOMETRIX INCORPORATED, a Delaware corporation having its
offices at 3608 Research Forest Drive, Suite B7, The Woodlands, Texas 77381
("GENOMETRIX").
WHEREAS, GENOMETRIX owns, controls or has acquired rights under various
patents and applications for patents pending, in various countries of the world,
referred to herein as the E-FIELD MANIPULATION IP, SURFACE CHEMISTRIES IP, and
UNIVERSAL ARRAY IP (each as defined below); and
WHEREAS, MOTOROLA and GENOMETRIX have agreed to an equity arrangement
as set forth in the STOCK PURCHASE AGREEMENT (as defined below) executed
concurrently with this Agreement; and
WHEREAS, GENOMETRIX is willing to grant MOTOROLA, and MOTOROLA desires
to acquire from GENOMETRIX, the licenses and license options as provided herein.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. DEFINITIONS
Capitalized terms used herein shall have the definitions assigned to
them in this Section 1, and shall include the singular as well as the plural.
1.1 E-FIELD MANIPULATION IP means GENOMETRIX INTELLECTUAL PROPERTY used
for the research, development, manufacture or use of COMPLEMENTARY PRODUCTS and
pertaining to the use of an electric field property, including electrical
properties and electrochemical properties, to: (a) identify molecular structures
within a sample substance applied to one or more test sites, (b) accelerate or
enhance the rate at which interaction mechanisms, such as hybridization, occur
between molecules at one or more test sites, and (c) increase the specificity
and/or selectivity of the interaction between two or more molecular structures.
E-FIELD MANIPULATION IP shall exclude: (x) the use of an electric field property
to synthesize and/or deposit molecular structures onto an array to form test
sites, and (y) optical, radioisotope, chemiluminescent and thermal detection
methods and technology. By way
<PAGE> 2
of example, EXHIBIT D hereof sets forth representative claims of certain
existing GENOMETRIX PATENTS which meet the criteria for E-FIELD MANIPULATION IP.
1.2 SURFACE CHEMISTRIES IP means GENOMETRIX INTELLECTUAL PROPERTY used
for the research, development, manufacture or use of COMPLEMENTARY PRODUCTS and
pertaining to the use of specific molecular structures to alter the ionic and/or
hydrophobic properties of an array site to: (a) accelerate the rate at which
molecular interactions occur at the site, (b) increase the specificity and/or
selectivity of the interaction between molecular structures at the site, (c)
enable molecular interactions to occur with adequate or enhanced specificity at
non-elevated temperatures, including ambient or room temperature, and (d) enable
molecular interactions to occur at minimized salt concentrations, but excluding
combinatorial chemistry approaches and associated hybridization devices to
develop and/or evaluate alternative chemistries. By way of example, EXHIBIT D
hereof sets forth representative claims of certain existing GENOMETRIX PATENTS
which meet the criteria for SURFACE CHEMISTRIES IP.
1.3 UNIVERSAL ARRAY IP means GENOMETRIX INTELLECTUAL PROPERTY used for
the research, development, manufacture or use of COMPLEMENTARY PRODUCTS
pertaining to the creation and construction of self-assembling probe arrays
enabling in situ configuration of the biosites, wherein an unvarying probe array
(capture probe) is activated by binding to a corresponding set of adapters
(target probes) to yield a modified probe array which is specifically configured
for analysis of a target molecular structure or mixture thereof. UNIVERSAL ARRAY
IP shall include intellectual property relating to: (a) the methodology of
constructing such universal arrays, (b) the reaction substrate which defines
such universal arrays, (c) sets of nucleic acid capture probes defined to
achieve the formation of a such universal arrays, and shall exclude: (x)
manufacturing methods and apparatus, (y) the application of any such universal
array where the capture probe is a hapten or a hapten-binding polypeptide, and
(z) the application and manufacturing of any such universal array where the
capture probe is avidin, the capture specific domain is biotin, and the target
specific domain is an oligonucleotide. By way of example, EXHIBIT D hereof sets
forth representative claims of certain existing GENOMETRIX PATENTS which meet
the criteria for UNIVERSAL ARRAY IP.
1.4 GENOMETRIX INTELLECTUAL PROPERTY means GENOMETRIX PATENTS and
unpatented information relating to the research, development, manufacture or use
of COMPLEMENTARY PRODUCTS and disclosed to MOTOROLA pursuant to Section 2.1
hereof.
1.5 GENOMETRIX PATENTS means (i) the patents and patent
applications set forth on EXHIBIT A hereof, together with divisions,
continuations, continuations-in-part, reissues and foreign counterparts thereof;
and (ii) patents and patent applications claiming inventions or discoveries
conceived and reduced to practice by GENOMETRIX prior to the third anniversary
of the Effective Date and which meet the criteria for E-FIELD MANIPULATION IP,
SURFACE CHEMISTRIES IP or UNIVERSAL ARRAY IP. The foregoing notwithstanding, the
term GENOMETRIX PATENTS includes only such patents and patent applications which
are owned, licensed to or otherwise controlled by GENOMETRIX and with respect to
which
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GENOMETRIX has the right to grant the licenses set forth herein and provided,
further, GENOMETRIX PATENTS shall include such patents or patent applications
only to the extent to which and subject to the conditions under which GENOMETRIX
has the right to grant licenses or rights of the scope granted herein.
1.6 complementary PRODUCTS means (a) products and services
based on arrays of size ***************************** , (b) products and
services based on arrays of ******** for use in ***** ** **** *********** *****
******** ***********, and (c) such additional products and services based on
arrays of ******* as MOTOROLA and GENOMETRIX may mutually agree from time to
time.
1.7 E-FIELD PRODUCTS means COMPLEMENTARY PRODUCTS (or a
portion thereof) which (a) are covered in whole or in part by, or the use
thereof is covered in whole or in party by, the E-FIELD MANIPULATION IP; or (b)
are manufactured through use of a process which is covered in whole or in part
by the E-FIELD MANIPULATION IP.
1.8 SURFACE CHEMISTRY PRODUCTS means COMPLEMENTARY PRODUCTS
which (a) are covered in whole or in part by, or the use thereof is covered in
whole or in part by, the SURFACE CHEMISTRIES IP or (b) are manufactured through
use of a process which is covered, in whole or in part, the SURFACE CHEMISTRIES
IP.
1.9 UNIVERSAL ARRAY PRODUCTS means COMPLEMENTARY PRODUCTS
which (a) are covered in whole or in part by, or the use thereof is covered in
whole or in part by, the UNIVERSAL ARRAY IP or (b) are manufactured through use
of a process which is covered, in whole or in part, by the UNIVERSAL ARRAY IP.
1.10 LICENSED PRODUCTS means the E-FIELD PRODUCTS, the SURFACE
CHEMISTRY PRODUCTS and the UNIVERSAL ARRAY PRODUCTS.
1.11 NET SALES means MOTOROLA's billings for LICENSED PRODUCTS
sold, leased or transferred hereunder, less the sum of the following:
(a) discounts allowed in amounts customary in the trade;
(b) sales, tariff duties and/or use taxes directly imposed and
with reference to particular sales;
(c) packing and crating charges separately stated;
(d) outbound transportation prepaid or allowed; and
(e) amounts allowed or credited on returns.
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No deductions shall be made for commissions paid to individuals whether
they be with independent sales agencies or regularly employed by MOTOROLA and on
its payroll, or for cost of collections. LICENSED PRODUCTS shall be considered
"sold" when billed out or invoiced. For LICENSED PRODUCTS disposed of other than
by sale, the NET SALES of such LICENSED PRODUCTS shall be determined based on
the fair market value of such LICENSED PRODUCTS. In the event that a LICENSED
PRODUCT is sold, leased, disposed of or otherwise transferred between MOTOROLA
and an entity affiliated with MOTOROLA in a transaction which results in revenue
to MOTOROLA, the NET SALES of LICENSED PRODUCTS with respect to such transfer
shall be calculated based on the price at which similar quantities of such
LICENSED PRODUCT would have been sold to an independent third party in an
arms-length transaction as of the date of such transfer.
In the event that a LICENSED PRODUCT is sold in combination with one or
more other integral components not by itself a LICENSED PRODUCT, and such other
integral components are not sold separately, the parties shall arrive at a
reasonable method of calculating NET SALES with respect to such LICENSED
PRODUCT, based on the relative fair market value of such LICENSED PRODUCT as
compared with the fair market value of such other integral components, and
pursuant to the procedures set forth in this paragraph. For the purposes of such
NET SALES determination, representative integral components may include: DNA
sequences, reagents, micro fluidics and liquid handling systems, and data
acquisition, manipulation and display systems. In addition, royalties paid to
third parties shall be a consideration in determining fair market value. Unless
otherwise agreed by the parties, the NET SALES of a particular LICENSED PRODUCT
that is sold in combination with one or more other integral components not by
itself a LICENSED PRODUCT, shall be determined as follows: a mutually agreeable
third party with experience in the relevant technology shall be selected by the
American Arbitration Association to determine the method of calculating the NET
SALES (the "Representative"). Each party shall present the Representative with a
detailed written position and have an opportunity for an oral presentation. The
decision of the Representative shall be final, binding and not appealable, and
such proceeding shall be completed within sixty (60) days of the selection of
the Representative. Each of GENOMETRIX and MOTOROLA shall bear its own costs in
connection with such NET SALES determination, and each shall pay one-half of the
fees of the Representative. Notwithstanding the foregoing, the parties agree
that the determination of NET SALES of LICENSED PRODUCTS pursuant to this
Section 1.11 is subject to the MIT AGREEMENT, provided, however that GENOMETRIX
agrees to use reasonable best efforts to obtain MIT's approval of the methods
utilized by the parties pursuant to this Section 1.11 for determining such NET
SALES.
1.12 EFFECTIVE DATE means the date of this Agreement as set forth
above.
1.13 LICENSE OPTION PERIOD means the period commencing on the EFFECTIVE
DATE and continuing until three (3) years after the EFFECTIVE DATE.
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1.14 OPTION EXERCISE FEE means a fee of **************, payable by
MOTOROLA to GENOMETRIX immediately prior to the granting of a license under
Section 3.2, 3.3 or 3.4 hereof, and *********** of which shall be credited
toward royalties to be paid by MOTOROLA to GENOMETRIX with respect to applicable
LICENSED PRODUCTS. By way of example but not limitation, ************* of the
OPTION EXERCISE FEE for the E-FIELD MANIPULATION IP shall be creditable towards
royalties to be paid by MOTOROLA to GENOMETRIX with respect to E-FIELD PRODUCTS,
but shall not be creditable towards royalties to be paid by MOTOROLA to
GENOMETRIX with respect to SURFACE CHEMISTRY PRODUCTS or UNIVERSAL ARRAY
PRODUCTS.
1.15 SUBSIDIARY means a corporation, company, or other entity more than
forty-eight percent (48%) of whose outstanding shares or securities
(representing the right to vote for the election of directors or other managing
authority) are, now or hereafter, owned or controlled, directly or indirectly by
a party hereto, but such corporation, company, or other entity shall be deemed
to be a SUBSIDIARY only so long as such ownership or control exists. Unless
otherwise specified, the term MOTOROLA includes its SUBSIDIARIES.
1.16 STOCK PURCHASE AGREEMENT means the Stock Purchase Agreement dated
as of the date hereof by and between GENOMETRIX and MOTOROLA.
1.17 COLLABORATION AGREEMENT means that certain Collaboration Agreement
among MIT, GENOMETRIX and certain others, dated May 28, 1993 and amended
November 5, 1993, and as subsequently amended from time-to-time.
1.18 BAYLOR means the Baylor College of Medicine.
1.19 BAYLOR AGREEMENT means that certain agreement entered into by and
between GENOMETRIX and BAYLOR and having an effective date of May 31, 1998, and
as amended from time-to-time. A true and accurate copy of the BAYLOR AGREEMENT
is attached hereto as EXHIBIT C.
1.20 MIT means the Massachusetts Institute of Technology.
1.21 MIT AGREEMENT means that certain agreement entered into by and
between GENOMETRIX and MIT and having an effective date of May 27, 1994, as
amended April 1, 1996 (the 5722L technology only), and as subsequently amended
from time-to-time. A true and accurate copy of the MIT AGREEMENT is attached
hereto as EXHIBIT B.
1.22 HARC means the Houston Advanced Research Center.
1.23 VALID PATENT CLAIM shall mean (i) a claim of an issued patent that
has not been declared invalid by a court or administrative proceeding from which
there is no appeal; and
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(ii) a pending claim asserted in good faith and with respect to which GENOMETRIX
has an obligation to pay a royalty to MIT pursuant to the MIT AGREEMENT.
SECTION 2. INFORMATION UPDATES; COOPERATION
2.1 From time to time during the term of this Agreement and prior to
the third anniversary of the Effective Date, but not more than once in any three
(3) month period, a person or persons designated by GENOMETRIX will confer with
a person or persons designated by MOTOROLA, at a mutually acceptable date and
time during normal business hours, to (a) discuss the intellectual property
included in the GENOMETRIX PATENTS, and (b) provide MOTOROLA with information
GENOMETRIX reasonably believes to be relevant to MOTOROLA's decision to exercise
its option to obtain a license under Section 3.2, 3.3 or 3.4 hereof.
2.2 The parties hereto may pursue additional joint evaluation, research
and other activities as mutually agreed from time to time, including, without
limitation, services provided by GENOMETRIX, licenses under a party's
intellectual property in addition to the licenses granted to MOTOROLA hereunder,
and additional investments in GENOMETRIX by MOTOROLA. The parties also agree to
discuss in good faith from time to time the potential for MOTOROLA to distribute
certain GENOMETRIX products, when mutually agreed and where consistent with the
parties' respective business models.
SECTION 3. LICENSES
3.1 GENOMETRIX hereby grants to MOTOROLA a ************** , worldwide
license, without the right to grant sublicenses, under the E-FIELD MANIPULATION
IP, the SURFACE CHEMISTRIES IP and the UNIVERSAL ARRAY IP, to use the E-FIELD
MANIPULATION IP, the SURFACE CHEMISTRIES IP and the UNIVERSAL ARRAY IP, for
internal evaluation and research purposes relating to the development of
LICENSED PRODUCTS (but not to sell or otherwise commercially dispose of LICENSED
PRODUCTS).
3.2 At any time during the LICENSE OPTION PERIOD and upon written
notification by MOTOROLA to GENOMETRIX and the payment by MOTOROLA of one OPTION
EXERCISE FEE, GENOMETRIX shall grant to MOTOROLA a non-exclusive,
royalty-bearing, worldwide license under the E-FIELD MANIPULATION IP, to make,
have made, use, sell and import E-FIELD PRODUCTS.
3.3 At any time during the LICENSE OPTION PERIOD and upon written
notification by MOTOROLA to GENOMETRIX and the payment by MOTOROLA of one OPTION
EXERCISE FEE, GENOMETRIX shall grant to MOTOROLA a royalty-bearing,
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worldwide license under the SURFACE CHEMISTRIES IP to make, have made, use, sell
and import SURFACE CHEMISTRY PRODUCTS.
3.4 At any time during the LICENSE OPTION PERIOD and upon written
notification by MOTOROLA to GENOMETRIX and the payment by MOTOROLA of one OPTION
EXERCISE FEE, GENOMETRIX shall grant to MOTOROLA a non-exclusive,
royalty-bearing, worldwide license, under the UNIVERSAL ARRAY IP, to make, have
made, use, sell and import UNIVERSAL ARRAY PRODUCTS.
3.5 Notwithstanding any other provision of this Agreement to the
contrary, the licenses granted to MOTOROLA pursuant to Sections 3.2, 3.3 and 3.4
hereof shall include the right of MOTOROLA to grant sublicenses to third parties
only to the extent necessary to enable MOTOROLA to contract with such third
party for the manufacture of LICENSED PRODUCTS solely for MOTOROLA's account and
not for sale or other commercial disposition by such third party provided that
such third party shall agree in writing to obligations of confidentiality and
restrictions on use of the GENOMETRIX INTELLECTUAL PROPERTY which are no less
stringent than the restrictions set forth herein.
3.6 Notwithstanding any provision to the contrary contained in this
Agreement, the licenses and options granted to MOTOROLA hereunder shall not
include the field of use ***************************************.
3.7 The licenses and options granted to MOTOROLA hereunder shall be
subject to the provisions of the MIT AGREEMENT and the BAYLOR AGREEMENT to the
extent set forth in such agreements, and MOTOROLA shall be bound by certain
obligations (but in all cases excluding payment obligations) to MIT and to
BAYLOR, respectively, as if it were the licensee under such agreements as set
forth in such agreements. Copies of the MIT AGREEMENT and the BAYLOR AGREEMENT
are attached to this Agreement as EXHIBIT B and EXHIBIT C, respectively. Copies
of this Agreement shall be provided by GENOMETRIX to MIT and BAYLOR.
3.8 MOTOROLA hereby acknowledges that GENOMETRIX has licensed certain
of the GENOMETRIX PATENTS from third parties, including without limitation MIT
and BAYLOR, and the rights thereto granted to MOTOROLA hereunder may be subject
to compliance with and provisions of the terms of such license agreements,
including the right of such third parties to practice under the GENOMETRIX
PATENTS for non-commercial research and academic purposes, as further provided
in GENOMETRIX's agreements with such third parties. If for any reason GENOMETRIX
is in default or has failed to comply with the terms of any agreement with third
parties concerning the GENOMETRIX PATENTS, then in such event GENOMETRIX shall
promptly give notice of such default, termination, repudiation or cancellation
to MOTOROLA who shall have the option but not the obligation to take such steps
and make such payments as may be required in order to rectify the default and to
bring the agreements pursuant to which MOTOROLA holds the GENOMETRIX PATENTS
into good
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standing, provided that any monies expended by MOTOROLA in so doing shall be
fully creditable against any royalties or other monies due and owing to
GENOMETRIX hereunder.
3.9 GENOMETRIX hereby grants MOTOROLA ************ negotiate a license
under intellectual property (other than the GENOMETRIX PATENTS licensed to
MOTOROLA pursuant to this Agreement) owned or controlled by GENOMETRIX and which
GENOMETRIX may choose, from time-to-time, to make available to third parties on
a non-exclusive basis. In all such cases, the licensing terms offered to
MOTOROLA shall be no less favorable than those offered to such third party
non-exclusive licensees, taking into account any development funding and other
consideration received from such third party licensees.
3.10 MOTOROLA hereby grants GENOMETRIX ************* negotiate a
license under any intellectual property related to or useful for the practice of
the GENOMETRIX PATENTS, owned or controlled by MOTOROLA and that MOTOROLA
chooses to make available from time to time to third parties on a non-exclusive
basis. In all such cases, the licensing terms offered to GENOMETRIX shall be no
less favorable than those offered to such third party licensees, taking into
account any development funding and other consideration received from such third
party licensees.
3.11 Notwithstanding any other provision of this Agreement, nothing
herein shall be construed as granting or requiring either party to grant any
license or rights under its intellectual property to any party outside this
Agreement.
3.12 MOTOROLA agrees that any LICENSED PRODUCT produced for sale in the
United States will be manufactured substantially in the United States, unless
any waiver of such requirement is obtained.
3.13 All rights reserved to the United States Government and others
under Public Law 96-517 and 98-620 shall remain and shall in no way be affected
by this Agreement.
SECTION 4. RIGHTS TO FILE AND ENFORCE THE GENOMETRIX PATENTS
4.1 GENOMETRIX shall have responsibility, alone or in conjunction with
its licensors, for the preparation, filing, prosecution, maintenance and
enforcement of any and all patent applications and patents comprising the
GENOMETRIX PATENTS. GENOMETRIX shall promptly inform MOTOROLA regarding all
matters directly pertaining to the prosecution, maintenance or enforcement of
the GENOMETRIX PATENTS to the extent such matters specifically relate to
LICENSED PRODUCTS with respect to which MOTOROLA has paid the OPTION EXERCISE
FEE, and, to the extent permissible by its agreements with licensors of the
applicable patent or patent application, shall seek MOTOROLA's counsel
concerning all proposed courses of action affecting the scope of such GENOMETRIX
PATENTS, including, but not limited to, the countries in which patent
prosecution should be obtained and
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MOTOROLA shall be provided with a reasonable opportunity to comment on any
document that GENOMETRIX intends to file or cause to be filed with the relevant
intellectual property or patent office relating directly to any such GENOMETRIX
PATENTS.
4.2 If, during the prosecution of any patent application covering any
GENOMETRIX PATENT under which MOTOROLA has obtained a license by payment of the
corresponding OPTION EXERCISE FEE, GENOMETRIX decides or is advised of a
decision to discontinue prosecution of the application or maintenance of such
patent, GENOMETRIX shall promptly advise MOTOROLA of the decision and, if so
requested by MOTOROLA, shall, only to the extent permitted under GENOMETRIX's
agreements with third parties, continue such prosecution or maintenance,
provided that MOTOROLA shall bear the costs associated with such continued
prosecution or maintenance.
4.3 If GENOMETRIX or MOTOROLA learn of the infringement or threatened
infringement of any GENOMETRIX PATENT, such party will inform the other party
(GENOMETRIX or MOTOROLA, as the case may be) in writing within thirty (30) days
and provide all known evidence of the infringement.
4.4 MOTOROLA may request in writing that GENOMETRIX take legal action
against infringement or potential infringement of a GENOMETRIX PATENT under
which MOTOROLA has obtained a license by payment of the corresponding OPTION
EXERCISE FEE, upon which GENOMETRIX and MOTOROLA shall confer to determine in
good faith an appropriate course of action to enforce the GENOMETRIX PATENT, or
otherwise abate the infringement thereof, provided that, such course of action
shall be permissible under the applicable agreements between GENOMETRIX and the
licensors of the applicable GENOMETRIX PATENT.
4.5 Each party will cooperate with the other in litigation proceedings
against any third party brought under this Agreement, except that either party
may be represented, at its sole expense, by counsel of its choice in any suit
brought by the other party.
SECTION 5. PAYMENTS AND REPORTS
5.1 In consideration for the rights and licenses granted in Section 3
hereof, MOTOROLA shall pay GENOMETRIX a single royalty ** ** ** ** ** NET SALES
of LICENSED PRODUCTS covered by a VALID PATENT CLAIM, except as otherwise
provided in Section 5.2 below, or unless the parties hereto shall otherwise
agree in writing, provided that such royalty shall be fully paid-up, and no
further royalty shall be due, (a) for any calendar year for which the total
royalty payments by MOTOROLA under this Section 5.1 equals ************ , or (b)
if the total royalties paid to GENOMETRIX by MOTOROLA under this Section 5.1
have reached *******************. The foregoing notwithstanding, if MOTOROLA's
royalties are fully paid up pursuant to subsection (a) or (b) hereof, and if
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GENOMETRIX continues to have an obligation to pay royalties to MIT pursuant to
the MIT AGREEMENT as a result of the sale, lease transfer or other disposal of
LICENSED PRODUCTS by MOTOROLA pursuant to this Agreement, MOTOROLA shall pay
GENOMETRIX a royalty equal to the royalty which is owed MIT by GENOMETRIX,
provided that GENOMETRIX agrees to use reasonable best efforts to obtain from
MIT a waiver of the payment of such additional royalties; and provided, further,
that the term "reasonable best efforts" shall not be interpreted to require
GENOMETRIX to pay additional consideration to MIT in order to secure such a
waiver.
5.2 If one or more claims of a GENOMETRIX PATENT issues and covers a
LICENSED PRODUCT under which MOTOROLA is not paying royalties to GENOMETRIX
pursuant to this Agreement as of such issue date, then, in addition to the
royalties payable by MOTOROLA pursuant to Section 5.1 above, MOTOROLA shall pay
to GENOMETRIX a royalty of up to ********** of the NET SALES of the LICENSED
PRODUCTS covered by such GENOMETRIX PATENT for the period of time commencing on
the date of first sale of the applicable LICENSED PRODUCT until the issue date
of the applicable GENOMETRIX PATENT if: (a) such period does not exceed two (2)
years, and (b) full disclosure of the applicable GENOMETRIX PATENT was made to
MOTOROLA prior to the introduction of such LICENSED PRODUCT into the commercial
marketplace; and (c) no commercial product was available during the applicable
period which product was covered by the same intellectual property without
license from GENOMETRIX, except for products made available by a third party to
whom GENOMETRIX has provided written notice that such product infringes the
GENOMETRIX PATENTS.
5.3 The equivalent terms of the licensing agreement between MOTOROLA
and GENOMETRIX shall in no case be less favorable than future licensing
agreements which GENOMETRIX may enter into with other third parties, taking into
account any development funding and other consideration received from such third
party licensees.
5.4 No multiple royalties shall be payable because any LICENSED
PRODUCT, its manufacture, use, lease, sale or import are or shall be covered by
more than one GENOMETRIX PATENT licensed under this Agreement. All payments
hereunder shall be paid in full, without deduction of taxes or other fees which
may be imposed by any government and which shall be paid by MOTOROLA.
5.5 Within thirty (30) days of the close of each calendar quarter
following the exercise by MOTOROLA of its option to obtain a license pursuant to
Section 3.2, 3.3 or 3.4 hereof, MOTOROLA shall (i) deliver to GENOMETRIX a
report setting forth all LICENSED PRODUCTS sold, leased or otherwise transferred
or disposed of by MOTOROLA during such calendar quarter, which report shall
indicate the NET SALES thereof and the amount of royalties due, including a list
of all deductions therefrom, or such report shall certify that no LICENSED
PRODUCTS were sold or otherwise disposed of, and (ii) to the extent royalties
are due, MOTOROLA shall make such royalty payments to GENOMETRIX in accordance
with this
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Section 5. In the case of E-FIELD PRODUCTS, the reports submitted by MOTOROLA to
GENOMETRIX shall contain the information and be in the form required of
GENOMETRIX pursuant to Article 5 of the MIT AGREEMENT.
5.6 Payments of royalties by MOTOROLA shall be made in United States
currency and by wire transfer to such account as GENOMETRIX may specify in
writing from time to time or by check mailed to GENOMETRIX at the address in
Section 10.11. In the event of a wire transfer, notice of payment shall be sent
by MOTOROLA to GENOMETRIX's address in Section 10.11. Conversion of foreign
currency to United States currency shall be made at the exchange rate prevailing
at the Chase Manhattan Bank (N.A.) on the last business day of the quarterly
reporting period to which such royalty payments relate, unless otherwise agreed
by GENOMETRIX and MOTOROLA.
5.7 Any payment hereunder which shall be delayed beyond the due date
shall be subject to an interest charge at a per annum rate equal to the greater
of: (i) the prime rate in effect at the Chase Manhattan Bank (N.A.) on the due
date, or (ii) the rate which GENOMETRIX is required to pay to a third party
licensor; but in any event no greater than the highest rate allowed by law on
the due date. The payment of such interest shall not foreclose GENOMETRIX from
exercising any other rights it may have as a consequence of the lateness of any
payment.
5.8 With respect to the royalties set forth in Section 5.1, MOTOROLA
shall keep clear and accurate records with respect to all LICENSED PRODUCTS sold
or otherwise disposed of by MOTOROLA, provided that, in the case of E-FIELD
PRODUCTS, such records shall meet the requirements imposed on GENOMETRIX by MIT
pursuant to Article 5 of the MIT AGREEMENT. These records shall be retained by
MOTOROLA for a period of five (5) years from date of reporting and payment,
notwithstanding the expiration or other termination of this Agreement.
GENOMETRIX shall have the right, through an independent certified public
accountant chosen by GENOMETRIX and reasonably acceptable to MOTOROLA, and at
the expense of GENOMETRIX, to examine and audit, not more than once a year, and
during normal business hours, all such records and such other records and
accounts as may, under recognized accounting practices, contain information
bearing upon the amount of royalties payable to GENOMETRIX under this Agreement.
Prompt adjustment shall be made by MOTOROLA to compensate for any errors and/or
omissions disclosed by such examination or audit. Should the amount of royalties
due as determined through the audit exceed the amount of royalties reported to
be due by MOTOROLA ************ , whichever is greater, then MOTOROLA shall pay
the full cost of the audit.
5.9 For a period ********** from the Effective Date, GENOMETRIX hereby
grants MOTOROLA an exclusive first right of negotiation to obtain an exclusive,
worldwide, royalty-bearing license under the E-FIELD MANIPULATION IP, to make,
use, sell and import LICENSED PRODUCTS. The terms of such exclusive license
shall be negotiated in good faith and mutually agreed by the parties. During
such **************** , GENOMETRIX agrees
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not to enter into discussions with any third party regarding the granting of
rights or licenses to such third party under the E-FIELD MANIPULATION IP.
SECTION 6. TERM, TERMINATION AND ASSIGNABILITY
6.1 The term of this Agreement shall be from the EFFECTIVE DATE until
expiration of the last patent or disallowance of the last GENOMETRIX PATENT
under which MOTOROLA has obtained a license by payment of the corresponding
OPTION EXERCISE FEE, unless earlier terminated as elsewhere provided in this
Agreement.
6.2 In the event of any material breach of this Agreement by either
party hereto, if such breach is not corrected within thirty (30) days after
written notice to the breaching party in the case of a breach in the payment of
royalties under Section 5.1, or within forty-five (45) days after written notice
to the breaching party for all other breaches, the non-breaching party may, at
its option terminate this Agreement.
6.3 The parties hereto acknowledge and agree that (a) In the event of
the termination of the MIT AGREEMENT, this Agreement shall not terminate and
MOTOROLA shall become a licensee of MIT as set forth in Section 13.6 of the MIT
AGREEMENT, and (b) in the event of the termination of the BAYLOR AGREEMENT, the
rights and obligations of MOTOROLA hereunder with respect to SURFACE CHEMISTRIES
IP and SURFACE CHEMISTRY PRODUCTS specific to the BAYLOR AGREEMENT shall be
terminated, provided that GENOMETRIX shall have no objection if MOTOROLA enters
into good faith discussions with BAYLOR in order to continue its rights and
obligations under the SURFACE CHEMISTRIES IP originally licensed to GENOMETRIX
pursuant to the BAYLOR AGREEMENT.
6.4 The rights or privileges provided for in this Agreement may be
assigned or transferred by either party only with the prior written consent of
the other party, except that either party may assign its rights under this
Agreement to a successor in ownership of all or substantially all of its assets
relating to the subject matter of this Agreement.
6.5 Sections 5.5, 5.6, 5.7 and 5.8, this Section 6.5, and Sections 7, 9
and 10 shall survive the expiration or termination of this Agreement.
SECTION 7. PRODUCT LIABILITY, INSURANCE AND INDEMNIFICATION
7.1 E-FIELD MANIPULATION IP.
(a) In the case of E-FIELD MANIPULATION IP and E-FIELD
PRODUCTS, MOTOROLA shall at all times during the term of this Agreement
and thereafter,
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CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
indemnify, defend and hold GENOMETRIX, MIT, HARC, and BAYLOR, their
trustees, directors, officers, employees and affiliates, harmless
against all claims, proceedings, demands and liabilities of any kind
whatsoever, including legal expenses and reasonable attorneys' fees,
arising out of the death of or injury to any person or persons or out
of any damage to property, resulting from the production, manufacture,
sale, use, lease, consumption or advertisement of an E-FIELD PRODUCT(s)
by MOTOROLA.
(b) Prior to the first use of an E-FIELD PRODUCT for a
commercial application involving human subjects, MOTOROLA shall obtain
and carry in full force and effect commercial, general liability
insurance which shall protect GENOMETRIX, MOTOROLA, MIT, HARC, and
BAYLOR with respect to events covered by Section 7.1(a) above. Such
insurance shall be written by a reputable insurance company authorized
to do business in The Commonwealth of Massachusetts, shall list
GENOMETRIX., MIT, HARC, and BAYLOR as additional named insured
thereunder, shall be endorsed to include product liability coverage and
shall require thirty (30) days written notice to be given to MIT, HARC,
and BAYLOR prior to any cancellation or material change thereof. The
limits of such insurance shall not be less than ************ with an
aggregate of *************** for personal injury or death, and
******************** per occurrence with an aggregate of
*************** for property damage. MOTOROLA shall provide GENOMETRIX,
MIT, HARC, and BAYLOR with Certificates of Insurance evidencing the
same.
7.2 SURFACE CHEMISTRIES IP.
(a) In the case of the SURFACE CHEMISTRIES IP and SURFACE
CHEMISTRY PRODUCTS, each party shall notify the other of any claim,
lawsuit or other proceeding related to the SURFACE CHEMISTRIES IP.
MOTOROLA agrees that it will defend, indemnify and hold harmless
GENOMETRIX, BAYLOR, MIT, HARC, and each of their respective faculty
members, scientists, researchers, employees, officers, trustees,
directors, and agents and each of them (the "Indemnified Parties"),
from and against any and all claims, causes of action, lawsuits or
other proceedings filed or otherwise instituted against any of the
Indemnified Parties related directly or indirectly to or arising out of
an act or omission of MOTOROLA in the design, manufacture, use or sale
of a SURFACE CHEMISTRY PRODUCT, or any other embodiment of the SURFACE
CHEMISTRIES IP.
(b) MOTOROLA shall, for so long as MOTOROLA manufactures, uses
or sells any SURFACE CHEMISTRY PRODUCT maintain in full force and
effect policies of (i) worker's compensation and/or employers'
liability insurance within statutory limits and (ii) general liability
insurance (with Broad Form General Liability endorsement) with limits
of not less than ******************** per occurrence with an annual
aggregate of ****************** and (iii) products liability insurance,
with limits of not less than ****************** per occurrence with an
annual aggregate of ****************.
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<PAGE> 14
CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
Such coverage(s) shall be purchased from a carrier or carriers
reasonably acceptable to GENOMETRIX and BAYLOR, and shall name
GENOMETRIX and BAYLOR as an additional insured. Upon request by
GENOMETRIX, MOTOROLA shall provide to GENOMETRIX and/or BAYLOR copies
of said policies of insurance.
7.3 UNIVERSAL ARRAY IP.
(a) In the case of the UNIVERSAL ARRAY IP, each party shall
notify the other of any claim, lawsuit or other proceeding related to
the UNIVERSAL ARRAY IP. MOTOROLA agrees that it will defend, indemnify
and hold harmless GENOMETRIX and its employees, officers, trustees,
directors, and agents and each of them (the "Indemnified Parties"),
from and against any and all claims, causes of action, lawsuits or
other proceedings filed or otherwise instituted against any of the
Indemnified Parties related directly or indirectly to or arising out of
an act or omission of MOTOROLA in the design, manufacture, use or sale
of the UNIVERSAL ARRAY PRODUCT, or any other embodiment of the
UNIVERSAL ARRAY IP.
(b) MOTOROLA shall, for so long as MOTOROLA manufactures, uses
or sells any UNIVERSAL ARRAY PRODUCT maintain in full force and effect
policies of (i) worker's compensation and/or employers' liability
insurance within statutory limits and (ii) general liability insurance
(with Broad Form General Liability endorsement) with limits of not less
than ************* per occurrence with an annual aggregate of
************* and (iii) products liability insurance, with limits of
not less than ************* per occurrence with an annual aggregate of
************. Such coverage(s) shall be purchased from a carrier or
carriers reasonably acceptable to GENOMETRIX, and shall name GENOMETRIX
as an additional insured. Upon request by GENOMETRIX, MOTOROLA shall
provide to GENOMETRIX with copies of said policies of insurance.
SECTION 8. WARRANTIES
8.1 GENOMETRIX warrants that except as otherwise set forth herein and
in the Exhibits attached hereto, including without limitation the MIT AGREEMENT
and the BAYLOR
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<PAGE> 15
AGREEMENT, to the best of its knowledge it owns or has license rights to the
GENOMETRIX PATENTS, free and clear of all liens, encumbrances, and claims or
demands of third parties.
8.2. Each party warrants that it has the authority to enter into this
Agreement.
8.3. GENOMETRIX warrants that, to the best of its knowledge, EXHIBIT A
sets forth all patents or patent applications claiming E-FIELD MANIPULATION IP,
SURFACE CHEMISTRIES IP and UNIVERSAL ARRAY IP owned, controlled, or licensed by
GENOMETRIX as of the EFFECTIVE DATE. To the best of GENOMETRIX's knowledge, all
patents listed in EXHIBIT A are valid and in full force and all patent
applications listed therein as pending have been prosecuted in good faith as
required by law and are in good standing. To the best knowledge of GENOMETRIX,
none of the patents or patent applications listed in EXHIBIT A is involved in
any interference or opposition proceeding, and there has been no written notice
received by GENOMETRIX that such proceeding will hereafter be commenced
8.4 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT,
GENOMETRIX, ITS TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES AND AFFILIATES MAKE NO
REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, VALIDITY OF THE GENOMETRIC PATENTS, CLAIMS, ISSUED OR
PENDING, AND THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION
MADE OR WARRANTY GIVEN BY GENOMETRIX THAT THE PRACTICE BY MOTOROLA OF THE
LICENSE GRANTED HEREUNDER SHALL NOT INFRINGE THE PATENT RIGHTS OF ANY THIRD
PARTY. EXCEPT AS EXPRESSLY STATED HEREIN, IN NO EVENT SHALL GENOMETRIX, ITS
TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES AND AFFILIATES BE LIABLE FOR INCIDENTAL
OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING ECONOMIC DAMAGE OR INJURY TO
PROPERTY AND LOST PROFITS.
SECTION 9. CONFIDENTIALITY
9.1 CONFIDENTIAL INFORMATION means any materials or information
provided by a party (the "Disclosing Party") to the other party (the "Receiving
Party"), regardless of whether such information is provided in written, oral,
electronic or other form, provided that CONFIDENTIAL INFORMATION shall not
include information or materials which:
(a) are in possession of the Receiving Party at the time of
disclosure thereof as demonstrated by prior written records;
(b) are or later become part of the public domain through no fault
of the Receiving Party;
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<PAGE> 16
(c) are received by the Receiving Party from a third party having
a lawful right to disclose same and having no obligation of
confidentiality to the Disclosing Party with respect thereto;
(d) are developed independently by the Receiving Party without use
of or access to the Confidential Information, as evidenced by
competent written records; or
(e) are required by law or regulation to be disclosed, provided,
however, that the Receiving Party has provided prompt, advance
written notice to the Disclosing Party so as to enable the
Disclosing Party to seek a protective order or otherwise
prevent disclosure of such Confidential Information.
9.2 The Receiving Party agrees that the CONFIDENTIAL INFORMATION of the
Disclosing Party shall be maintained in strict confidence and shall not be
disclosed, divulged or otherwise communicated by the Receiving Party to any
third party or used by the Receiving Party or any third party for any purposes
other than as expressly provided in this Agreement.
9.3 Neither party shall issue any press release or make any public
announcement relating to this Agreement without the prior written approval of
the other party.
SECTION 10. MISCELLANEOUS PROVISIONS
10.1 MOTOROLA shall at all times during the term of this Agreement and
for so long as it shall practice the GENOMETRIX PATENTS or develop, make, use or
sell LICENSED PRODUCTS, comply with all laws that may control the import,
export, manufacture, use, sale, marketing, distribution and other commercial
exploitation of LICENSED PRODUCTS or any other activity undertaken pursuant to
this Agreement.
10.2 Nothing contained in this Agreement shall be construed as:
(a) conferring any license or other right, by
implication, estoppel or otherwise, under any patent
application, patent or patent right, except as herein
expressly granted; or
(b) conferring any license or right with respect to any
trademark, trade or brand name, a corporate name of
any party, or any other name or mark, or contraction,
abbreviation or simulation thereof.
10.3 No express or implied waiver by either of the parties to this
Agreement of any breach of any term, condition or obligation of this Agreement
by the other party shall be construed as a waiver of any subsequent breach of
that term, condition or obligation or of any other term, condition or obligation
of this Agreement of the same or of a different nature.
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<PAGE> 17
10.4 This Agreement is the result of negotiation between the parties
and, accordingly, shall not be construed for or against either party regardless
of which party drafted this Agreement or any portion thereof.
10.5 Nothing in this Agreement shall be construed as creating a
partnership, joint venture, or other formal business organization of any kind.
10.6 Except as expressly stated herein, in no event shall either party
be liable to the other party by reason of this Agreement or any breach or
termination of this Agreement for any loss of prospective profits or incidental
or special or consequential damages.
10.7 The headings and captions used in this Agreement are for
convenience only, and are not to be used in interpreting the obligations of the
parties under this Agreement.
10.8 GOVERNING LAW.
(a) To the extent required by the BAYLOR AGREEMENT, the
performance of this Agreement as it relates to rights and licenses
granted under the SURFACE CHEMISTRIES IP shall be subject to, made
under, and shall be construed and interpreted in accordance with the
laws of the State of Texas, and no conflict-of-laws rule or law that
might refer such construction and interpretation to the laws of another
state, republic, or country shall be considered. To the extent required
by the BAYLOR AGREEMENT, this Agreement is performable in part in
Harris County, Texas, and the parties mutually agree that, to the
extent required by the BAYLOR AGREEMENT, personal jurisdiction and
venue shall be proper in the state and federal courts situated in
Harris County, Texas, and, to the extent required by the BAYLOR
AGREEMENT, agree that any litigated dispute relating to the SURFACE
CHEMISTRIES IP or SURFACE CHEMISTRY PRODUCTS will be conducted solely
in such courts.
(b) To the extent required by the MIT AGREEMENT, this
Agreement, as it relates to rights and licenses granted under the
E-FIELD MANIPULATION IP, shall be construed, governed, interpreted and
applied in accordance with the laws of the Commonwealth of
Massachusetts, U.S.A., except that questions affecting the construction
and effect of any patent shall be determined by the law of the country
in which the patent was granted.
(c) In all cases not covered by Sections 10.8(a) and 10.8(b)
above, the performance of this Agreement as it relates to rights and
licenses granted to MOTOROLA shall be subject to, made under, and shall
be construed and interpreted in accordance with the laws of the State
of Delaware.
10.9 DISPUTE RESOLUTION.
(a) Disputes relating to the E-FIELD MANIPULATION IP and
E-FIELD PRODUCTS shall be governed by the provisions of this Section
10.9(a). Except for the
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right of either party to apply to a court of competent jurisdiction for
a temporary restraining order, a preliminary injunction, or other
equitable relief to preserve the status quo or prevent irreparable
harm, any and all claims, disputes or controversies arising under, out
of, or in connection with this Agreement, including any dispute
relating to patent validity or infringement, which the parties shall be
unable to resolve within sixty (60) days shall be mediated in good
faith. The party raising such dispute shall promptly advise the other
party of such claim, dispute or controversy in a writing which
describes in reasonable detail the nature of such dispute. If the
parties are unable to resolve such dispute within such sixty (60) day
period, either party may demand mediation by written notice to the
other party. By not later than ten (10) business days after the
recipient has received such demand for mediation, each party shall have
selected for itself a representative who shall have the authority to
bind such party, and shall additionally have advised the other party in
writing of the name and title of such representative. By not later than
twenty (20) business days after the date of such demand for mediation,
the party against whom the dispute shall be raised shall select a
mediation firm in the Boston area which is acceptable to the other
party (which acceptance shall not be unreasonably withheld) and such
representatives shall schedule a date with such firm for a mediation
hearing. Within thirty (30) days after the selection of the mediation
firm, the parties shall enter into good faith mediation and shall share
the costs equally. If the representatives of the parties have not been
able to resolve the dispute within fifteen (15) business days after
such mediation hearing, the parties shall have the right to pursue any
other remedies legally available to resolve such dispute in either the
courts of The Commonwealth of Massachusetts or in the United States
District Court for the District of Massachusetts, to whose jurisdiction
for such purposes GENOMETRIX and MOTOROLA each hereby irrevocably
consents and submits. Notwithstanding the foregoing, nothing in this
Section 10.9(a) shall be construed to waive any rights or timely
performance of any obligations existing under this Agreement.
(b) Disputes arising out of this Agreement and not covered by
Section 10.9(a) above shall be governed by this Section 10.9(b). The
parties agree to attempt to settle all such disputes amicably between
them. The parties agree that any such dispute (other than relating to
the scope or validity of a patent and other than a dispute that is
covered by Section 10.9(a) above, will be submitted to non-binding
arbitration in a mutually agreeable location in accordance with the
commercial rules and procedures of the American Arbitration
Association, before a single arbitrator who will be reasonably familiar
with the relevant industry. Each party shall pay its own costs in
connection with such arbitration and one half of the fees of the
arbitrator While the parties agree to attempt arbitration in good
faith, nothing in this Section 10.9(b) shall be construed as limiting
the rights of either party to take legal action as it deems necessary
to enforce its rights under this Agreement.
10.10 If any term, clause, or provision of this Agreement shall be
judged to be invalid, the validity of any other term, clause, or provision shall
not be affected; and such invalid term, clause, or provision shall be deemed
deleted from this Agreement.
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10.11 This Agreement, including the Exhibits attached hereto and
incorporated herein by reference, sets forth the entire agreement and
understanding between MOTOROLA and GENOMETRIX as to the subject matter hereof,
and supersedes and merges any and all prior discussions, correspondence,
agreements or understandings between the parties with respect to such matters,
including without limitation the Non-Disclosure Agreement by and between the
parties and dated June 2, 1998 and the Memorandum of Understanding dated
November 4, 1998. Neither party shall be bound by any conditions, definitions,
warranties, understandings or representations with respect to such subject
matter other than as expressly provided herein (including the Exhibits attached
hereto and incorporated herein by reference) or as duly set forth on or
subsequent to the date hereof in writing and signed by a proper and duly
authorized official of the party to be bound thereby.
10.12 All notices required or permitted to be given hereunder shall be
in writing and shall be valid and sufficient if dispatched by registered mail,
postage prepaid, in any post office in the United States, or by recognized
courier service providing evidence of receipt, addressed as follows:
If to MOTOROLA to: Motorola, Inc.
1303 East Algonquin Road
Schaumberg, Illinois 60062
Attention: Vice President for
Patents, Trademarks & Licensing
If to GENOMETRIX to: Genometrix Incorporated
3608 Research Forest Drive, Suite B7
The Woodlands, Texas 77381
Attention: Mitchell D. Eggers, Ph.D.
Chief Executive Officer
10.13 The date of receipt of such a notice shall be the date for the
commencement of the running of the period provided for in such notice, or the
date at which such notice takes effect, as the case may be.
10.14 For the term of this Agreement, and for one (1) year after the
expiration or termination of this Agreement, MOTOROLA agrees not to solicit any
employees of GENOMETRIX without the prior written consent of GENOMETRIX, except
through advertisements and solicitations directed to the market generally.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
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<PAGE> 20
In witness whereof, each party hereto has caused this Agreement to be
executed by its duly authorized representatives:
MOTOROLA, INC. GENOMETRIX INCORPORATED
By: /s/ Rudyard Istvan By: /s/ Mitchell D. Eggers
-------------------------------------- ---------------------------
Rudyard Istvan Mitchell D. Eggers
Title: Corporate Vice President Chief Executive Officer
and Corporate Director of Strategy
By: /s/ Jonathan Meyer
--------------------------------------
Jonathan Meyer
Title: Corporate Vice President,
Assistant General Counsel, and
Director of Patents, Trademarks
and Licensing
20
<PAGE> 21
EXHIBIT A
GENOMETRIX PATENTS
1. E-FIELD MANIPULATION IP.
------------------------
U.S. 5,846,708
Issued 12/18/98
U.S. 5,653,939
Issued 8/5/97
U.S. 5,670,322
Issued 9/23/97
U.S. 5,532,128
Issued 7/2/98
USSN 08/511,649
Filed 8/7/95
USSN 07/872,582
Filed 4/23/92
USSN 07/794,036
Filed 11/19/91
USSN 08/353,957
Filed 12/12/94
USSN 08/457,096
Filed 6/1/95
USSN 08/633,861
Filed 4/15/96
WO 93/22678
Filed 11/11/93
PCT/US93/03829
Filed 4/23/92
EPC 92310253.7
Filed 11/10/92
A-1
<PAGE> 22
2. SURFACE CHEMISTRIES IP.
-----------------------
USSN 08/749,967
Filed 11/14/97
USSN 60/006,697
Filed 11/14/95
PCT/US96/18,212
Filed 11/14/96
European 96938841.2
Filed 11/14/96
Canada 2235762
11/14/96
Japanese 09-519045
Filed 11/14/96
3. UNIVERSAL ARRAY IP.
-------------------
USSN 60/034627
Filed 12/31/96
USSN 09/002170
Filed 12/31/97
PCT/US97/24098
Filed 12/31/97
A-2
<PAGE> 23
EXHIBIT B
MIT AGREEMENT
B-1
<PAGE> 24
EXHIBIT C
BAYLOR AGREEMENT
C-1
<PAGE> 25
EXHIBIT D
REPRESENTATIVE CLAIMS OF THE GENOMETRIX PATENTS
EXISTING AS OF THE EFFECTIVE DATE
1. REPRESENTATIVE CLAIMS OF THE GENOMETRIX PATENTS MEETING THE CRITERIA
FOR E-FIELD MANIPULATION IP.
(a) Claims 1-10, 17-19, 14-15, 16 and 39 of United States Patent
Number 5,653,939;
(b) Claims 1-5, 10-12, 15-16, 19-33, and 42-43 of United States
Patent Number 5,846,708;
(c) All claims of United States Patent Number 5,670,322;
(d) All claims of United States Patent Number, 5,532,128; and
(e) Claim 70 of GENOMETRIX's United States patent application USSN
09/002,170.
2. REPRESENTATIVE CLAIMS OF THE GENOMETRIX PATENTS MEETING THE CRITERIA FOR
SURFACE CHEMISTRIES IP.
Claims 1-21 of the GENOMETRIX PATENT licensed to GENOMETRIX from BAYLOR
and having United States Patent Application Serial No. 08/749,967 and
entitled "Integrated Nucleic Acid Hybridization Devices Based Upon
Active Surface Chemistry."
3. REPRESENTATIVE CLAIMS OF THE GENOMETRIX PATENTS MEETING THE CRITERIA FOR
UNIVERSAL ARRAY IP.
Claims 25-30, 33, 37-43, 44-63, 80-92 of the GENOMETRIX PATENT having
United States Patent Application Serial No. 09/002,170, and entitled
"Multiplexed Molecular Analysis Apparatus and Method."
D-1
<PAGE> 1
EXHIBIT 10.8 CONFIDENTIAL TREATMENT
GENOMETRIX INCORPORATED HAS
REQUESTED THAT THE MARKED PORTIONS
OF THIS DOCUMENT BE ACCORDED
CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF
1933, AS AMENDED.
LICENSE AND RESEARCH AGREEMENT
THIS LICENSE AND RESEARCH AGREEMENT (the "Agreement") is dated as of
the 6th day of July, 1999 (the "EFFECTIVE DATE"), by and between MOTOROLA, INC.,
a Delaware corporation having an office at 4088 Commercial Drive, Northbrook,
Illinois 60062 (hereinafter, together with its SUBSIDIARIES, "MOTOROLA"), and
GENOMETRIX INCORPORATED, a Delaware corporation having its offices at 3608
Research Forest Drive, Suite B7, The Woodlands, Texas 77381 (hereinafter,
together with its SUBSIDIARIES, "GENOMETRIX").
WHEREAS, GENOMETRIX owns, controls or has acquired rights under various
patents and applications for patents pending, in various countries of the world,
referred to herein as the E-FIELD MANIPULATION IP, SURFACE CHEMISTRIES IP and
OPTICAL DETECTION IP (each as defined below);
WHEREAS, GENOMETRIX and MOTOROLA previously entered into the LICENSE
AND OPTION AGREEMENT (as hereinafter defined), whereby GENOMETRIX granted
MOTOROLA rights, including certain option rights, under the E-FIELD MANIPULATION
IP and the SURFACE CHEMISTRIES IP;
WHEREAS, MOTOROLA wishes to obtain certain additional rights and
certain co-exclusive (with GENOMETRIX) licenses under the E-FIELD MANIPULATION
IP and the SURFACE CHEMISTRIES IP, including certain rights to grant
sublicenses, and in addition thereto, MOTOROLA wishes to obtain rights under the
OPTICAL DETECTION IP and MOTOROLA desires that GENOMETRIX conduct certain
research relating to the SURFACE CHEMISTRIES IP; and
WHEREAS, GENOMETRIX is willing to grant MOTOROLA the licenses set forth
herein, and GENOMETRIX is willing to conduct the SURFACE CHEMISTRIES RESEARCH
PROGRAM (as hereinafter defined).
NOW, THEREFORE, the parties agree as follows:
SECTION 1. DEFINITIONS.
Capitalized terms used herein shall have the definitions assigned to
them in this Section 1, and shall include the singular as well as the plural.
1.1 AFFILIATE means any corporation or other legal entity that
controls, is controlled by, or is under common control with the named entity.
For purposes of this definition, "control" means the ownership, directly or
indirectly, of more than fifty percent (50%) of the outstanding equity
securities of the entity which are entitled to vote in the election of
directors.
<PAGE> 2
CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
1.2 BAYLOR means the Baylor College of Medicine, a Texas nonprofit
corporation having its principal place of business at One Baylor Plaza, Houston,
Texas 77030.
1.3 BAYLOR AGREEMENT means that certain agreement entered into by and
between GENOMETRIX and BAYLOR and having an effective date of May 31, 1998, and
as amended from time-to-time. A true and accurate copy of the BAYLOR AGREEMENT
is attached hereto as EXHIBIT C.
1.4 COLLABORATION AGREEMENT means that certain Collaboration Agreement
among MIT, GENOMETRIX and certain others, dated May 28, 1993 and amended
November 5, 1993, and as subsequently amended from time-to-time.
1.5 complementary PRODUCTS means (a) products and services based on
arrays of size ********************************** ; (b) portable products and
services based on arrays of ************ for use at a single general point of
sample collection and analysis; (c) portable or non-portable products and
services based on arrays ************* for use in clinical diagnostics at any
location, so long as such diagnostic tests do not compete with
************************************************ (the "GENOMETRIX EXCLUSION"),
where allowed products and services shall include but are not limited to tests
for ************************************ (d) for E-FIELD MANIPULATION IP only as
applied to hybridization acceleration and stringency enhancement (specifically
claims 16 and 39 of United States Patent Number 5,653,939, together with
divisionals and continuations thereof), products and services *****************
and (e) such additional products and services based on arrays of any size as
MOTOROLA and GENOMETRIX may mutually agree in writing from time to time. For
purposes of this Section 1.5, an "array" may be comprised of a substrate onto
which biological probes are attached, or comparable implementations utilizing
microfluidics.
1.6 EFFECTIVE DATE means the date of this Agreement as set forth above.
1.7 E-FIELD MANIPULATION IP means GENOMETRIX INTELLECTUAL PROPERTY used
for the research, development, manufacture or use of COMPLEMENTARY PRODUCTS and
pertaining to the use of an electric field property, including electrical
properties and electrochemical properties, to: (a) identify molecular structures
within a sample substance applied to one or more test sites, (b) accelerate or
enhance the rate at which interaction mechanisms, such as hybridization, occur
between molecules at one or more test sites, and (c) increase the specificity
and/or selectivity of the interaction between two or more molecular structures.
E-FIELD MANIPULATION IP shall exclude: (x) the use of an electric field property
to synthesize and/or deposit molecular structures onto an array to form test
sites, and (y) optical, radioisotope, chemiluminescent and thermal detection
methods and technology. By way of example but not limitation, EXHIBIT D hereof
sets forth representative claims of certain existing GENOMETRIX PATENTS which
meet the criteria for E-FIELD MANIPULATION IP.
2
<PAGE> 3
1.8 E-FIELD PRODUCTS means COMPLEMENTARY PRODUCTS (or a portion
thereof) which (a) are covered in whole or in part by, or the use thereof is
covered in whole or in party by, the E-FIELD MANIPULATION IP; or (b) are
manufactured through use of a process which is covered in whole or in part by
the E-FIELD MANIPULATION IP.
1.9 GENOMETRIX INTELLECTUAL PROPERTY means GENOMETRIX PATENTS and
unpatented information relating to the research, development, manufacture or use
of COMPLEMENTARY PRODUCTS heretofore disclosed to MOTOROLA pursuant to Section
2.1 of the LICENSE AND OPTION AGREEMENT.
1.10 GENOMETRIX PATENTS means (i) the patents and patent applications
set forth on EXHIBIT A hereof, together with divisions, continuations,
continuations-in-part, reissues and foreign counterparts thereof; (ii) patents
and patent applications other than PROGRAM PATENTS claiming inventions or
discoveries conceived and reduced to practice by GENOMETRIX prior to December
28, 2001, and, with respect to all of the patents and patent applications
identified in (i) and (ii), which meet the criteria for E-FIELD MANIPULATION IP
or SURFACE CHEMISTRIES IP. The foregoing notwithstanding, the term GENOMETRIX
PATENTS includes only such patents and patent applications which are owned,
licensed to or otherwise controlled by GENOMETRIX and with respect to which
GENOMETRIX has the right to grant the licenses set forth herein; and provided,
further, GENOMETRIX PATENTS shall include such patents or patent applications
only to the extent to which and subject to the conditions under which GENOMETRIX
has the right to grant licenses or rights of the scope granted herein.
1.11 GENOMETRIX PRINCIPAL INVESTIGATOR has the meaning set forth in
Section 2.2.
1.12 HARC means the Houston Advanced Research Center, having its
principal offices at 4800 Research Forest Drive, The Woodlands, Texas, 77381.
1.13 LICENSE AND OPTION AGREEMENT means the License and Option
Agreement entered into between MOTOROLA and GENOMETRIX dated December 28, 1998.
A true and accurate copy of the LICENSE AND OPTION AGREEMENT is attached hereto
as EXHIBIT G.
1.14 LICENSED PRODUCTS means, collectively, the E-FIELD PRODUCTS, the
SURFACE CHEMISTRIES PRODUCTS and the OPTICAL DETECTION PRODUCTS.
1.15 MIT means the Massachusetts Institute of Technology, a corporation
duly organized and existing under the laws of the Commonwealth of Massachusetts
and having its principal offices at 74 Massachusetts Avenue, Cambridge,
Massachusetts, 02139.
1.16 MIT AGREEMENT means that certain agreement entered into by and
between GENOMETRIX and MIT and having an effective date of May 27, 1994, as
amended April 1,
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AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
1996 (the 5722L technology only), and as subsequently amended from time-to-time.
A true and accurate copy of the MIT AGREEMENT is attached hereto as EXHIBIT B.
1.17 MOTOROLA REPRESENTATIVE has the meaning set forth in Section 2.2.
1.18 MOTOROLA TECHNOLOGY means technology relating to ************
arrays which is provided by MOTOROLA to GENOMETRIX for use in the conduct of the
SURFACE CHEMISTRIES RESEARCH PROGRAM.
1.19 NET SALES means billings by MOTOROLA, its SUBSIDIARIES or its
sublicensees for LICENSED PRODUCTS sold, leased or transferred hereunder, less
the sum of the following:
(a) discounts allowed in amounts customary in the trade;
(b) sales, tariff duties and/or use taxes directly imposed and
with reference to particular sales;
(c) packing and crating charges separately stated;
(d) outbound transportation prepaid or allowed; and
(e) amounts allowed or credited on returns.
No deductions shall be made for commissions paid to individuals whether
they be with independent sales agencies or regularly employed by MOTOROLA and on
its payroll, or for cost of collections. LICENSED PRODUCTS shall be considered
"sold" when billed out or invoiced. For LICENSED PRODUCTS disposed of other than
by sale, the NET SALES of such LICENSED PRODUCTS shall be determined based on
the fair market value of such LICENSED PRODUCTS. In the event that a LICENSED
PRODUCT is sold, leased, disposed of or otherwise transferred between MOTOROLA
and an entity affiliated with MOTOROLA in a transaction which results in revenue
to MOTOROLA, the NET SALES of LICENSED PRODUCTS with respect to such transfer
shall be calculated based on the price at which similar quantities of such
LICENSED PRODUCT would have been sold to an independent THIRD PARTY in an
arms-length transaction as of the date of such transfer.
In the event that a LICENSED PRODUCT is sold in combination with one or
more other integral components not by itself a LICENSED PRODUCT, and such other
integral components are not sold separately, the parties shall arrive at a
reasonable method of calculating NET SALES with respect to such LICENSED
PRODUCT, based on the relative fair market value of such LICENSED PRODUCT as
compared with the fair market value of such other integral components, and
pursuant to the procedures set forth in this paragraph. For the purposes of such
NET SALES determination, representative integral components may include: DNA
sequences, reagents, microfluidics and liquid handling systems, and data
acquisition, manipulation and display systems. In addition, royalties paid to
THIRD PARTIES shall be a consideration in
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AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
determining fair market value. If MOTOROLA and GENOMETRIX cannot agree on the
NET SALES of a particular LICENSED PRODUCT that is sold in combination with one
or more other integral components not by itself a LICENSED PRODUCT, such NET
SALES shall be determined as follows: a mutually agreeable THIRD PARTY with
experience in the relevant technology shall be selected by the American
Arbitration Association to determine the method of calculating the NET SALES
(the "Representative"). Each party shall present the Representative with a
detailed written position and have an opportunity for an oral presentation. The
decision of the Representative shall be final, binding and not appealable, and
such proceeding shall be completed within sixty (60) days of the selection of
the Representative. Each of GENOMETRIX and MOTOROLA shall bear its own costs in
connection with such NET SALES determination, and each shall pay one-half of the
fees of the Representative. Notwithstanding the foregoing, the parties agree
that the determination of NET SALES of LICENSED PRODUCTS pursuant to this
Section 1.19 is subject to the MIT AGREEMENT (to the extent the MIT AGREEMENT
applies); provided, however, that GENOMETRIX agrees (where applicable) to use
reasonable best efforts to obtain MIT's approval of the methods utilized by the
parties pursuant to this Section 1.19 for determining such NET SALES.
1.20 OPTICAL DETECTION IP means GENOMETRIX INTELLECTUAL PROPERTY
pertaining to the use of radiation to detect the presence of molecular
structures, as embodied in claims 20-27 of United States Patent Number
5,653,939, together with divisions, continuations, continuations-in-part,
reissues and foreign counterparts thereof. The foregoing notwithstanding, the
term OPTICAL DETECTION IP includes only such patents and patent applications
which are owned, licensed to or otherwise controlled by GENOMETRIX and with
respect to which GENOMETRIX has the right to grant the licenses set forth
herein; and provided, further, OPTICAL DETECTION IP shall include such patents
or patent applications only to the extent to which and subject to the conditions
under which GENOMETRIX has the right to grant licenses or rights of the scope
granted herein.
1.21 OPTICAL DETECTION PRODUCTS means (i) COMPLEMENTARY PRODUCTS
containing a ************** developed by MOTOROLA which are not used for
***************** and (ii) products containing a **************** sensor
developed by MOTOROLA and having ************* and used for low throughput
screening for academic research purposes only; and (a) which products (or the
optical sensor contained in such products) are covered in whole or in part by,
or the use thereof is covered in whole or in part by, the OPTICAL DETECTION IP;
or (b) which products (or the optical sensor contained in such products) are
manufactured through use of a process which is covered, in whole or in part, by
the OPTICAL DETECTION IP.
1.22 PROGRAM PATENTS means all patent applications and patents covering
PROGRAM TECHNOLOGY, together with divisions, continuations,
continuations-in-part, reissues and foreign counterparts thereof. MOTOROLA
PROGRAM PATENTS, GENOMETRIX PROGRAM PATENTS and JOINT PROGRAM PATENTS have the
respective meanings assigned to them in Section 5.1 hereof.
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AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
1.23 PROGRAM TECHNOLOGY means all inventions, discoveries, data,
information, know-how, improvements, developments or discoveries, whether or not
patentable, conceived and reduced to practice pursuant to the conduct of the
SURFACE CHEMISTRIES RESEARCH PROGRAM: (i) solely by employees or others acting
on behalf of GENOMETRIX; (ii) solely by employees or others acting on behalf of
MOTOROLA, or (iii) jointly by employees or others acting on behalf of GENOMETRIX
together with employees or others acting on behalf of MOTOROLA. MOTOROLA PROGRAM
TECHNOLOGY, GENOMETRIX PROGRAM TECHNOLOGY and JOINT PROGRAM TECHNOLOGY have the
respective meaning assigned to them in Section 2.8 hereof.
1.24 RESEARCH PLAN means the detailed description of the activities to
be conducted by GENOMETRIX pursuant to the SURFACE CHEMISTRIES RESEARCH PROGRAM,
as described in EXHIBIT E. EXHIBIT E may be amended from time to time during the
RESEARCH TERM upon the mutual agreement of the parties.
1.25 RESEARCH TERM has the meaning set forth in Section 2.1 hereof.
1.26 SUBLICENSE INCOME means the amounts received by MOTOROLA from a
THIRD PARTY sublicensee in consideration for the grant of rights under the
GENOMETRIX PATENTS, in the form of royalties on the NET SALES of E-FIELD
PRODUCTS and/or SURFACE CHEMISTRIES PRODUCTS by such sublicensee, or in the form
of up-front license fees, milestone payments, clinical development payments and
any other non-royalty cash payments which are specifically given to MOTOROLA in
return for the sublicense. If MOTOROLA receives consideration other than cash
for any such sublicense, SUBLICENSE INCOME shall be calculated as follows: (i)
the fair market value of the consideration received from the sublicensee, based
upon the cash sublicense fee, royalties and other cash consideration which would
have been paid by such sublicensee in the absence of any non-cash consideration,
will be calculated, and (ii) MOTOROLA shall pay GENOMETRIX a percentage of such
fair market value (i.e. SUBLICENSE INCOME) as provided in Section 6 hereof. For
purposes of the fair market value calculation provided for in subsection (i)
above, the fair market value shall not (a) exceed a reasonable percentage of net
sales for such products (combined with license fees), as evidenced by the levels
which are negotiated with THIRD PARTIES, (b) include value derived beyond those
payments which would have arisen from the sublicensee's affected business and
revenue stream, and (c) for the entities and their respective AFFILIATES
identified on ***********************************************************. The
foregoing provisions notwithstanding, MOTOROLA and GENOMETRIX recognize and
agree that the prior written consent of MIT may be required (as provided in
Section 2 of the MIT AGREEMENT) in connection with any sublicense of the E-FIELD
MANIPULATION IP in cases where MOTOROLA is to receive anything of value other
than cash in consideration for the grant of such sublicense, and that the
provisions of this Section 1.26 shall be subject to the applicable provisions of
the MIT AGREEMENT.
The parties agree to use their best reasonable efforts to agree upon
the determination of fair market value, and each of GENOMETRIX and MOTOROLA
agrees to work with the other
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diligently and in good faith to evaluate and respond to proposals and/or
counterproposals of the other party with respect to the fair market value of a
contemplated sublicense under the GENOMETRIX PATENTS granted or to be granted by
MOTOROLA. If the parties are unable to agree on a fair market value
determination as provided in the first paragraph (above) of this Section 1.26,
then such fair market value shall be determined as follows: a mutually agreeable
THIRD PARTY with experience in the relevant technology shall be selected by the
American Arbitration Association to determine the method of calculating such
fair market value (the "Representative"). Each party shall present the
Representative with a detailed written position and have an opportunity for an
oral presentation. The decision of the Representative shall be final, binding
and not appealable, and such proceeding shall be completed within sixty (60)
days of the selection of the Representative. At any point in this process,
including once the arbitration decision has been made, MOTOROLA shall have the
sole right to determine whether or not to grant the sublicense. Each of
GENOMETRIX and MOTOROLA shall bear its own costs in connection with such fair
market value determination, and each shall pay one-half of the fees of the
Representative. Notwithstanding the foregoing, the parties agree that the
determination of SUBLICENSE INCOME based on any assessment of fair market value
pursuant to this Section 1.26 is subject to the MIT AGREEMENT (to the extent the
MIT AGREEMENT applies); provided, however, that GENOMETRIX agrees (where
applicable) to use reasonable best efforts to obtain MIT's approval of the
methods utilized by the parties pursuant to this Section 1.26 for determining
such SUBLICENSE INCOME.
1.27 SUBSIDIARY means a corporation, company, or other entity more than
forty-eight percent (48%) of whose outstanding shares or securities
(representing the right to vote for the election of directors or other managing
authority) are, now or hereafter, owned or controlled, directly or indirectly by
a party hereto, but such corporation, company, or other entity shall be deemed
to be a SUBSIDIARY only so long as such ownership or control exists. Unless
otherwise specified, the term MOTOROLA includes its SUBSIDIARIES and the term
GENOMETRIX includes its SUBSIDIARIES.
1.28 SURFACE CHEMISTRIES IP means GENOMETRIX INTELLECTUAL PROPERTY used
for the research, development, manufacture or use of COMPLEMENTARY PRODUCTS and
pertaining to the use of specific molecular structures to alter the ionic and/or
hydrophobic properties of an array site to: (a) accelerate the rate at which
molecular interactions occur at the site, (b) increase the specificity and/or
selectivity of the interaction between molecular structures at the site, (c)
enable molecular interactions to occur with adequate or enhanced specificity at
non-elevated temperatures, including ambient or room temperature, and (d) enable
molecular interactions to occur at minimized salt concentrations, but excluding
combinatorial chemistry approaches and associated hybridization devices to
develop and/or evaluate alternative chemistries. By way of example and without
limitation, EXHIBIT D hereof sets forth representative claims of certain
existing GENOMETRIX PATENTS which meet the criteria for SURFACE CHEMISTRIES IP.
1.29 SURFACE CHEMISTRIES PRODUCTS means COMPLEMENTARY PRODUCTS
which (a) are covered in whole or in part by, or the use thereof is covered in
whole or in part by, the SURFACE CHEMISTRIES IP or (b) are manufactured through
use of a process which is covered, in whole or in part, the SURFACE CHEMISTRIES
IP.
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1.30 SURFACE CHEMISTRIES RESEARCH PROGRAM means the program of research
to be conducted by GENOMETRIX and funded by MOTOROLA pursuant to this Agreement,
as described in detail in Section 2 of this Agreement and in the RESEARCH PLAN.
1.31 THIRD PARTY means any individual or entity other than MOTOROLA and
its SUBSIDIARIES and other than GENOMETRIX and its SUBSIDIARIES.
1.32 VALID PATENT CLAIM means (i) a claim of an issued patent that has
not expired or been declared invalid by a court or administrative proceeding
from which there is no appeal; and (ii) a pending claim asserted in good faith
and with respect to which GENOMETRIX has an obligation to pay a royalty to MIT
pursuant to the MIT AGREEMENT.
1.33 UNIVERSAL ARRAY IP has the meaning set forth in Section 1.3 of the
LICENSE and OPTION AGREEMENT.
1.34 UNIVERSAL ARRAY PRODUCTS has the meaning set forth in Section 1.9
of the LICENSE and OPTION AGREEMENT.
SECTION 2. THE SURFACE CHEMISTRIES RESEARCH PROGRAM; RIGHTS TO PROGRAM
TECHNOLOGY AND PROGRAM PATENTS.
2.1 MOTOROLA and GENOMETRIX have agreed that GENOMETRIX will conduct
the SURFACE CHEMISTRIES RESEARCH PROGRAM for the purpose of adapting the
technology embodied in the SURFACE CHEMISTRIES IP to MOTOROLA's biochip
platform. The SURFACE CHEMISTRIES RESEARCH PROGRAM shall commence on or before
July 31, 1999 and, unless extended by the mutual written agreement of the
parties, or unless this Agreement is earlier terminated, shall expire on the
later of (i) January 31, 2000, or (ii) the date of completion by GENOMETRIX of
the tasks set forth in EXHIBIT E (hereinafter the "RESEARCH TERM"). Payment of
research funding by MOTOROLA and completion of the SURFACE CHEMISTRIES RESEARCH
PROGRAM shall be based upon the reasonable best efforts of GENOMETRIX to perform
the tasks specified in the RESEARCH PLAN, rather than the results generated. A
draft of the RESEARCH PLAN, describing the activities of GENOMETRIX pursuant to
the SURFACE CHEMISTRIES RESEARCH PROGRAM, is attached hereto as EXHIBIT E. On or
before July 31, 1999, MOTOROLA shall disclose to GENOMETRIX all MOTOROLA
TECHNOLOGY necessary or useful to initiate the conduct of the SURFACE
CHEMISTRIES RESEARCH PROGRAM. Further MOTOROLA TECHNOLOGY shall subsequently be
disclosed in a timely manner as needed to complete the SURFACE CHEMISTRIES
RESEARCH PROGRAM. Such MOTOROLA TECHNOLOGY shall be deemed to be the
CONFIDENTIAL INFORMATION of MOTOROLA hereunder, and shall be treated as such
pursuant to Section 10 hereof.
2.2 GENOMETRIX will use commercially reasonable efforts to conduct the
SURFACE CHEMISTRIES RESEARCH PROGRAM as provided in the RESEARCH PLAN.
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AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
Thomas Powdrill, D.V.M (the "GENOMETRIX PRINCIPAL INVESTIGATOR") shall serve as
the project leader, and shall keep MOTOROLA's representative Charles Brush,
Ph.D. (the "MOTOROLA REPRESENTATIVE") reasonably informed of the progress of the
RESEARCH PROGRAM, as set forth herein. Modifications to the RESEARCH PLAN may be
made from time to time during the RESEARCH TERM, upon the mutual written
agreement of MOTOROLA and GENOMETRIX.
2.3 MOTOROLA agrees to provide GENOMETRIX with funding in the amount of
*************** for the conduct of the SURFACE CHEMISTRIES RESEARCH PROGRAM.
Such amount shall be payable in the amount of **************** prior to the
initiation of the SURFACE CHEMISTRIES RESEARCH PROGRAM, ***************** after
the earlier of three months or completion of 1/2 of the SURFACE CHEMISTRIES
RESEARCH PROGRAM deliverables, and **************** upon completion of the
SURFACE CHEMISTRIES RESEARCH PROGRAM, and shall be non-refundable once
GENOMETRIX has completed the portion of the SURFACE CHEMISTRIES RESEARCH
corresponding to the portion of payment made by MOTOROLA, as set forth in the
RESEARCH PLAN. As provided in Section 2.1, completion of the SURFACE CHEMISTRIES
RESEARCH PROGRAM, and payment by MOTOROLA of the amounts set forth in this
Section 2.3, shall be based upon the reasonable best efforts of GENOMETRIX to
perform the specified tasks set forth in the RESEARCH PLAN, rather than the
results generated. Throughout the RESEARCH TERM, both parties shall review the
results generated, and if future tasks do not appear to be appropriate, shall in
good faith and upon mutual agreement either (i) determine an alternate course of
action or (ii) terminate the SURFACE CHEMISTRIES RESEARCH PROGRAM.
2.4 The GENOMETRIX PRINCIPAL INVESTIGATOR, the MOTOROLA REPRESENTATIVE,
and any others working on the SURFACE CHEMISTRIES RESEARCH PROGRAM will maintain
accurate scientific records relating to the SURFACE CHEMISTRIES RESEARCH
PROGRAM. It is understood that such records shall include laboratory notebooks
sufficient to document any PROGRAM TECHNOLOGY developed pursuant to the conduct
of the SURFACE CHEMISTRIES RESEARCH PROGRAM.
2.5 Commencing on the EFFECTIVE DATE, and thereafter during the
RESEARCH TERM, joint scientific meetings between the GENOMETRIX PRINCIPAL
INVESTIGATOR and the MOTOROLA REPRESENTATIVE shall occur at least monthly by
telephone or videoconference and at least once in person at GENOMETRIX's
facilities in The Woodlands, Texas, to discuss the results generated under the
SURFACE CHEMISTRIES RESEARCH PROGRAM and to consider modifications to or an
expansion of the RESEARCH PLAN based upon such results.
2.6 GENOMETRIX and MOTOROLA shall promptly disclose to each other all
PROGRAM TECHNOLOGY developed pursuant to the conduct of the SURFACE CHEMISTRIES
RESEARCH PROGRAM. Such PROGRAM TECHNOLOGY shall be considered as CONFIDENTIAL
INFORMATION pursuant to Section 10 hereof.
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AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
2.7 GENOMETRIX and MOTOROLA shall require the GENOMETRIX PRINCIPAL
INVESTIGATOR and the MOTOROLA REPRESENTATIVE, respectively, and any other
employees, agents or consultants of GENOMETRIX or MOTOROLA (as the case may be)
conducting activities under the SURFACE CHEMISTRIES RESEARCH PROGRAM, to be
subject to an obligation to assign to GENOMETRIX or MOTOROLA, respectively, all
of the right, title and interest of the GENOMETRIX PRINCIPAL INVESTIGATOR, the
MOTOROLA REPRESENTATIVE, or any such other employee of GENOMETRIX or MOTOROLA in
the PROGRAM TECHNOLOGY.
2.8 PROGRAM TECHNOLOGY conceived and reduced to practice solely by
employees or others acting on behalf of GENOMETRIX shall be owned solely by
GENOMETRIX (hereinafter "GENOMETRIX PROGRAM TECHNOLOGY"). PROGRAM TECHNOLOGY
conceived and reduced to practice solely by employees or others acting on behalf
of MOTOROLA shall be owned solely by MOTOROLA (hereinafter "MOTOROLA PROGRAM
TECHNOLOGY"). PROGRAM TECHNOLOGY conceived and reduced to practice jointly by
employees or others acting on behalf of GENOMETRIX together with employees or
others acting on behalf of MOTOROLA shall be owned jointly by MOTOROLA and
GENOMETRIX (hereinafter "JOINT PROGRAM TECHNOLOGY"). Use of any PROGRAM
TECHNOLOGY, regardless of whether such PROGRAM TECHNOLOGY is owned solely or
jointly by such party, shall be subject to the terms and conditions of this
Agreement, and in particular the provisions of Sections 2.9 and 2.10 below, and
neither party shall have the right to use the PROGRAM TECHNOLOGY, except as set
forth in this Section 2.
2.9 GENOMETRIX shall have the right to use all PROGRAM TECHNOLOGY for
any purposes (including to support the filing and prosecution of patent
applications owned or controlled by GENOMETRIX) other than use in conjunction
with gel pad format arrays, including without limitation for GENOMETRIX's
internal research purposes and to develop, make, use sell and import products
other than gel pad format array products or microfluidic products covered by a
patent or other intellectual property right of MOTOROLA. MOTOROLA hereby grants
GENOMETRIX a perpetual, world-wide, royalty-free right and license under its
interest in the PROGRAM TECHNOLOGY and under any PROGRAM PATENT RIGHTS, for
GENOMETRIX's internal research purposes, and to develop, make, use, offer for
sale, sell and import products other than gel pad format array products or
microfluidic products covered by a patent or other intellectual property right
of MOTOROLA. Such license shall include the right to grant sublicenses, except
that in no event shall GENOMETRIX have the right to grant sublicenses to any
THIRD PARTY in the field of COMPLEMENTARY PRODUCTS unless GENOMETRIX first
obtains the written consent of MOTOROLA, such consent not to be unreasonably
withheld or delayed.
2.10 (a) MOTOROLA shall have the right to use the MOTOROLA PROGRAM
TECHNOLOGY for its research, development and commercial purposes in
************.
(b) MOTOROLA shall have the right to use the JOINT PROGRAM
TECHNOLOGY and the GENOMETRIX PROGRAM TECHNOLOGY for its research,
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DENOTE SUCH OMISSIONS.
development and commercial purposes in the field of COMPLEMENTARY PRODUCTS,
including to develop, make, use, sell and import E-FIELD PRODUCTS and SURFACE
CHEMISTRIES PRODUCTS. GENOMETRIX hereby grants MOTOROLA a perpetual, world-wide,
royalty-free right and license under its interest in the PROGRAM TECHNOLOGY and
the PROGRAM PATENTS to use such PROGRAM TECHNOLOGY for research and development
purposes in the field of COMPLEMENTARY PRODUCTS, and to develop, make, use,
offer for sale, sell and import COMPLEMENTARY PRODUCTS. Such license shall
include the right to grant sublicenses to one or more THIRD PARTIES in the field
of COMPLEMENTARY PRODUCTS.
SECTION 3. LICENSES UNDER THE E-FIELD MANIPULATION IP, THE SURFACE
CHEMISTRIES IP AND THE OPTICAL DETECTION IP.
3.1 GENOMETRIX hereby grants to MOTOROLA, a *************** license
under the E-FIELD MANIPULATION IP, to make, have made, use, offer to sell, sell
and import E-FIELD PRODUCTS. GENOMETRIX shall retain the right to use the
E-FIELD MANIPULATION IP for any and all purposes, including, without limitation,
for use in COMPLEMENTARY PRODUCTS and to make, have made, use, offer to sell,
sell and import E-FIELD PRODUCTS; provided, that, so long as MOTOROLA makes the
payments set forth in Section 6.4 hereof, this license shall be co-exclusive
(with GENOMETRIX) whereby MOTOROLA shall have exclusive sublicensing rights in
the field of COMPLEMENTARY PRODUCTS, and GENOMETRIX agrees not to grant any
THIRD PARTY rights under the E-FIELD MANIPULATION IP to make, have made, use,
offer to sell, sell or import E-FIELD PRODUCTS. The foregoing notwithstanding,
MOTOROLA recognizes that the rights granted to it pursuant to this Section 3.1
are subject to the MIT AGREEMENT, and the exclusivity period set forth therein
(hereinafter the "MIT Exclusivity Period"). *************** GENOMETRIX agrees to
use its reasonable best efforts to meet its obligations under the MIT AGREEMENT
and to maintain the ****************. Upon the expiration or early termination
of the ***************, MIT shall have the right *************************.
Notwithstanding the foregoing, GENOMETRIX agrees to use commercially reasonable
efforts to obtain MIT's consent to ******************************* GENOMETRIX
PATENTS comprising the E-FIELD MANIPULATION IP licensed from MIT to GENOMETRIX;
provided, that, such efforts shall not be construed to require GENOMETRIX to pay
any additional fees to MIT.
3.2 GENOMETRIX hereby grants to MOTOROLA, a **************** license
under the SURFACE CHEMISTRIES IP to make, have made, use, offer to sell, sell
and import SURFACE CHEMISTRIES PRODUCTS. GENOMETRIX shall retain the right to
use the SURFACE CHEMISTRIES IP for any and all purposes, including without
limitation, for use in COMPLEMENTARY PRODUCTS and to make, have made, use, offer
to sell, sell and import SURFACE CHEMISTRIES PRODUCTS; provided, that, so long
as MOTOROLA makes the payments set forth in Section 6.4 hereof this license
shall be co-exclusive (with GENOMETRIX) whereby MOTOROLA shall have exclusive
sublicensing rights in the field of COMPLEMENTARY
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DENOTE SUCH OMISSIONS.
PRODUCTS, and GENOMETRIX agrees not to grant any THIRD PARTY rights under the
SURFACE CHEMISTRIES IP to make, use, sell or import SURFACE CHEMISTRIES
PRODUCTS.
3.3 The licenses granted to MOTOROLA pursuant to Sections 3.1 and 3.2
hereof shall include the right of MOTOROLA to grant sublicenses to THIRD PARTIES
so long as MOTOROLA pays GENOMETRIX the annual minimum royalty payments set
forth in Section 6.4 hereof. MOTOROLA shall provide GENOMETRIX with prompt
written notice of any such sublicense, and any such sublicensee shall agree in
writing to obligations of confidentiality and restrictions on use of the
GENOMETRIX INTELLECTUAL PROPERTY which are no less stringent than the
restrictions set forth herein and shall agree to be subject to (where
applicable) the MIT AGREEMENT and/or the BAYLOR AGREEMENT.
3.4 If MOTOROLA does not pay the minimum royalty payments set forth in
Section 6.4 hereof, GENOMETRIX shall provide written notification to MOTOROLA
thereof, after which MOTOROLA shall have thirty (30) days to make such past due
payments to GENOMETRIX in full. If MOTOROLA does not make such payments,
GENOMETRIX shall have the right to terminate MOTOROLA's right to grant
sublicenses under the licenses granted to MOTOROLA pursuant to Sections 3.1 and
3.2 above upon written notice to MOTOROLA. In the event MOTOROLA's right to
grant sublicenses under the licenses granted under Sections 3.1 and 3.2 is
terminated pursuant to this section 3.4, and so long as MOTOROLA is not
otherwise in default of this Agreement, (i) MOTOROLA shall maintain a
non-exclusive license under Sections 3.1 and 3.2 without the right to grant
sublicenses, and no further minimum royalty payments by MOTOROLA shall be due
pursuant to Section 6.4, and (ii) GENOMETRIX shall have the right to grant
licenses or sublicenses to one or more THIRD PARTIES under the E-FIELD
MANIPULATION IP and/or the SURFACE CHEMISTRIES IP in the field of COMPLEMENTARY
PRODUCTS.
3.5 GENOMETRIX hereby grants to MOTOROLA, a **************
************** license under the OPTICAL DETECTION IP, to make, have made, use,
offer to sell, sell and import OPTICAL DETECTION PRODUCTS. Such license shall
include the right to grant sublicenses to THIRD PARTIES only to the extent
necessary to enable MOTOROLA to contract with THIRD PARTIES for the manufacture
of LICENSED PRODUCTS solely for MOTOROLA'S account and not for sale or other
commercial disposition by such THIRD PARTY; provided, that, such THIRD PARTY
shall agree in writing to obligations of confidentiality and restrictions on the
use of the GENOMETRIX INTELLECTUAL PROPERTY and the OPTICAL DETECTION IP which
are no less stringent than the restrictions set forth herein.
3.6 Notwithstanding any provision to the contrary contained in this
Agreement, the licenses and options granted to MOTOROLA hereunder shall not
include the field of use of *****************************************.
3.7 The licenses granted to MOTOROLA hereunder shall be subject to the
provisions of the MIT AGREEMENT and/or the BAYLOR AGREEMENT, to the extent set
forth in such agreements, and MOTOROLA shall be bound by certain obligations
(but in all cases excluding
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payment obligations) to MIT and to BAYLOR, respectively, as if it were the
licensee under such agreements, only to the extent set forth and as required in
such agreements. Copies of the MIT AGREEMENT and the BAYLOR AGREEMENT are
attached to this Agreement as EXHIBIT B and EXHIBIT C, respectively. Copies of
this Agreement shall be provided by GENOMETRIX to MIT and BAYLOR under
confidentiality.
3.8 MOTOROLA hereby acknowledges that GENOMETRIX has licensed certain
of the GENOMETRIX PATENTS and the OPTICAL DETECTION IP from THIRD PARTIES,
including without limitation MIT and BAYLOR, and the rights thereto granted to
MOTOROLA hereunder may be subject to compliance with and provisions of the terms
of such license agreements, including the right of THIRD PARTIES to practice
under the GENOMETRIX PATENTS and the OPTICAL DETECTION IP for non-commercial
research and academic purposes, as further provided in GENOMETRIX's agreements
with such THIRD PARTIES. If for any reason GENOMETRIX is in default or has
failed to comply with the terms of any agreement with THIRD PARTIES concerning
the GENOMETRIX PATENTS, then GENOMETRIX shall promptly give notice of such
default, termination, repudiation or cancellation to MOTOROLA who shall have the
option but not the obligation to take such steps and make such payments as may
be required in order to rectify the default and to bring the agreements pursuant
to which MOTOROLA holds the GENOMETRIX PATENTS and/or the OPTICAL DETECTION IP
into good standing; provided, that, any monies expended by MOTOROLA in so doing
shall be fully creditable against any royalties or other monies due and owing to
GENOMETRIX hereunder.
3.9 If GENOMETRIX grants a non-exclusive license or sublicense under
the E-FIELD MANIPULATION IP or the SURFACE CHEMISTRIES IP to any THIRD PARTY for
a field of use other than the field of COMPLEMENTARY PRODUCTS licensed to
MOTOROLA hereunder, then GENOMETRIX shall provide MOTOROLA with written
notification thereof, and MOTOROLA shall have the right, but not the obligation,
to obtain the same license on terms which are no less favorable (when taken as a
whole) to MOTOROLA than the most favorable terms offered to and accepted by any
non-exclusive licensee or sublicensee, taking into account any development
funding and other consideration.
3.10 If GENOMETRIX determines to grant an exclusive license or
sublicense under the E-FIELD MANIPULATION IP or the SURFACE CHEMISTRIES IP to a
THIRD PARTY in a field of use outside the field of COMPLEMENTARY PRODUCTS,
GENOMETRIX shall provide MOTOROLA with prompt written notification thereof prior
to offering such license or sublicense to a THIRD PARTY, and MOTOROLA shall have
an exclusive first right and option (the "Option") to obtain an exclusive,
world-wide, royalty-bearing license under the E-FIELD MANIPULATION IP or the
SURFACE CHEMISTRIES IP, as the case may be, and on reasonable terms and
conditions, in the field of use contemplated by GENOMETRIX for licensing to a
THIRD PARTY. MOTOROLA shall exercise such Option by providing GENOMETRIX with
written notice thereof within thirty (30) days after GENOMETRIX's notification
to MOTOROLA hereunder (the "Option Period"). If MOTOROLA exercises the Option
within the Option Period, GENOMETRIX and MOTOROLA shall promptly thereafter
commence good faith negotiations to arrive at and execute a definitive exclusive
license agreement with respect to the additional field of use for the E-FIELD
MANIPULATION IP or the SURFACE CHEMISTRIES IP (as the case may be) within sixty
(60)
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days from the date MOTOROLA exercises the Option hereunder (the "Negotiation
Period"). If MOTOROLA fails to exercise the Option within the Option Period, or
if MOTOROLA and GENOMETRIX are unable to execute the definitive license
agreement within the Negotiation Period, GENOMETRIX shall be free to exclusively
license or sublicense the applicable field of the E-FIELD MANIPULATION IP or the
SURFACE CHEMISTRIES IP (as the case may be) to a THIRD PARTY, and GENOMETRIX
shall have no further obligations to MOTOROLA with respect to thereto so long as
the exclusive license has actually been granted to a THIRD PARTY.
3.11 Notwithstanding any other provision of this Agreement, nothing
herein shall be construed as granting or requiring either party to grant any
license or rights under its intellectual property to any party outside this
Agreement.
3.12 MOTOROLA agrees that any LICENSED PRODUCT produced for sale in the
United States will be manufactured substantially in the United States, unless
any waiver of such requirement is obtained.
3.13 All rights reserved to the United States Government and others
under Public Law 96-517 and 98-620 shall remain and shall in no way be affected
by this Agreement.
SECTION 4. GENOMETRIX ACCESS TO HIGH DENSITY ARRAYS.
At the parties' mutual option, MOTOROLA agrees to provide high density
arrays ********************** to GENOMETRIX on mutually agreeable terms.
GENOMETRIX shall have the right to use such high density arrays for its internal
research purposes or as otherwise agreed. The rights granted to GENOMETRIX in
this section 4 shall not be transferred to a THIRD PARTY without the written
permission of MOTOROLA.
SECTION 5. RIGHTS TO FILE AND ENFORCE THE PROGRAM PATENTS AND THE
GENOMETRIX PATENTS.
5.1 (a) GENOMETRIX shall have the sole right to prepare, file,
prosecute and maintain PROGRAM PATENTS covering GENOMETRIX PROGRAM TECHNOLOGY
(hereinafter the "GENOMETRIX PROGRAM PATENTS"). MOTOROLA shall have the sole
right to prepare, file, prosecute and maintain PROGRAM PATENTS covering MOTOROLA
PROGRAM TECHNOLOGY (hereinafter "MOTOROLA PROGRAM PATENTS"). The parties shall
jointly determine whether to prepare, file, prosecute and maintain PROGRAM
PATENTS covering JOINT PROGRAM TECHNOLOGY (hereinafter "JOINT PROGRAM PATENTS"),
and in such case the parties shall mutually agree on an acceptable patent
attorney who will be responsible for the preparation, filing, prosecution and
maintenance of any such JOINT PROGRAM PATENTS. The parties agree to share
equally in all reasonable costs associated with the procurement and maintenance
of any such JOINT PROGRAM PATENTS. The parties shall consult with each other as
to the preparation, filing, prosecution and
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maintenance of the JOINT PROGRAM PATENTS reasonably prior to any deadline or
action with the U.S. Patent & Trademark Office or its foreign equivalent, and
shall furnish to the other party copies of relevant documents in its possession
reasonably in advance of such consultation. In the event of any disagreement
relating to the preparation, filing, prosecution and maintenance of the JOINT
PROGRAM PATENTS, the dispute shall be resolved pursuant to the dispute
resolution provisions of Section 11.9 hereof. In the event that either party
decides to abandon the JOINT PROGRAM PATENTS or later declines responsibility
for the prosecution or maintenance of the JOINT PROGRAM PATENTS, on a
country-by-country basis, such party shall provide reasonable prior written
notice to the other party of such intention to abandon or decline
responsibility, and such other party shall have the right, at its expense, to
prepare, file, prosecute and maintain such JOINT PROGRAM PATENTS in such
country.
(b) GENOMETRIX shall have the right to enforce and defend the
GENOMETRIX PROGRAM PATENTS. MOTOROLA shall have the sole right to enforce and
defend the MOTOROLA PROGRAM PATENTS. Enforcement of the JOINT PROGRAM PATENTS
shall be determined in good faith by the parties, and neither party shall have
the right to bring an action for infringement of the JOINT PROGRAM PATENTS
without obtaining the prior written consent of the other party, such consent not
to be unreasonably withheld or delayed. Neither party may settle any
infringement or declaratory judgment action relating to the JOINT PROGRAM
PATENTS without first obtaining the written consent of the other party, such
consent not to be unreasonably withheld.
5.2 GENOMETRIX shall have responsibility, alone or in conjunction with
its licensors, for the preparation, filing, prosecution, and maintenance of any
and all patent applications and patents comprising the GENOMETRIX PATENTS.
GENOMETRIX shall promptly inform MOTOROLA regarding all matters directly
pertaining to the prosecution or maintenance of the GENOMETRIX PATENTS, to the
extent such matters specifically relate to E-FIELD PRODUCTS or SURFACE
CHEMISTRIES PRODUCTS, and only to the extent permitted by its agreements with
licensors of the applicable patent or patent application. In addition, to the
extent permitted by its agreements with THIRD PARTIES, GENOMETRIX shall seek
MOTOROLA's counsel concerning all proposed courses of action affecting the scope
of such GENOMETRIX PATENTS, to the extent any such course of action directly
relates to E-FIELD PRODUCTS or SURFACE CHEMISTRIES PRODUCTS, including, but not
limited to, the countries in which patent prosecution should be obtained, and
MOTOROLA shall be provided with a reasonable opportunity to comment on any
document that GENOMETRIX intends to file or cause to be filed with the relevant
intellectual property or patent office relating directly to any such GENOMETRIX
PATENTS.
5.3 If, during the prosecution of any patent application covering any
GENOMETRIX PATENT in E-FIELD MANIPULATION IP or SURFACE CHEMISTRIES IP under
which MOTOROLA has obtained a license hereunder, GENOMETRIX decides or is
advised of a decision to discontinue prosecution of the application or
maintenance of such patent, GENOMETRIX shall promptly advise MOTOROLA of the
decision and, if so requested by MOTOROLA, shall, at its sole discretion and
only to the extent permitted under GENOMETRIX's agreements with THIRD PARTIES,
continue such prosecution or
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maintenance; provided, that, MOTOROLA shall bear all the costs associated with
such continued prosecution or maintenance.
5.4 If GENOMETRIX or MOTOROLA learn of the infringement or threatened
infringement of any GENOMETRIX PATENT such party will inform the other party
(GENOMETRIX or MOTOROLA, as the case may be) in writing within thirty (30) days
and provide all known evidence of the infringement.
5.5 MOTOROLA may request in writing that GENOMETRIX take legal action
against infringement or potential infringement of a GENOMETRIX PATENT under
which MOTOROLA has obtained a license hereunder if such infringement or
potential infringement relates to an E-FIELD PRODUCT or a SURFACE CHEMISTRIES
PRODUCT. In such case, GENOMETRIX and MOTOROLA shall confer to determine in good
faith an appropriate course of action to enforce such GENOMETRIX PATENT, or
otherwise abate the infringement thereof, to the extent permitted (where
applicable) by GENOMETRIX's agreements with THIRD PARTY licensors of the E-FIELD
MANIPULATION IP or the SURFACE CHEMISTRIES IP. Notwithstanding the foregoing,
and subject to the provisions of such THIRD PARTY agreements, MOTOROLA shall
have the right, but not the obligation, to enforce the GENOMETRIX PATENTS
comprising the E-FIELD MANIPULATION IP and the SURFACE CHEMISTRIES IP in the
field of COMPLEMENTARY PRODUCTS, including, without limitation, by commencing
legal action against infringers. MOTOROLA agrees to keep GENOMETRIX reasonably
informed of any activities conducted by it pursuant to this Section 5.5.
GENOMETRIX may, if requested by MOTOROLA, join in a lawsuit commenced by
MOTOROLA, but will not commence any legal action in the areas in which MOTOROLA
has rights of enforcement without the prior written consent of MOTOROLA, such
consent not to be unreasonably withheld.
5.6 Each party will cooperate with the other in litigation proceedings
against any THIRD PARTY brought under this Agreement, except that either party
may be represented, at its sole expense, by counsel of its choice in any suit
brought by the other party.
5.7 Any information provided to MOTOROLA pursuant to this Section 5
shall be considered the CONFIDENTIAL INFORMATION of GENOMETRIX and shall be
treated in accordance with the provisions of Section 10 hereof. Any information
provided to GENOMETRIX pursuant to this Section 5 shall be considered the
CONFIDENTIAL INFORMATION of MOTOROLA and shall be treated in accordance with the
provisions of Section 10 hereof.
SECTION 6. PAYMENTS AND REPORTS.
6.1 In consideration for the rights and license granted to MOTOROLA
pursuant to this Agreement, MOTOROLA shall pay GENOMETRIX an up front license
fee of **********************. Such amount shall be payable by MOTOROLA on or
before
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December 31, 2000, and ******** of such amount shall be creditable toward the
royalties (including minimum annual royalties) to be paid by MOTOROLA to
GENOMETRIX pursuant to Sections 6.2 and 6.4 hereof.
6.2 In consideration for the rights and licenses granted hereunder,
MOTOROLA shall pay GENOMETRIX a single royalty of ***************** NET SALES of
LICENSED PRODUCTS sold by MOTOROLA or its SUBSIDIARIES and covered by a VALID
PATENT CLAIM; provided, that, such royalty shall be fully paid-up, and no
further royalty shall be due, (a) for any calendar year for which the total
royalty payments by MOTOROLA under this Section 6.2, in addition to other
royalties which may be payable by MOTOROLA to GENOMETRIX pursuant to a license
agreement entered into between the parties after the EFFECTIVE DATE in
connection with the exercise by MOTOROLA of its option under the UNIVERSAL ARRAY
IP pursuant to the LICENSE AND OPTION AGREEMENT, *********************** or (b)
if the total royalties paid to GENOMETRIX by MOTOROLA under this Section 6.2
have reached **********************************. The foregoing notwithstanding,
if MOTOROLA has commercialized and continues to commercialize an OPTICAL
DETECTION PRODUCT covered by a VALID PATENT CLAIM, then the total royalty cap
shall be increased by************************ or a total of
****************************. The foregoing notwithstanding, if MOTOROLA's
royalties are fully paid up pursuant to subsection (a) or (b) hereof, and if
GENOMETRIX continues to have an obligation to pay royalties to MIT pursuant to
the MIT AGREEMENT as a result of the sale, lease transfer or other disposal of
LICENSED PRODUCTS by MOTOROLA, its SUBSIDIARIES or sublicensees pursuant to this
Agreement, MOTOROLA shall pay GENOMETRIX a royalty equal to the royalty which is
owed MIT by GENOMETRIX; provided, that, GENOMETRIX agrees to use reasonable best
efforts to obtain from MIT a waiver of the payment of such additional royalties;
and provided, further, that the term "reasonable best efforts" shall not be
interpreted to require GENOMETRIX to pay additional consideration to MIT in
order to secure such a waiver. If MOTOROLA is required to pay additional
consideration to MIT in order to maintain the Exclusivity Period (as defined in
Section 3.1 hereof) under the MIT AGREEMENT, and if MOTOROLA is continuing to
pay royalties on the NET SALES of LICENSED PRODUCTS to GENOMETRIX, the royalties
owed to GENOMETRIX by MOTOROLA shall be reduced by the amount paid by MOTOROLA
to MIT in consideration for the maintenance of the Exclusivity Period.
6.3 In consideration of the rights and licenses granted hereunder,
MOTOROLA shall pay GENOMETRIX a percentage of any SUBLICENSE INCOME received by
MOTOROLA in consideration for the grant of a sublicense under the GENOMETRIX
PATENTS. The applicable percentage of SUBLICENSE INCOME shall be determined as
follows: (i) Except as otherwise provided in Section 6.3(ii) below, MOTOROLA
shall pay GENOMETRIX ************************ and (ii) if MOTOROLA grants a
sublicense under the GENOMETRIX PATENTS to a THIRD PARTY *********** MOTOROLA
shall pay GENOMETRIX the percentage of SUBLICENSE INCOME set forth on
**********; provided, that, the percentages of SUBLICENSE INCOME set forth on
*********** shall only apply to those sublicenses of GENOMETRIX PATENTS
generated by MOTOROLA with the identified entities and their
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respective AFFILIATES and which provide rights in the fields set forth on
*********. The foregoing notwithstanding, in all cases the percentage of
SUBLICENSE INCOME payable by MOTOROLA to GENOMETRIX in consideration for the
grant of a sublicense under the GENOMETRIX PATENTS shall be equal to or greater
than the amount owed by GENOMETRIX to MIT pursuant to the MIT AGREEMENT.
MOTOROLA agrees to provide GENOMETRIX with advance written notice of and a copy
of any such sublicense agreements.
6.4 Except as provided in Section 3.4, MOTOROLA shall pay GENOMETRIX
minimum royalties in the following amounts so long as the exclusive license
under the MIT AGREEMENT is maintained:
Calendar Year 2000 ***********
Calendar Year 2001 ***********
Calendar Year 2002 and thereafter ***********
The minimum annual royalty payments shall be made to GENOMETRIX in
equal portions on a quarterly basis, within forty-five (45) days of the end of
each quarter. Each quarter, the total royalties due to GENOMETRIX for the
calendar year to that date shall be compared to the total due if minimum levels
were paid, and the amount paid for the quarter shall be adjusted such that
GENOMETRIX shall have received in aggregation for the calendar year the greater
of (i) the royalties actually due and (ii) the minimum royalty payment, if paid
in equal quarterly portions, which should have been paid to GENOMETRIX.
6.5 If one or more claims of a GENOMETRIX PATENT or the OPTICAL
DETECTION IP issues and covers a LICENSED PRODUCT under which MOTOROLA is not
paying royalties to GENOMETRIX pursuant to this Agreement as of such issue date,
then, in addition to the royalties payable by MOTOROLA pursuant to Sections 6.2,
6.3 and 6.4 above, MOTOROLA shall pay to GENOMETRIX a royalty of ************ of
the NET SALES of the LICENSED PRODUCTS covered by such GENOMETRIX PATENT or the
OPTICAL DETECTION IP for the period of time commencing on the date of first sale
of the applicable LICENSED PRODUCT until the issue date of the applicable
GENOMETRIX PATENT or the OPTICAL DETECTION IP: (a) up to a period of time not
exceed two (2) years; and (b) if full disclosure of the applicable GENOMETRIX
PATENT was made to MOTOROLA prior to the introduction of such LICENSED PRODUCT
into the commercial marketplace; and (c) no commercial product was available
during the applicable period which product was covered by the same intellectual
property without license from GENOMETRIX, except for products made available by
a THIRD PARTY to whom GENOMETRIX has provided written notice that such product
infringes the GENOMETRIX PATENTS and/or the OPTICAL DETECTION IP.
6.6 No multiple royalties shall be payable because any LICENSED
PRODUCT, its manufacture, use, lease, sale or import are or shall be covered by
more than one GENOMETRIX PATENT or the OPTICAL DETECTION IP licensed under this
Agreement or under the LICENSE and OPTION AGREEMENT, including UNIVERSAL ARRAY
PATENTS. All payments
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hereunder shall be paid in full, without deduction of taxes or other fees which
may be imposed by any government and which shall be paid by MOTOROLA.
6.7 Within thirty (30) days of the close of each calendar quarter
following the EFFECTIVE DATE, MOTOROLA shall (i) deliver to GENOMETRIX a report
setting forth all LICENSED PRODUCTS sold, leased or otherwise transferred or
disposed of by MOTOROLA or its SUBSIDIARIES during such calendar quarter, which
report shall indicate the NET SALES thereof and the amount of royalties due,
including a list of all deductions therefrom, or such report shall certify that
no LICENSED PRODUCTS were sold or otherwise disposed of, and (ii) to the extent
royalties are owed, MOTOROLA shall make such royalty payments to GENOMETRIX in
accordance with this Section 6. In the case of E-FIELD PRODUCTS and OPTICAL
DETECTION PRODUCTS, the reports submitted by MOTOROLA to GENOMETRIX shall
contain the information and be in the form required of GENOMETRIX pursuant to
Article 5 of the MIT AGREEMENT.
6.8 Within thirty (30) days of the grant of a sublicense under the
GENOMETRIX PATENTS, MOTOROLA shall deliver to GENOMETRIX a report setting forth
the type and amounts of consideration received in connection with the grant of
such sublicense, together with the amount of SUBLICENSE INCOME due GENOMETRIX
hereunder and the calculation of such amounts, and (ii) payment of all such
SUBLICENSE INCOME owed by MOTOROLA to GENOMETRIX as of such date. The foregoing
notwithstanding, to the extent all or a portion of such SUBLICENSE INCOME is
based on non-cash consideration received by MOTOROLA, GENOMETRIX and MOTOROLA
shall mutually agree in good faith to reasonable payment terms consistent with
Section 1.26; provided, that, such amount and payment terms shall be subject to
the MIT AGREEMENT and, where applicable, the consent of MIT; and provided,
further, such payment terms shall be structured in a manner whereby MOTOROLA's
payments to GENOMETRIX are consistent with the obligations of GENOMETRIX and
MOTOROLA under the MIT AGREEMENT, and any such payments to GENOMETRIX shall be
at least as great as the payments owed by GENOMETRIX to MIT pursuant to the MIT
AGREEMENT.
6.9 Within forty-five (45) days of the close of each calendar quarter
following the EFFECTIVE DATE, MOTOROLA shall: (i) deliver to GENOMETRIX a report
setting forth all LICENSED PRODUCTS sold, leased or otherwise transferred or
disposed of by MOTOROLA's sublicensees during such calendar quarter, which
report shall indicate the NET SALES of LICENSED PRODUCTS sold by such
sublicensees, and the amount of SUBLICENSE INCOME due in connection with such
sales, including a list of all deductions therefrom, or such report shall
certify that no LICENSED PRODUCTS were sold or otherwise disposed of by
sublicensees of MOTOROLA; and (ii) deliver to GENOMETRIX a report setting forth
all other SUBLICENSE INCOME received by MOTOROLA during such calendar quarter,
which report shall indicate the amount of SUBLICENSE INCOME received by MOTOROLA
and the amount of such SUBLICENSE INCOME owed to GENOMETRIX and the calculations
therefore; and (iii) to the extent SUBLICENSE INCOME is owed to GENOMETRIX,
including SUBLICENSE INCOME based on the sale of LICENSED PRODUCTS by a
sublicensee of MOTOROLA, MOTOROLA shall make such SUBLICENSE INCOME payments to
GENOMETRIX in accordance with this Section 6. The foregoing notwithstanding, to
the extent all or a portion of such SUBLICENSE INCOME is based on
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non-cash consideration received by MOTOROLA, payments shall be made in
accordance with the reasonable payment terms agreed upon pursuant to Section
6.8. In the case of reports of SUBLICENSE INCOME relating to the E-FIELD
MANIPULATION IP or E-FIELD PRODUCTS, the reports submitted by MOTOROLA to
GENOMETRIX shall contain the information and be in the form required of
GENOMETRIX and MOTOROLA pursuant to Article 5 of the MIT AGREEMENT.
6.10 Payments of royalties or SUBLICENSE INCOME by MOTOROLA shall be
made in United States currency and by wire transfer to such account as
GENOMETRIX may specify in writing from time to time or by check mailed to
GENOMETRIX at the address set forth in Section 11.12. In the event of a wire
transfer, notice of payment shall be sent by MOTOROLA to GENOMETRIX's address in
Section 11.12. Conversion of foreign currency to United States currency shall be
made at the exchange rate prevailing at the Chase Manhattan Bank (N.A.) on the
last business day of the reporting period to which such royalty or SUBLICENSE
INCOME payments relate, unless otherwise agreed in writing by GENOMETRIX and
MOTOROLA.
6.11 Any payment hereunder which shall be delayed beyond the due date
shall be subject to an interest charge at a per annum rate equal to the greater
of: (i) the prime rate in effect at the Chase Manhattan Bank (N.A.) on the due
date, or (ii) the rate which GENOMETRIX is required to pay to a THIRD PARTY
licensor, but in any event no greater than the highest rate allowed by law on
the due date. The payment of such interest shall not foreclose GENOMETRIX from
exercising any other rights it may have as a consequence of the lateness of any
payment.
6.12 With respect to the payments set forth in this Section 6, MOTOROLA
shall keep clear and accurate records with respect to all LICENSED PRODUCTS sold
or otherwise disposed of by MOTOROLA its SUBSIDIARIES or sublicensees; provided,
that, in the case of E-FIELD PRODUCTS and OPTICAL DETECTION PRODUCTS, such
records shall meet the requirements imposed on GENOMETRIX by MIT pursuant to
Article 5 of the MIT AGREEMENT. These records shall be retained by MOTOROLA for
a period of five (5) years from the date of reporting and payment,
notwithstanding the expiration or other termination of this Agreement.
GENOMETRIX shall have the right, through an independent certified public
accountant chosen by GENOMETRIX and reasonably acceptable to MOTOROLA, and at
the expense of GENOMETRIX, to examine and audit, not more than once a year, and
during normal business hours, all such records and such other records and
accounts as may, under recognized accounting practices, contain information
bearing upon the amount of royalties and SUBLICENSE INCOME payable to GENOMETRIX
under this Agreement. Prompt adjustment shall be made by MOTOROLA to compensate
for any errors and/or omissions disclosed by such examination or audit. Should
the amount of royalties or SUBLICENSE INCOME due as determined through the audit
exceed the amount of royalties and/or SUBLICENSE INCOME reported to be due by
MOTOROLA by *********************** whichever is greater, then MOTOROLA shall
pay the full cost of the audit.
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SECTION 7. TERM, TERMINATION AND ASSIGNABILITY.
7.1 The term of this Agreement shall be from the EFFECTIVE DATE until
expiration of the last patent or disallowance of the last GENOMETRIX PATENT,
patents included in the OPTICAL DETECTION IP or PROGRAM PATENT under which
MOTOROLA has obtained a license pursuant to this Agreement, unless earlier
terminated as provided elsewhere in this Agreement.
7.2 In the event of any material breach of this Agreement by either
party hereto, if such breach is not corrected within thirty (30) days after
written notice to the breaching party in the case of a breach in the payment of
royalties or SUBLICENSE INCOME under Section 6, or within forty-five (45) days
after written notice to the breaching party for all other breaches, the
non-breaching party may, at its option terminate this Agreement.
7.3 The parties hereto acknowledge and agree that: (a) in the event of
the termination of the MIT AGREEMENT, this Agreement shall not terminate and
MOTOROLA shall become a licensee of MIT as set forth in Section 13.6 of the MIT
AGREEMENT; and (b) in the event of the termination of the BAYLOR AGREEMENT, the
rights and obligations of MOTOROLA hereunder with respect to SURFACE CHEMISTRIES
IP and SURFACE CHEMISTRIES PRODUCTS specific to the BAYLOR AGREEMENT shall be
terminated; provided, that, GENOMETRIX shall have no objection if MOTOROLA
enters into good faith discussions with BAYLOR in order to continue its rights
and obligations under the SURFACE CHEMISTRIES IP originally licensed to
GENOMETRIX pursuant to the BAYLOR AGREEMENT.
7.4 The rights or privileges provided for in this Agreement may be
assigned or transferred by either party only with the prior written consent of
the other party, except that either party may assign its rights under this
Agreement, with the exception of section 4, to a successor in ownership of all
or substantially all of its assets relating to the subject matter of this
Agreement.
7.5 Sections 2.8, 2.9, 2.10, 5.1, 5.6, 5.7, Section 6 with respect to
payment and reporting obligations covering the sale, lease, transfer or
sublicensing of intellectual property, products or services prior to the
effective date of such expiration or termination, this Section 7.5, and Sections
8, 10 and 11 shall survive the expiration or termination of this Agreement. The
termination, relinquishment or expiration of this Agreement for any reason shall
be without prejudice to any rights which shall have accrued to the benefit of
either party under this Agreement prior to such termination, relinquishment or
expiration. Such termination, relinquishment or expiration shall not relieve
either party from obligations which are expressly indicated to survive
termination or expiration of this Agreement.
7.6 To avoid cancellation of the sublicense under the SURFACE
CHEMISTRIES IP, MOTOROLA shall have the right to purchase substantially all of
the assets relating to SURFACE CHEMISTRIES IP prior to entry by GENOMETRIX into
bankruptcy or other form of liquidation which would allow BAYLOR to terminate
its license to GENOMETRIX and GENOMETRIX's sublicensee.
21
<PAGE> 22
CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
SECTION 8. PRODUCT LIABILITY, INSURANCE AND INDEMNIFICATION.
8.1 E-FIELD MANIPULATION IP AND OPTICAL DETECTION IP.
(a) In the case of E-FIELD MANIPULATION IP and E-FIELD
PRODUCTS and OPTICAL DETECTION IP and OPTICAL DETECTION PRODUCTS,
MOTOROLA shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold GENOMETRIX, MIT, HARC, and
BAYLOR, their trustees, directors, officers, employees and affiliates
harmless against all claims, proceedings, demands and liabilities of
any kind whatsoever, including legal expenses and reasonable attorneys'
fees, arising out of the death of or injury to any person or persons or
out of any damage to property, resulting from the production,
manufacture, sale, use, lease, consumption or advertisement of E-FIELD
PRODUCT(s) or OPTICAL DETECTION PRODUCTS(s) by MOTOROLA.
(b) Prior to the first use of an E-FIELD PRODUCT or an OPTICAL
DETECTION PRODUCT for a commercial application involving human
subjects, MOTOROLA shall obtain and carry in full force and effect
commercial, general liability insurance which shall protect GENOMETRIX,
MOTOROLA, MIT, HARC, and BAYLOR with respect to events covered by
Section 8.1(a) above. Such insurance shall be written by a reputable
insurance company authorized to do business in The Commonwealth of
Massachusetts, shall list GENOMETRIX, MIT, HARC, and BAYLOR as
additional named insured thereunder, shall be endorsed to include
product liability coverage and shall require thirty (30) days written
notice to be given to MIT, HARC, and BAYLOR prior to any cancellation
or material change thereof. The limits of such insurance shall not be
less than *********************** per occurrence with an aggregate of
***************** for personal injury or death, and *******************
per occurrence with an aggregate of ******************** for property
damage. MOTOROLA shall provide GENOMETRIX, MIT, HARC, and BAYLOR with
Certificates of Insurance evidencing the same.
8.2 SURFACE CHEMISTRIES IP.
(a) In the case of the SURFACE CHEMISTRIES IP and SURFACE
CHEMISTRIES PRODUCTS, each party shall notify the other of any claim,
lawsuit or other proceeding related to the SURFACE CHEMISTRIES IP.
MOTOROLA agrees that it will defend, indemnify and hold harmless
GENOMETRIX, BAYLOR, MIT, HARC, and each of their respective faculty
members, scientists, researchers, employees, officers, trustees,
directors, and agents and each of them (the "Indemnified Parties"),
from and against any and all claims, causes of action, lawsuits or
other proceedings filed or otherwise instituted against any of the
Indemnified Parties related directly or indirectly to or arising out of
an act or omission of MOTOROLA in the design, manufacture, use or sale
of a SURFACE CHEMISTRIES PRODUCT, or any other embodiment of the
SURFACE CHEMISTRIES IP.
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<PAGE> 23
CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE SUCH OMISSIONS.
(b) MOTOROLA shall, for so long as MOTOROLA manufactures, uses
or sells any SURFACE CHEMISTRIES PRODUCT maintain in full force and
effect policies of (i) worker's compensation and/or employers'
liability insurance within statutory limits and (ii) general liability
insurance (with Broad Form General Liability endorsement) with limits
of not less than **************** per occurrence with an annual
aggregate of ****************** and (iii) products liability insurance,
with limits of not less than ******************** per occurrence with
an annual aggregate of ******************. Such coverage(s) shall be
purchased from a carrier or carriers reasonably acceptable to
GENOMETRIX and BAYLOR, and shall name GENOMETRIX and BAYLOR as an
additional insured. Upon request by GENOMETRIX, MOTOROLA shall provide
to GENOMETRIX and/or BAYLOR copies of said policies of insurance.
SECTION 9. WARRANTIES.
9.1 GENOMETRIX warrants that except as otherwise set forth herein and
in the EXHIBITS attached hereto, including without limitation the MIT AGREEMENT
and the BAYLOR AGREEMENT, to the best of its knowledge it owns or has license
rights to the GENOMETRIX PATENTS, free and clear of all liens, encumbrances, and
claims or demands of THIRD PARTIES.
9.2. Each party warrants that it has the authority to enter into this
Agreement.
9.3. GENOMETRIX warrants that, to the best of its knowledge, EXHIBIT A
sets forth all patents or patent applications claiming E-FIELD MANIPULATION IP,
SURFACE CHEMISTRIES IP and OPTICAL DETECTION IP owned, controlled, or licensed
by GENOMETRIX as of the EFFECTIVE DATE. To the best of GENOMETRIX's knowledge,
all patents listed in EXHIBIT A are valid and in full force and all patent
applications listed therein as pending have been prosecuted in good faith as
required by law and are in good standing. To the best knowledge of GENOMETRIX,
none of the patents or patent applications listed in EXHIBIT A is involved in
any interference or opposition proceeding, and there has been no written notice
received by GENOMETRIX that such proceeding will hereafter be commenced.
9.4 GENOMETRIX warrants that, to the best of its knowledge as of the
EFFECTIVE DATE, its licenses with MIT and BAYLOR are in good standing and that
as of the EFFECTIVE DATE it has satisfied the 1998 minimum sales requirements
set forth in the MIT AGREEMENT in order to maintain the MIT Exclusivity Period
(as defined in Section 3.1 hereof), and that it is capable of satisfying the
minimum sales requirements for 1999 in order to maintain the MIT Exclusivity
Period.
9.5 GENOMETRIX warrants that, to the best of its knowledge as of the
EFFECTIVE DATE, it has no knowledge or information that practice of the E-FIELD
MANIPULATION IP, the SURFACE CHEMISTRIES IP, the UNIVERSAL ARRAY IP or the
OPTICAL DETECTION IP constitutes infringement of any third party patents.
23
<PAGE> 24
9.6 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT,
GENOMETRIX, ITS TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES AND SUBSIDIARIES MAKE
NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, VALIDITY OF THE GENOMETRIX PATENTS, CLAIMS, ISSUED OR
PENDING, AND THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION
MADE OR WARRANTY GIVEN BY GENOMETRIX THAT THE PRACTICE BY MOTOROLA OF THE
LICENSES GRANTED HEREUNDER SHALL NOT INFRINGE THE PATENT RIGHTS OF ANY THIRD
PARTY. EXCEPT AS EXPRESSLY STATED HEREIN, IN NO EVENT SHALL GENOMETRIX, ITS
TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES OR SUBSIDIARIES BE LIABLE FOR
INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING ECONOMIC DAMAGE OR
INJURY TO PROPERTY AND LOST PROFITS.
SECTION 10. CONFIDENTIALITY.
10.1 CONFIDENTIAL INFORMATION means any materials or information
provided by a party (the "Disclosing Party") to the other party (the "Receiving
Party"), regardless of whether such information is provided in written, oral,
electronic or other form, except that CONFIDENTIAL INFORMATION shall not include
information or materials which:
(a) are in possession of the Receiving Party at the time of
disclosure thereof as demonstrated by prior written records;
(b) are or later become part of the public domain through no fault
of the Receiving Party;
(c) are received by the Receiving Party from a THIRD PARTY having
a lawful right to disclose same and having no obligation of
confidentiality to the Disclosing Party with respect thereto;
(d) are developed independently by the Receiving Party without use
of or access to the Confidential Information, as evidenced by
competent written records; or
(e) are required by law or regulation to be disclosed; provided,
however, that the Receiving Party has provided prompt, advance
written notice to the Disclosing Party so as to enable the
Disclosing Party to seek a protective order or otherwise
prevent disclosure of such Confidential Information.
24
<PAGE> 25
10.2 The Receiving Party agrees that the CONFIDENTIAL INFORMATION of
the Disclosing Party shall be maintained in strict confidence and shall not be
disclosed, divulged or otherwise communicated by the Receiving Party to any
THIRD PARTY or used by the Receiving Party or any THIRD PARTY for any purposes
other than as expressly provided in this Agreement.
10.3 Neither party shall issue any press release or make any public
announcement relating to this Agreement without the prior written approval of
the other party.
SECTION 11 MISCELLANEOUS PROVISIONS.
11.1 MOTOROLA shall at all times during the term of this Agreement and
for so long as it shall practice the GENOMETRIX PATENTS or the OPTICAL DETECTION
IP, or develop, make, use or sell LICENSED PRODUCTS, comply with all laws that
may control the import, export, manufacture, use, sale, marketing, distribution
and other commercial exploitation of LICENSED PRODUCTS or any other activity
undertaken pursuant to this Agreement.
11.2 Nothing contained in this Agreement shall be construed as:
(a) conferring any license or other right, by
implication, estoppel or otherwise, under any patent
application, patent or patent right, except as herein
expressly granted; or
(b) conferring any license or right with respect to any
trademark, trade or brand name, a corporate name of
any party, or any other name or mark, or contraction,
abbreviation or simulation thereof.
11.3 No express or implied waiver by either of the parties to this
Agreement of any breach of any term, condition or obligation of this Agreement
by the other party shall be construed as a waiver of any subsequent breach of
that term, condition or obligation or of any other term, condition or obligation
of this Agreement of the same or of a different nature.
11.4 This Agreement is the result of negotiation between the parties
and, accordingly, shall not be construed for or against either party regardless
of which party drafted this Agreement or any portion thereof.
11.5 Nothing in this Agreement shall be construed as creating a
partnership, joint venture, or other formal business organization of any kind.
11.6 Except as expressly stated herein, in no event shall either party
be liable to the other party by reason of this Agreement or any breach or
termination of this Agreement for any loss of prospective profits or incidental
or special or consequential damages.
25
<PAGE> 26
11.7 The headings and captions used in this Agreement are for
convenience only, and are not to be used in interpreting the obligations of the
parties under this Agreement.
11.8 GOVERNING LAW.
(a) To the extent required by the BAYLOR AGREEMENT, the
performance of this Agreement as it relates to rights and licenses
granted under the SURFACE CHEMISTRIES IP shall be subject to, made
under, and shall be construed and interpreted in accordance with the
laws of the State of Texas, and no conflict-of-laws rule or law that
might refer such construction and interpretation to the laws of another
state, republic, or country shall be considered. To the extent required
by the BAYLOR AGREEMENT, this Agreement is performable in part in
Harris County, Texas, and the parties mutually agree that, to the
extent required by the BAYLOR AGREEMENT, personal jurisdiction and
venue shall be proper in the state and federal courts situated in
Harris County, Texas, and, to the extent required by the BAYLOR
AGREEMENT, agree that any litigated dispute relating to the SURFACE
CHEMISTRIES IP or SURFACE CHEMISTRIES PRODUCTS will be conducted solely
in such courts.
(b) To the extent required by the MIT AGREEMENT, this
Agreement, as it relates to rights and licenses granted under the
E-FIELD MANIPULATION IP and the OPTICAL DETECTION IP, shall be
construed, governed, interpreted and applied in accordance with the
laws of the Commonwealth of Massachusetts, U.S.A., except that
questions affecting the construction and effect of any patent shall be
determined by the law of the country in which the patent was granted.
(c) In all cases not covered by Sections 11.8(a) and 11.8(b)
above, the performance of this Agreement as it relates to rights and
licenses granted to MOTOROLA shall be subject to, made under, and shall
be construed and interpreted in accordance with the laws of the State
of Delaware.
11.9 DISPUTE RESOLUTION.
(a) Disputes relating to the E-FIELD MANIPULATION IP and
E-FIELD PRODUCTS and OPTICAL DETECTION IP and OPTICAL DETECTION
PRODUCTS shall be governed by the provisions of this Section 11.9(a).
Except for the right of either party to apply to a court of competent
jurisdiction for a temporary restraining order, a preliminary
injunction, or other equitable relief to preserve the status quo or
prevent irreparable harm, any and all claims, disputes or controversies
arising under, out of, or in connection with this Agreement, including
any dispute relating to patent validity or infringement, which the
parties shall be unable to resolve within sixty (60) days shall be
mediated in good faith. The party raising such dispute shall promptly
advise the other party of such claim, dispute or controversy in a
writing which describes in reasonable detail the nature of such
dispute. If the parties are unable to resolve such dispute within such
sixty (60) day period, either party may demand mediation by written
notice to the other party. By not later than ten (10) business days
after the recipient has received such
26
<PAGE> 27
demand for mediation, each party shall have selected for itself a
representative who shall have the authority to bind such party, and
shall additionally have advised the other party in writing of the name
and title of such representative. By not later than twenty (20)
business days after the date of such demand for mediation, the party
against whom the dispute shall be raised shall select a mediation firm
in the Boston area which is acceptable to the other party (which
acceptance shall not be unreasonably withheld) and such representatives
shall schedule a date with such firm for a mediation hearing. Within
thirty (30) days after the selection of the mediation firm, the parties
shall enter into good faith mediation and shall share the costs
equally. If the representatives of the parties have not been able to
resolve the dispute within fifteen (15) business days after such
mediation hearing, the parties shall have the right to pursue any other
remedies legally available to resolve such dispute in either the courts
of The Commonwealth of Massachusetts or in the United States District
Court for the District of Massachusetts, to whose jurisdiction for such
purposes GENOMETRIX and MOTOROLA each hereby irrevocably consents and
submits. Notwithstanding the foregoing, nothing in this Section 11.9(a)
shall be construed to waive any rights or timely performance of any
obligations existing under this Agreement.
(b) Disputes arising out of this Agreement and not covered by
Section 11.9(a) above shall be governed by this Section 11.9(b). The
parties agree to attempt to settle all such disputes amicably between
them. The parties agree that any such dispute (other than relating to
the scope or validity of a patent and other than a dispute that is
covered by Section 11.9(a) above, will be submitted to non-binding
arbitration in a mutually agreeable location in accordance with the
commercial rules and procedures of the American Arbitration
Association, before a single arbitrator who will be reasonably familiar
with the relevant industry. Each party shall pay its own costs in
connection with such arbitration and one half of the fees of the
arbitrator While the parties agree to attempt arbitration in good
faith, nothing in this Section 11.9(b) shall be construed as limiting
the rights of either party to take legal action as it deems necessary
to enforce its rights under this Agreement.
11.10 If any term, clause, or provision of this Agreement shall be
judged to be invalid, the validity of any other term, clause, or provision shall
not be affected, and such invalid term, clause, or provision shall be deemed
deleted from this Agreement.
11.11 This Agreement, including the EXHIBITS attached hereto and
incorporated herein by reference, sets forth the entire agreement and
understanding between MOTOROLA and GENOMETRIX as to the subject matter hereof,
and supersedes and merges any and all prior discussions, correspondence,
agreements or understandings between the parties with respect to such matters,
including without limitation (i) the Non-Disclosure Agreement by and between the
parties and dated June 2, 1998; (ii) the Memorandum of Understanding dated
November 4, 1998, and (iii) the Memorandum of Understanding dated June 24, 1999.
In addition, with respect to the E-FIELD MANIPULATION IP and the SURFACE
CHEMISTRIES IP, except where expressly set forth herein, the rights and licenses
granted to MOTOROLA pursuant to the LICENSE AND OPTION AGREEMENT with respect to
the E-FIELD MANIPULATION IP and E-FIELD
27
<PAGE> 28
PRODUCTS, and with respect to the SURFACE CHEMISTRIES IP and SURFACE CHEMISTRIES
PRODUCTS are terminated. This Agreement expressly supersedes the LICENSE AND
OPTION AGREEMENT with respect to the E-FIELD MANIPULATION IP and E-FIELD
PRODUCTS and the SURFACE CHEMISTRIES IP and SURFACE CHEMISTRIES products, and in
the event of any inconsistency between this Agreement and the LICENSE AND OPTION
AGREEMENT with respect to such IP and PRODUCTS, the provisions of this Agreement
shall prevail. Neither party shall be bound by any conditions, definitions,
warranties, understandings or representations with respect to such subject
matter other than as expressly provided herein (including the EXHIBITS attached
hereto and incorporated herein by reference) or as duly set forth on or
subsequent to the date hereof in writing and signed by a proper and duly
authorized official of the party to be bound thereby.
11.12 All notices required or permitted to be given hereunder shall be
in writing and shall be valid and sufficient if dispatched by registered mail,
postage prepaid, in any post office in the United States, or by recognized
courier service providing evidence of receipt, addressed as follows:
If to MOTOROLA to: MOTOROLA, Inc.
1303 East Algonquin Road
Schaumberg, Illinois 60062
Attention: Vice President for
Patents, Trademarks & Licensing
With a copy to: MOTOROLA, Inc.
4088 Commercial Avenue
Northbrook, IL 60062
Attention: Director of Contracts
If to GENOMETRIX to: Genometrix Incorporated
3608 Research Forest Drive, Suite B7
The Woodlands, Texas 77381
Attention: Mitchell D. Eggers, Ph.D.
Chief Executive Officer
With a copy to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Attention: Michael R. B. Balfe, Esq.
11.13 The date of receipt of such a notice shall be the date for the
commencement of the running of the period provided for in such notice, or the
date at which such notice takes effect, as the case may be.
11.14 For the term of this Agreement, and for one (1) year after the
expiration or termination of this Agreement, MOTOROLA agrees not to solicit any
employees of
28
<PAGE> 29
GENOMETRIX without the prior written consent of GENOMETRIX, except through
advertisements and solicitations directed to the market generally. For the term
of this agreement, and for one (1) year after the expiration or termination of
this Agreement, GENOMETRIX agrees not to solicit any employees of MOTOROLA
BioChip Systems without the prior written consent of MOTOROLA, except through
advertisements and solicitations directed to the market generally.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
29
<PAGE> 30
In witness whereof, each party hereto has caused this Agreement to be
executed by its duly authorized representatives:
MOTOROLA, INC. GENOMETRIX INCORPORATED
By:/s/ Nicholas Naclerio By:/s/ Mitchell D. Eggers
Nicholas Naclerio Mitchell D. Eggers, Ph.D.
Vice President and General Manager Chief Executive Officer
By:/s/ F. John Motsinger
F. John Motsinger
Title: Corporate Vice President,
Assistant General Counsel,
and Director of Patents,
Trademarks and Licensing
30
<PAGE> 31
EXHIBIT A
GENOMETRIX PATENTS
1. E-FIELD MANIPULATION IP.
------------------------
U.S. 5,891,630
Issued 4/6/99
EPC 0543550
Issued 1/27/99
U.S. 5,846,708
Issued 12/18/98
U.S. 5,653,939
Issued 8/5/97
U.S. 5,670,322
Issued 9/23/97
U.S. 5,532,128
Issued 7/2/98
USSN 08/511,649
Filed 8/7/95
USSN 07/872,582
Filed 4/23/92
USSN 07/794,036
Filed 11/19/91
USSN 08/353,957
Filed 12/12/94
USSN 08/457,096
Filed 6/1/95
USSN 08/633,861
Filed 4/15/96
WO 93/22678
Filed 11/11/93
A-1
<PAGE> 32
PCT/US93/03829
Filed 4/23/92
EPC 92310253.7
Filed 11/10/92
2. SURFACE CHEMISTRIES IP.
-----------------------
USSN 08/749,967
Filed 11/14/97
USSN 60/006,697
Filed 11/14/95
PCT/US96/18,212
Filed 11/14/96
European 96938841.2
Filed 11/14/96
Canada 2235762
11/14/96
Japanese 09-519045
Filed 11/14/96
A-2
<PAGE> 33
EXHIBIT B
MIT AGREEMENT
B-1
<PAGE> 34
EXHIBIT C
BAYLOR AGREEMENT
C-1
<PAGE> 35
EXHIBIT D
REPRESENTATIVE CLAIMS OF THE GENOMETRIX PATENTS
EXISTING AS OF THE EFFECTIVE DATE
1. REPRESENTATIVE CLAIMS OF THE GENOMETRIX PATENTS MEETING THE CRITERIA
FOR E-FIELD MANIPULATION IP.
(a) Claims 1-10, 17-19, 14-15, 16 and 39 of United States Patent
Number 5,653,939;
(b) Claims 1-5, 10-12, 15-16, 19-33, and 42-43 of United States
Patent Number 5,846,708;
(c) All claims of United States Patent Number 5,670,322;
(d) All claims of United States Patent Number, 5,532,128;
(e) Claim 70 of GENOMETRIX's United States patent application USSN
09/002,170;
(f) All claims of United States Patent Number 5,891,630; and
(g) All claims of European Patent Number 0543550.
2. REPRESENTATIVE CLAIMS OF THE GENOMETRIX PATENTS MEETING THE CRITERIA
FOR SURFACE CHEMISTRIES IP.
Claims 1-21 of the GENOMETRIX PATENT licensed to GENOMETRIX from BAYLOR
and having United States Patent Application Serial No. 08/749,967 and
entitled "Integrated Nucleic Acid Hybridization Devices Based Upon
Active Surface Chemistry."
D-1
<PAGE> 36
CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE SUCH
OMISSIONS.
EXHIBIT E
***************** RESEARCH PLAN
MOTOROLA SPONSORED RESEARCH PLAN
OBJECTIVE: ESTABLISHMENT OF FEASIBILITY OF ADAPTATION OF HYBRIDIZATION
ENHANCEMENT CHEMISTRIES TO THE MOTOROLA BIOCHIP GEL PAD PLATFORM.
BACKGROUND
Genometrix has developed proprietary ********************* which enhance the
************* process by ************* the ******************** of target -
****************************** by ******* than a factor of *** relative to
non-modified **********************. Such modifications may be ********* by
********************, in a range which is *************** to the ************
*****************************. In addition, such modifications may be made in a
************, allowing the *********** process to occur only at the *****
******* in a *****************. Further, such ******* modifications allow the
********* of ***************** in the ********* in the area of the *****
*********** to screen the ******************************************************
which is necessary for specific **************** by ****************. This
latter observation allows ************* to ***** in a ******************** of
essentially ***************************** any ******* or *******************
*********** which may compromise binding of *************************** in
traditional ************* buffers containing supporting ***********************.
RESEARCH OUTLINE
- - APPLICATION OF *************************** TO *** MATRICES
Investigation of the feasibility of ********** of ******* components into
the **************** will follow essentially two strategies. In the first,
the *************** may be implemented as part of the *************** upon
which the ******* containing ***** molecules is *********. Such a *******
may in fact be designed to have some ********************** which allow
*********** of the active ********** into the **********. It is predicted
that the efficacy of such modifications will be dependent upon the relative
******** between the ************************* and potential ************
********, as well as the *********** component of ******************* the
**********.
A second strategy will be to implement **************** into the ***
itself. A variety of ****************** components have been tested at
Genometrix and have been shown to have beneficial, ***********************
properties. ***************** of ********* of this type
E-1
<PAGE> 37
CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE SUCH
OMISSIONS.
may have an added advantage in normalizing the *********************** of
************ within the ***. Along the same lines, active ********** may be
introduced into the ******************* itself by derivitization of
**************************.
- - EVALUATION OF *********** AND ********************* OF CANDIDATE SURFACES
*********** model systems have been developed at Genometrix to evaluate
******* components of the ************* process. Such systems also
incorporate the ability to evaluate both **************** as well as
*********** by the incorporation of ******************* of every type at
************* on the ***************. *********************** libraries
exist as both small *****************, *************, ********************
***********.
It is proposed that all **************************** be evaluated
*********** using such a model system. Potential *********** strategies of
******************** will be compared to existing modified and unmodified
*************** developed at Genometrix.
- - FEASIBILITY OF USING ******************* TO REPLACE **************
If it is determined that the *********** component of **************
******** limits the functionality ********************, other *******
******** may be evaluated which may be less restrictive. A variety of
****************** exist for which it is possible to both ***********
*********** as well as ********************** with ***********************
*********. Such supports may be systematically evaluated as outlined above
using model systems allowing ******************** as well as determinations
of **************** and *********** in the context of ***********
*************.
The level of effort consists of ***************** working for a period of 6
months under the direction of ************************. Interaction among the
investigators at Motorola and Genometrix and the reporting activities will be
governed by the LICENSE AND RESEARCH AGREEMENT.
E-2
<PAGE> 38
CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE SUCH
OMISSIONS.
CONFIDENTIAL
EXHIBIT F
THIRD PARTIES WITH WHOM
GENOMETRIX HAS PREVIOUSLY NEGOTIATED
************ ******* of SUBLICENSE INCOME for the field of
E-FIELD MANIPULATION IP, (specifically for claims 16
and 39 of United States Patent Number 5,653, 939).
SUBLICENSE INCOME shall not exceed the following
aggregate consideration: ************************ for
the term of the sublicense (not to exceed the life of
the applicable patent claims); and
*********************; provided, that, the foregoing
consideration is documented in a bonafide offer
*********** GENOMETRIX and reviewed by a mutually
agreed upon THIRD PARTY.
The cash value or fair market value of sublicensing
terms agreed upon may be ********************* those
discussed previously between *******************
GENOMETRIX, due to differences in the degree of
******************** or other market factors. The
foregoing notwithstanding, the parties recognize and
agree that in the event MOTOROLA negotiates an
agreement ******************* with terms
substantially the same as the terms previously
negotiated between GENOMETRIX ***************,
GENOMETRIX shall realize ********************** the
maximum aggregate consideration, as set forth above.
************* ******* SUBLICENSE INCOME
E-FIELD MANIPULATION IP and
SURFACE CHEMISTRIES IP
************* ******* SUBLICENSE INCOME
E-FIELD MANIPULATION IP
************* ******* SUBLICENSE INCOME
E-FIELD MANIPULATION IP and
SURFACE CHEMISTRIES IP
F-1
<PAGE> 39
EXHIBIT G
LICENSE AND OPTION AGREEMENT
G-1
<PAGE> 1
EXHIBIT 10.10
FIRST AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This First Amended and Restated Registration Rights Agreement (the
"Agreement") is entered into as of July 6, 1999 by and between Genometrix
Incorporated, a Delaware corporation (the "Company"), and Motorola, Inc. (the
"Purchaser").
WHEREAS, the Company issued and sold 706,714 shares of Series D Convertible
Preferred Stock, par value $.001 per share (the "Series D Preferred"), to the
Purchaser pursuant to the Stock Purchase Agreement between the Company and the
Purchaser dated as of December 28, 1998 (the "Series D Purchase Agreement"); and
WHEREAS, in connection with the transactions contemplated by the Series D
Purchase Agreement, the Company and the Purchaser entered into a Registration
Rights Agreement dated as of December 28, 1998 (the "Prior Agreement"); and
WHEREAS, the Company is issuing up to 2,666,667 shares of Series E
Convertible Preferred Stock, par value $.001 per share (the "Series E
Preferred"), to the Purchaser at a price of $3.00 per share pursuant to a Series
E Stock Purchase Agreement between the Company and the Purchaser dated as of the
date hereof; and
WHEREAS, one of the conditions to the consummation of the transactions
contemplated by the Series E Purchase Agreement is the execution and delivery of
this Agreement, which amends and restates in its entirety the Prior Agreement,
to provide for registration rights for the shares of Series E Preferred
purchased by the Purchaser as set forth herein; and
WHEREAS, in accordance with Section 12(d) of the Prior Agreement, by
executing and delivering this Agreement, the Company and the Purchaser (as the
holder of all of the Registrable Shares, as defined in the Prior Agreement) have
approved the amendment and restatement of the Prior Agreement as set forth
herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and the purchase of the Series E Preferred by the Purchaser
under the Series E Purchase Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"AFFILIATE" shall mean, with respect to any entity, any partner of such
entity if it is a partnership or any person or entity that directly or
indirectly controls or is controlled by or is under common control with, such
entity.
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"COMMISSION" shall mean the Securities and Exchange Commission and any
successor agency of the Federal government administering the Securities Act.
"COMMON STOCK" shall mean (i) the common stock, par value $.0001 per share,
of the Company, (ii) any other capital stock of the Company, however designated,
authorized on or after the date hereof, which shall neither be limited to a
fixed sum or percentage of par value in respect of the rights of the holders
thereof to participate in dividends nor entitled to a preference in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company and (iii) any other securities into
which or for which any of the securities described in (i) or (ii) may be
converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, consolidation, sale of assets or other similar transaction.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
and any similar or successor Federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to time.
"INITIAL PUBLIC OFFERING" shall mean the first underwritten public offering
of securities for the account of the Company pursuant to an offering registered
under the Securities Act with the commission on Form S-1, Form S-18 or their
then equivalents.
"PREFERRED SHARES" shall mean the shares of the Series D Preferred and the
Series E Preferred.
"REGISTER," "REGISTERED" and "REGISTRATION" shall refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act and applicable rules and regulations thereunder, and the
declaration or ordering of the effectiveness of such registration statement, or,
as the context may require, under the Exchange Act or applicable state
securities laws.
"REGISTRABLE SECURITIES" shall mean (i) shares of Common Stock or other
securities issued or issuable pursuant to the conversion of the Preferred
Shares, (ii) any shares of Common Stock or other securities issued or issuable
in respect of such shares of Common Stock or such other securities issued or
issuable pursuant to the conversion of the Preferred Shares upon any stock
split, stock dividend, recapitalization, reorganization, merger, consolidation,
sale of assets or similar event and (iii) any shares of Common Stock purchased
by the Purchaser (or issuable to the Purchaser) pursuant to its rights under the
Series D Purchase Agreement, the Series E Purchase Agreement, or the Voting and
Right of First Refusal Agreement among the Company, the Investor and the Founder
(each as defined therein) dated as of December 28, 1998, excluding in any event
securities which have been (a) registered under the Securities Act pursuant to
an effective registration statement filed thereunder and disposed of in
accordance with the registration statement covering them or (b) which are
available for sale or can be publicly sold (whether or not so sold) pursuant to
Rule 144A or Rule 144 under the Securities Act. Wherever reference is made in
this Agreement to a request or consent of holders of a certain percentage of
Registrable Securities, the determination of such percentage shall be calculated
on the basis of shares of Common Stock issued or issuable upon conversion of the
Preferred Shares even if such conversion has not been effected.
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"REGISTRATION EXPENSES" shall mean the expenses so described in Section 8.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and any
similar or successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"SELLING EXPENSES" shall mean the expenses so described in Section 8.
2. RESTRICTIVE LEGEND. Each certificate representing Registrable
Securities shall be stamped or otherwise imprinted with a legend substantially
in the following form (in addition to any legend required under applicable state
securities laws):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
DELIVERED AFTER SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF (1) AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SECURITIES UNDER
THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2)
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT AN
EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE."
3. REQUIRED REGISTRATION.
(a) At any time after six (6) months after the effective date of the
registration statement covering the Initial Public Offering, the holders of
Registrable Securities constituting at least fifty percent (50%) of the total
shares of Registrable Securities then outstanding may request the Company to
register for sale under the Securities Act all or any portion of the shares of
Registrable Securities held by such requesting holder or holders for sale in the
manner specified in such notice provided, however, that the expected aggregate
proceeds of any offering and registration of Registrable Securities made
pursuant to this Section 3 shall be at least $5,000,000. Notwithstanding any
other provision of this Section 3, the Company shall not be obligated to
register any Preferred Shares for sale pursuant to any such registration,
provided, however, that in any underwritten public offering contemplated by this
Agreement, the holders of Preferred Shares shall be entitled to sell such
Preferred Shares to the underwriters for conversion and sale of the shares of
Common Stock issued upon conversion thereof. Notwithstanding anything to the
contrary contained herein, the Company shall not be required to effect a
registration pursuant to this Subsection 3 during the period commencing sixty
(60) days prior to the estimated filing date of, and ending on the date which is
one hundred and eighty (180) days after the effective date of a registration
statement filed by the Company covering an underwritten public offering of the
Common Stock under the Securities Act, provided the Company is actively
employing in good faith reasonable efforts to cause such registration statement
to become effective and such estimate of the filing date is made in good faith.
If the Company shall furnish to the holders a certificate signed by its
President stating that in the good faith judgment of its Board of Directors it
would be
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seriously detrimental to the Company or is stockholders for a registration
statement to be filed at such time, then the Company's efforts to cause a
registration statement to be filed shall be deferred for a period not to exceed
one hundred and twenty (120) days. The Company shall not be required to effect
more than one registration during any twelve (12) month period pursuant to this
Section 3.
(b) Following receipt of any notice under this Section 3, the Company
shall immediately notify all holders of Registrable Securities from whom notice
has not been received and such holders shall then be entitled within thirty (30)
days after receipt of such notice from the Company to request the Company to
include in the requested registration all or any portion of their shares of
Registrable Securities. The Company shall use its best efforts to register under
the Securities Act, for public sale in accordance with the method of disposition
specified in the notice from requesting holders described in paragraph (a)
above, the number of shares of Registrable Securities specified in such notice
(and in all notices received by the Company from other holders within thirty
(30) days after the receipt of such notice by such holders). The Company shall
be obligated to register the Registrable Securities pursuant to this Section 3
on two (2) occasions only, provided, however, that such obligation shall be
deemed satisfied only when a registration statement covering all shares of
Registrable Securities specified in notices received as aforesaid, for sale in
accordance with the method of disposition specified by the requesting holders,
shall have become effective and, if such method of disposition is a firm
commitment underwritten public offering, all such shares shall have been sold
pursuant thereto. The Company shall not be obligated to register, pursuant to
this Section 3, the Registrable Securities of any holder who fails to provide
promptly to the Company such information as the Company may reasonably request
at any time to enable the Company to comply with any applicable law or
regulation or to facilitate preparation of the registration statement.
(c) If the holders requesting such registration intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 3 and the Company shall include such information in the written
notice referred to in paragraph (b) above. The right of any holder to
registration pursuant to this Section 3 shall be conditioned upon such holder's
agreeing to participate in such underwriting and to permit inclusion of such
holder's Registrable Securities in the underwriting. If such method of
disposition is an underwritten public offering, the holders of at least a
majority in interest of the shares of Registrable Securities to be sold in such
offering may designate the managing underwriter of such offering, subject to the
approval of the Company, which approval shall not be unreasonably withheld or
delayed. A holder may elect to include in such underwriting all or a part of the
Registrable Securities it holds.
(d) A registration statement filed pursuant to this Section 3 may, subject
to the following provisions, include (i) shares of Common Stock for sale by the
Company for its own account, (ii) shares of Common Stock held by officers or
directors of the Company and (iii) shares of Common Stock held by persons who by
virtue of agreements with the Company are entitled to include such shares in
such registration (the "Other Shareholders"), in each case for sale in
accordance with the method of disposition specified by the requesting holders.
If such registration shall be underwritten, the Company, such officers and
directors and Other Shareholders proposing to distribute their shares through
such underwriting shall enter into an underwriting agreement in customary form
with the representative of the underwriter or underwriters selected for such
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underwriting. If and to the extent that the managing underwriter determines in
good faith that marketing factors require a limitation on the number of shares
to be included in such registration, then the shares of Common Stock held by
officers or directors (other than Registrable Securities) of the Company or by
Other Shareholders (other than Registrable Securities) and shares of Common
Stock to be sold by the Company for its own account shall be excluded from such
registration to the extent so required in good faith by such managing
underwriter, and unless the holders of such shares and the Company have
otherwise agreed in writing, such exclusion shall be applied first to the shares
held by the directors and officers, and if a limitation of the number of shares
is still required in good faith by such managing underwriter, then to the shares
of Common Stock of the Company to be included for its own account to the extent
required in good faith by the managing underwriter, then to the shares of Common
Stock of the Other Shareholders to the extent required in good faith by the
managing underwriter. If the managing underwriter determines in good faith that
marketing factors require a limitation of the number of Registrable Securities
to be registered under this Section 3, then Registrable Securities shall be
excluded in such manner that the securities to be sold shall be allocated among
the selling holders pro rata based on their ownership of Registrable Securities.
In any event all securities to be sold other than Registrable Securities will be
excluded prior to any exclusion of Registrable Securities. No Registrable
Securities or any other security excluded from the underwriting by reason of the
underwriter's marketing limitation (as set forth above) shall be included in
such registration. If any holder of Registrable Securities, officer, director or
Other Shareholder who has requested inclusion in such registration as provided
above, disapproves of the terms of the underwriting, such holder of securities
may elect to withdraw therefrom by written notice to the Company and the
managing underwriter. The securities so withdrawn shall also be withdrawn from
registration.
4. INCIDENTAL REGISTRATION. If the Company at any time (other than
pursuant to the Initial Public Offering or pursuant to Section 3 or Section 5)
proposes to register any of its securities under the Securities Act for sale to
the public, whether for its own account or for the account of other security
holders or both (except with respect to registration statements on Forms S-4,
S-8 or any successor to such forms or another form not available for registering
the Registrable Securities for sale to the public), each such time it will
promptly give written notice to all holders of the Registrable Securities of its
intention so to do. Upon the written request of any such holder, received by the
Company within thirty (30) days after the giving of any such notice by the
Company, to register any or all of its Registrable Securities, the Company will
use its best efforts to cause the Registrable Securities as to which
registration shall have been so requested to be included in the securities to be
covered by the registration statement proposed to be filed by the Company, all
to the extent requisite to permit the sale or other disposition by the holder
(in accordance with its written request) of such Registrable Securities so
registered. Notwithstanding any other provision of this Section 4, the Company
shall not be obligated to register any Preferred Shares for sale pursuant to any
such registration, provided, however, that in any underwritten public offering
contemplated by this Agreement, the holders of Preferred Shares shall be
entitled to sell such Preferred Shares to the underwriters for conversion and
sale of the shares of Common Stock issued upon conversion thereof. If the
registration of which the Company gives notice is for a registered public
offering involving an underwriting, the Company shall so advise the holders of
Registrable Securities as a part of the written notice given pursuant to this
Section 4. In such event the right of any holder of Registrable Securities to
registration pursuant to this Section 4 shall be conditioned upon such holder's
participation in such underwriting to the extent provided herein. All holders of
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Registrable Securities proposing to distribute their securities through such
underwriting shall (together with the Company and the Other Shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for underwriting by the Company. Notwithstanding any other provision of
this Section 4, if the underwriter determines in good faith that marketing
factors require a limitation on the number of shares to be underwritten, the
underwriter may (subject to the allocation priority set forth below) exclude
from such registration and underwriting all of the Registrable Securities which
would otherwise be underwritten pursuant hereto. The Company shall so advise all
holders of securities requesting registration of any limitations on the number
of shares to be underwritten, and the number of shares of securities that are
entitled to be included in the registration and underwriting shall be allocated
in the following manner. First, the securities (other than Registrable
Securities) of the Company held by officers and directors of the Company shall
be excluded from such registration and underwriting to the extent required by
such limitation, and, if a limitation on the number of shares is still required,
the number of shares that may be included in the registration and underwriting
shall be allocated among holders of Registrable Securities and Other
Shareholders in proportion, as nearly as practicable, to the respective amounts
of shares of the capital stock of the Company owned by them. Notwithstanding the
foregoing provisions, the Company may withdraw any registration statement
referred to in this Section 4 without thereby incurring any liability to the
holders of Registrable Securities. If any holder of Registrable Securities
disapproves of the terms of any such underwriting, it may elect to withdraw
therefrom by written notice to the Company and the underwriter. Any Registrable
Securities or other securities excluded or withdrawn from such underwriting
shall be withdrawn from such registration.
5. REGISTRATION ON FORM S-3.
(a) If at any time (i) the holders of the Registrable Securities
constituting at least thirty percent (30%) of the total shares of Registrable
Securities then outstanding may request that the Company file a registration
statement on Form S-3 or any comparable or successor form thereto for a public
offering of all or any portion of the shares of Registrable Securities held by
such requesting holder or holders, the reasonably anticipated aggregate price to
the public of which would exceed $1,000,000 and (ii) the Company is a registrant
entitled to use Form S-3 or any comparable or successor form thereto to register
such shares, then the Company shall use its best efforts to register under the
Securities Act on Form S-3 or any comparable or successor form thereto, for
public sale in accordance with the method of disposition specified in such
notice, the number of shares of Registrable Securities specified in such notice.
Whenever the Company is required by this Section 5 to use its best efforts to
effect the registration of Registrable Securities, each of the procedures and
requirements of Section 3, including, but not limited to, the requirement that
the Company notify all holders of Registrable Securities from whom notice has
not been received and provide them with the opportunity to participate in the
offering (provided, however that holders shall have no more than fifteen (15)
days to reply to the Company's notice in order to participate in the offering),
shall apply to such registration, provided, however, that there shall be no
limitation on the number of registrations on Form S-3 which may be requested and
obtained under this Section 5. Notwithstanding any other provision of this
Section 5, the Company shall not be obligated to register any Preferred Shares
for sale pursuant to any such registration.
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(b) The Company shall use its best efforts to qualify for registration on
Form S-3 or any comparable or successor form or forms and to that end the
Company shall register (whether or not required by law to do so) the Common
Stock under the Exchange Act in accordance with the provisions of that Act
following the effective date of the first registration of any securities of the
Company on Form S-1 or any comparable or successor form.
6. EXPIRATION OF OBLIGATIONS. The obligations of the Company to register
Registrable Securities pursuant to Sections 3, 4 and 5 of this Agreement shall
expire on the first to occur of the fourth (4th) anniversary of the Initial
Public Offering or the date when all the Registrable Securities are eligible to
be publicly sold pursuant to Rule 144 under the Securities Act.
7. PROVISION OF INFORMATION. In connection with each registration
hereunder, the sellers of Registrable Securities will timely furnish to the
Company in writing such information requested by the Company with respect to
themselves and the proposed distribution by them as shall be necessary in order
to assure compliance with Federal and applicable state securities laws; and such
sellers shall provide the Company with appropriate representations with respect
to the accuracy of such information.
8. EXPENSES.
(a) All expenses incurred by the Company in complying with Sections 3, 4
and 5, including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel and independent public accountants
for the Company, fees and expenses (including counsel fees) incurred in
connection with complying with state securities or "blue sky" laws, fees of the
National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, costs of any insurance which might be obtained
by the Company with respect to the offering by the Company, and fees and
disbursements of one counsel selected by a majority in interest of the sellers
of Registrable Securities, but excluding any Selling Expenses, are called
"Registration Expenses". All underwriting discounts and selling commissions
applicable to the sale of Registrable Securities are called "Selling Expenses".
(b) The Company will pay all Registration Expenses in connection with each
registration statement under Section 3, 4 or 5. All Selling Expenses in
connection with each registration statement under Section 3, 4 or 5 shall be
borne by the participating sellers in proportion to the number of shares
registered by each, or by such participating sellers other than the Company (to
the extent the Company shall be a seller) as they may agree.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of a registration of any of the Registrable Securities
under the Securities Act pursuant to Section 3, 4 or 5, the Company will, to the
extent permitted by law, indemnify and hold harmless each holder of Registrable
Securities, its officers, directors and partners, each underwriter of such
Registrable Securities thereunder and each other person, if any, who controls
such holder or underwriter within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which such holder,
officer, director, partner, underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
(i)
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any untrue statement or alleged untrue statement of any material fact contained
in any prospectus, offering circular or other document incident to such
registration (including any related notification, registration statement under
which such Registrable Securities were registered under the Securities Act
pursuant to Section 3, 4 or 5, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof), (ii) any blue sky
application or other document executed by the Company specifically for that
purpose or based upon written information furnished by the Company filed in any
state or other jurisdiction in order to qualify any or all of the Registrable
Securities under the securities laws thereof (any such application, document or
information herein called a "Blue Sky Application"), (iii) any omission or
alleged omission to state in any such registration statement, prospectus,
amendment or supplement or in any Blue Sky Applications executed or filed by the
Company, a material fact required to be stated therein or necessary to make the
statements therein not misleading, (iv) any violation by the Company or its
agents of the Securities Act or any rule or regulation promulgated under the
Securities Act applicable to the Company or its agents and relating to action or
inaction required of the Company in connection with such registration, or (v)
any failure to register or qualify the Registrable Securities in any state where
the Company or its agents has affirmatively undertaken or agreed in writing that
the Company (the undertaking of any underwriter chosen by the Company being
attributed to the Company) will undertake such registration or qualification
(provided that in such instance the Company shall not be so liable if it has
used its best efforts to so register or qualify the Registrable Securities) and
will reimburse each such holder, and such officer, director and partner, each
such underwriter and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, promptly after
being so incurred, provided, however, that the Company will not be liable in any
such case (i) if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with written
information furnished by any such holder, any such underwriter or any such
controlling person in writing specifically for use in such registration
statement or prospectus, or (ii) in the case of a sale directly by such holder
of Registrable Securities (including a sale of such Registrable Securities
through any underwriter retained by such holder of Registrable Securities to
engage in a distribution solely on behalf of such holder of Registrable
Securities), such untrue statement or alleged untrue statement or omission or
alleged omission was contained in a preliminary prospectus and corrected in a
final or amended prospectus, and such holder of Registrable Securities failed to
deliver a copy of the final or amended prospectus at or prior to the
confirmation of the sale of Registrable Securities to the person asserting any
such loss, claim, damage or liability in any case where such delivery is
required by the Securities Act or any state securities laws.
(b) In the event of a registration of any of the Registrable Securities
under the Securities Act pursuant to Section 3, 4 or 5, each seller of such
Registrable Securities thereunder, severally and not jointly, will indemnify and
hold harmless the Company, each person, if any, who controls the Company within
the meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each other seller of
Registrable Securities, each underwriter and each person who controls any
underwriter within the meaning of the Securities Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer, director, other seller, underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities
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(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
prospectus offering circular or other document incident to such registration
(including any related notification, registration statement under which such
Registrable Securities were registered under the Securities Act pursuant to
Section 3, 4 or 5, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof), or any Blue Sky Application or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, other seller, underwriter and controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
promptly after being so incurred, provided, however, that such seller will be
liable hereunder in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such seller, as such, furnished
in writing to the Company by such seller specifically for use in such
registration statement or prospectus; and provided, further, that the liability
of each seller hereunder shall be limited to the proportion of any such loss,
claim, damage, liability or expense which is equal to the proportion that the
public offering price of all securities sold by such seller under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not in any event to exceed the proceeds received
by such seller from the sale of Registrable Securities covered by such
registration statement. Not in limitation of the foregoing, it is understood and
agreed that the indemnification obligations of any seller hereunder pursuant to
any underwriting agreement entered into in connection herewith shall be limited
to the obligations contained in this subparagraph (b).
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 9 and shall only relieve it
from any liability which it may have to such indemnified party under this
Section 9 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or
that the interests of the indemnified party reasonably may be deemed to conflict
with the interests of the indemnifying party, the indemnified party shall have
the right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate
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counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred. No indemnifying party, in the defense of any
such claim or action, shall, except with the consent of each indemnified party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or action. Each indemnified party shall furnish such information regarding
itself or the claim in question as an indemnifying party may reasonably request
in writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Registrable Securities exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 9 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 9 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 9, then, and in each such case, the Company and such
holder will contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such proportion
so that such holder is responsible for the portion represented by the percentage
that the public offering price of its Registrable Securities offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, and the Company is responsible for the
remaining portion; provided, however, that, in any such case, (A) no such holder
of Registrable Securities will be required to contribute any amount in excess of
the proceeds received from the sale of all such Registrable Securities offered
by it pursuant to such registration statement; and (B) no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) will be entitled to contribution from any person or entity
who was not guilty of such fraudulent misrepresentation.
(e) The indemnities and obligations provided in this Section 9 shall
survive the transfer of any Registrable Securities by such holder.
10. CHANGES IN COMMON STOCK OR PREFERRED SHARES. If, and as often as,
there is any change in the Common Stock and/or Preferred Shares by way of a
stock split, stock dividend, combination or reclassification, or through a
merger, consolidation, reorganization or recapitalization, or by any other
means, appropriate adjustment shall be made in the provisions hereof so that the
rights and privileges granted hereby shall continue with respect to the Common
Stock and/or Preferred Shares as so changed.
11. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, except as
provided in paragraph (c) below, at all times after ninety (90) days after any
registration statement covering a public offering of securities of the Company
under the Securities Act shall have become effective, the Company agrees to:
10
<PAGE> 11
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act (or any successor
rule);
(b) Use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Exchange Act; and
(c) Furnish to each holder of Registrable Securities forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 (or any successor rule) and, at any time
after it has become subject to such reporting requirements, of the Securities
Act and the Exchange Act, a copy of the most recent annual or quarterly report
of the Company, and such other reports and documents so filed by the Company as
such holder may reasonably request in availing itself of any rule or regulation
of the Commission allowing such holder to sell any Registrable Securities
without registration.
12. MISCELLANEOUS.
(a) The rights granted to the Purchaser under this Agreement with respect
to Registrable Securities may be transferred to a permitted transferee of the
Purchaser which either (i) is an Affiliate of the Purchaser, or (ii) acquires at
least 40,000 shares of Registrable Securities, provided that (1) such transferee
agrees to be bound by the provisions of this Agreement and (2) at the time of
transfer the Company is given written notice of the name and address of the
transferee and the number and type of Registrable Securities being transferred.
(b) All notices, requests, consents and other communications hereunder
shall be in writing, shall be addressed to the receiving party's address set
forth below or to such other address as a party may designate by notice
hereunder, and shall be either (i) delivered by hand, (ii) made by telex,
telecopy or facsimile transmission, (iii) sent by overnight courier, or (iv)
sent by registered or certified mail, return receipt requested, postage prepaid.
If to the Company to: Genometrix Incorporated
3608 Research Forest Drive, Suite B7
The Woodlands, TX 77381
Attn: Chief Executive Officer
Fax No.: 281/367-1325
If to the Purchaser to: Motorola, Inc.
4088 Commercial Drive
Northbrook, IL 60062
Attn: Director of Operations
Fax No.: 847/714-7008
With a Copy to: Motorola, Inc.
1303 East Algonquin Road, 11th Floor
Schaumburg, IL 60196
Attn: Legal Department
Fax No.: 847/576-2818
11
<PAGE> 12
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service, or (iv) if sent by registered
or certified mail, on the fifth business day following the day such mailing is
made.
(c) This Agreement and the rights and obligations of the parties hereunder
shall be construed in accordance with and governed by the law of the State of
Delaware, without giving effect to the conflict of law principles thereof.
(d) This Agreement may not be amended or modified, and no provision hereof
may be waived, without the written consent of the Company and of holders of not
less than a majority of the then outstanding Registrable Securities. Any waiver
or consent hereunder shall be effective only in the specific instance and for
the purpose for which it was given, and shall not constitute a continuing waiver
or consent.
(e) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) In the event that any court of competent jurisdiction shall determine
that any provision, or any portion thereof, contained in this Agreement shall be
unenforceable in any respect, then such provision shall be deemed limited to the
extent that such court deems it enforceable, and as so limited shall remain in
full force and effect. In the event that such court shall deem any such
provision, or portion thereof, wholly unenforceable, the remaining provisions of
this Agreement shall nevertheless remain in full force and effect.
(g) The parties hereto acknowledge and agree that (i) each party and its
counsel, if so represented, reviewed and negotiated the terms and provisions of
this Agreement and have contributed to its revision and (ii) the rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
(h) The headings and captions of the various subdivisions of this
Agreement are for convenience of reference only and shall in no way modify or
affect the meaning or construction of any of the terms or provisions hereof.
(i) No failure or delay by a party hereto in exercising any right, power
or remedy under this Agreement, and no course of dealing between the parties
hereto, shall operate as a waiver of any such right, power or remedy of the
party. No single or partial exercise of any right, power or remedy under this
Agreement by a party hereto, nor any abandonment or discontinuance of steps to
enforce any such right, power or remedy, shall preclude such party from any
other or further exercise thereof or the exercise of any other right, power or
remedy hereunder. The election of any remedy by a party hereto shall not
constitute a waiver of the right of such party to pursue other available
remedies. No notice to or demand on a party not expressly required under this
Agreement shall entitle the party receiving such notice or demand to any other
or further notice or demand in
12
<PAGE> 13
similar or other circumstances or constitute a waiver of the rights of the party
giving such notice or demand to any other or further action in any circumstances
without such notice or demand.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused
this Agreement to be executed by their duly authorized representatives as of the
date first written above.
GENOMETRIX INCORPORATED
By: /s/ Mitchell D. Eggers
-----------------------
Mitchell D. Eggers
Chief Executive Officer
MOTOROLA, INC.
By: /s/ Nicholas J. Naclerio
-------------------------
Name: Nicholas J. Naclerio
Title: Vice President and General
Manager Biochip Systems
14
<PAGE> 1
EXHIBIT 10.11
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Amended and Restated Registration Rights Agreement (the "Agreement")
is made as of September 3, 1998 among Genometrix Incorporated (the "Company")
and the Investors (as hereinafter defined).
WHEREAS, the Company, the Investors listed on SCHEDULE A attached hereto
(the "Initial Investors") and the purchasers of the Series B Convertible
Preferred Stock of the Company (the "Series B Preferred Stock") listed on
SCHEDULE B attached hereto (the "Series B Purchasers" and, together with the
Initial Investors, the "Investors") entered into a Registration Rights Agreement
dated August 29, 1997, as amended by Amendment No. 1 to Registration Rights
Agreement dated as of March 26, 1998 (as amended, the "Prior Agreement"); and
WHEREAS, the Company and each of Palmetto Partners, Ltd. and Donald and
Dianne Kendall entered into Note and Warrant Purchase Agreements dated July 6,
1994 (the "1994 Note Agreements") pursuant to which promissory notes (the "1994
Notes") and warrants (the "1994 Warrants") were issued, the 1994 Notes have been
converted into shares of the Series A Convertible Preferred Stock of the Company
(the "Series A Preferred Stock") and warrants to purchase shares of the common
stock of the Company (the "Common Stock") and the 1994 Warrants have become
exercisable to purchase shares of the Series A Preferred Stock and warrants to
purchase shares of the Common Stock (the "Palmetto 1997 Warrants"); and
WHEREAS, the Company and Beckman Instruments, Inc. entered into a Note
Purchase Agreement (the "1995 Note Agreement") pursuant to which a promissory
note (the "1995 Note") was issued and the 1995 Note has been converted into
shares of the Series A Preferred Stock and warrants to purchase shares of the
Common Stock (the "Beckman 1997 Warrants"); and
WHEREAS, the Company and each of Palmetto Partners, Ltd. and Donald and
Dianne Kendall have entered into Note and Purchase Agreements dated as of
January 24, 1996 (the "1996 Note Agreements") pursuant to which promissory notes
(the "1996 Notes") and warrants (the "1996 Warrants") were issued and the 1996
Notes are convertible into, and the 1996 Warrants are exercisable for, equity
securities of the Company upon the consummation of a Financing (as defined
therein); and
WHEREAS, the Company and the Investors desire to amend and restate the
Prior Agreement to provide registration rights for holder of shares of
additional classes or series of the Preferred Stock of the Company; and
WHEREAS, this Agreement amends and restates and replaces in its entirety
the Prior Agreement and the Company and holders of a majority of the Registrable
Shares (as defined in the Prior Agreement) hereby consent and agree to the
amendment and restatement of the Prior Agreement as set forth herein.
<PAGE> 2
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission and any
successor agency of the Federal government administering the Securities Act.
"COMMON STOCK" shall mean (i) the common stock, $.0001 par value per share,
of the Company; or (ii) any other capital stock of the Company, however
designated, authorized on or after the date hereof, which shall neither be
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends nor entitled to a preference in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company.
"PREFERRED SHARES" shall mean the shares of Series A Preferred Stock,
Series B Preferred Stock and any other class or series of the Preferred Stock of
the Company issued or sold after the date hereof.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"REGISTRABLE SHARES" shall mean (i) the shares of Common Stock issued or
issuable pursuant to the conversion of the Preferred Shares, (ii) the shares of
Common Stock issued or issuable pursuant to the exercise of the Warrants, (iii)
the shares of Common Stock issued or issuable upon conversion of the 1996 Notes
or upon exercise of the 1996 Warrants or the shares of Common Stock issued or
issuable upon conversion or exercise of any security issued upon conversion of
the 1996 Notes or upon exercise of the 1996 Warrants and (iv) any shares of
Common Stock issued in respect of shares of Common Stock referred to in clauses
(i), (ii) or (iii) above upon any stock split, stock dividend, recapitalization
or similar event, excluding in any event shares which (a) have been registered
under the Securities Act pursuant to an effective registration statement filed
thereunder and disposed of in accordance with the registration statement
covering them, (b) have been publicly sold pursuant to Rule 144 under the
Securities Act or (c) may be sold without registration under the Securities Act.
"REGISTRATION EXPENSES" shall mean the expenses so described in Section 3.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and any
similar or successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
2
<PAGE> 3
"SELLING EXPENSES" shall mean the expenses so described in Section 3.
"WARRANTS" shall mean the warrants dated August 29, 1997 to purchase shares
of the Common Stock issued to the purchasers of the Series A Preferred Stock
(the "Series A Warrants"), the Palmetto 1997 Warrants and the Beckman 1997
Warrants.
2. INCIDENTAL REGISTRATION.
(a) REGISTRATION RIGHT. If the Company at any time proposes to register
any of its securities under the Securities Act for sale to the public for its
own account (except with respect to registration statements on Forms S-4, S-8 or
any successor to such forms or another form not available for registering the
Registrable Shares for sale to the public), each such time it will promptly give
written notice to all holders of the Registrable Shares of its intention so to
do. Upon the written request of any such holder, received by the Company within
thirty (30) days after the giving of any such notice by the Company, to register
any or all of its Registrable Shares, the Company will use its best efforts to
cause the Registrable Shares as to which registration shall have been so
requested to be included in the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent requisite to
permit the sale or other disposition by the holder (in accordance with its
written request) of such Registrable Shares so registered.
(b) INITIAL PUBLIC OFFERING. The rights set forth in this Section 2 shall
not apply to the Company's initial public offering pursuant to a registration
statement filed under the Securities Act, unless any of the shares held by the
Principals (as defined below) shall be included in such offering for sale by the
Principals, in which event each Investor shall be entitled to include in such
registration, subject to the other provisions of this Section 2, that amount of
shares as equals the total number of Registrable Shares owned by it multiplied
by a fraction the numerator of which is the total number of shares registered
for sale in such offering by the Principals and the denominator of which is the
total number of shares owned by the Principals. For purposes of the calculation
of the denominator of such fraction, all options, rights and warrants shall be
included on an as exercised basis and all convertible or exchangeable securities
shall be included on an as converted or exercised basis. As used herein,
"Principals" shall mean (i) any director or officer of the Company, (ii)
Mitchell Eggers, (iii) Daniel Ehrlich, (iii) Kenneth Nill and (iv) Michael
Hogan.
(c) UNDERWRITTEN PUBLIC OFFERINGS. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the holders of Registrable Shares as a
part of the written notice given pursuant to this Section 2. In such event the
right of any holder of Registrable Shares to registration pursuant to this
Section 2 shall be conditioned upon such holder's participation in such
underwriting to the extent provided herein. All holders of Registrable Shares
proposing to distribute their securities through such underwriting shall
(together with the Company distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 2, if the underwriter in its
discretion determines that because of marketing factors the
3
<PAGE> 4
number of shares to be underwritten should be limited, the underwriter may
exclude from such registration and underwriting some or all of the Registrable
Shares which would otherwise be underwritten pursuant hereto. The Company shall
so advise all holders of Registrable Shares requesting registration of any
limitations on the number of shares to be underwritten, and the number of
Registrable Shares that are entitled to be included in the registration and
underwriting shall be allocated among all such holders in proportion, as nearly
as practicable, to the respective amounts of Registrable Shares owned by them.
(d) WITHDRAWAL OF REGISTRATION. Notwithstanding the foregoing provisions,
the Company may withdraw any registration statement referred to in this Section
2 without thereby incurring any liability to the holders of Registrable Shares.
If any holder of Registrable Shares disapproves of the terms of any such
underwriting, it may elect to withdraw therefrom by written notice to the
Company and the underwriter. Any Registrable Shares or other securities excluded
or withdrawn from such underwriting shall be withdrawn from such registration.
(e) PROVISION OF INFORMATION. In connection with each registration
hereunder, the sellers of Registrable Shares will furnish to the Company in
writing such information requested by the Company with respect to themselves and
the proposed distribution by them as shall be necessary in order to assure
compliance with Federal and applicable state securities laws; and such sellers
shall provide the Company with appropriate and customary representations and
indemnification with respect to the accuracy of such information.
3. EXPENSES.
(a) All expenses incurred by the Company in complying with Section 2,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel and independent public accountants
for the Company, fees and expenses (including counsel fees) incurred in
connection with complying with state securities or "blue sky" laws, fees of the
National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars and costs of any insurance which might be
obtained by the Company with respect to the offering by the Company, but
excluding any Selling Expenses, are called "Registration Expenses". All
underwriting discounts and selling commissions applicable to the sale of
Registrable Shares and fees and disbursements of counsel to the Investors are
called "Selling Expenses".
(b) The Company will pay all Registration Expenses in connection with each
registration statement under Section 2. All Selling Expenses in connection with
each registration statement under Section 2 shall be borne by the participating
Investors in proportion to the number of shares registered by each.
4. CHANGES IN COMMON STOCK OR PREFERRED SHARES. If, and as often as,
there is any change in the Common Stock and/or Preferred Shares by way of a
stock split, stock dividend, combination or reclassification, or through a
merger, consolidation, reorganization or recapitalization, or by any other
means, appropriate adjustment shall be made in the provisions hereof so that the
rights and privileges granted hereby shall continue with respect to the Common
Stock and/or Preferred Shares as so changed.
4
<PAGE> 5
5. ADDITIONAL INVESTORS. Purchasers of additional Preferred Shares may
become parties to this Agreement as Investors upon purchasing such shares by
executing a counterpart signature page hereto in a form reasonably acceptable to
the Company. SCHEDULE C attached hereto, as amended from time to time, shall
list such additional Investor parties hereto.
6. MISCELLANEOUS.
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind the respective heirs, successors
(including, without limitation, by sale or transfer of all or substantially all
assets, merger or consolidation) and assigns of the parties hereto, and shall
inure to the benefit of any transferee of all of the Registrable Shares of an
Investor.
(b) All notices, requests, consents and other communications hereunder
shall be in writing, shall be addressed to the receiving party's address set
forth below or to such other address as a party may designate by notice
hereunder, and shall be either (i) delivered by hand, (ii) made by telex,
telecopy or facsimile transmission, (iii) sent by overnight courier, or (iv)
sent by certified mail, return receipt requested, postage prepaid:
If to the Company or any other party hereto, at the address of such party
set forth in the records of the Company; and
If to any subsequent holder of Registrable Shares, to it at such address as
may have been furnished to the Company in writing by such holder;
or, in any case, to such other address or addresses as shall have been
furnished in writing to the Company (in the case of a holder of Registrable
Shares) or to the holders of Registrable Shares (in the case of the Company) in
accordance with the provisions of this paragraph.
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof to
the receiving party at the address of such party set forth above, (ii) if made
by telex, telecopy or facsimile transmission, at the time that receipt thereof
has been acknowledged by electronic confirmation or otherwise, (iii) if sent by
overnight courier, on the next business day (or if sent overseas, on the second
business day) following the day such notice is delivered to the courier service,
or (iv) if sent by registered or certified mail, on the 5th business day (or if
sent overseas, on the 10th business day) following the day such mailing is made.
(c) This Agreement and the rights and obligations of the parties hereunder
shall be construed in accordance with and governed by the law of the State of
Delaware, without giving effect to the conflict of law principles thereof.
(d) This Agreement may not be amended or modified, and no provision hereof
may be waived, without the written consent of the Company and the holders of at
least a majority of the outstanding Registrable Shares. Any waiver or consent
hereunder shall be effective only in the
5
<PAGE> 6
specific instance and for the purpose for which it was given, and shall not
constitute a continuing waiver or consent.
(e) This Agreement may be executed in one or more counterparts, and by
different parties hereto on separate counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument.
(f) In the event that any court of competent jurisdiction shall determine
that any provision, or any portion thereof, contained in this Agreement shall be
unenforceable in any respect, then such provision shall be deemed limited to the
extent that such court deems it enforceable, and as so limited shall remain in
full force and effect. In the event that such court shall deem any such
provision, or portion thereof, wholly unenforceable, the remaining provisions of
this Agreement shall nevertheless remain in full force and effect.
(g) This Agreement embodies the entire agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes all
prior oral or written agreements and understandings relating to the subject
matter hereof. No statement, representation, warranty, covenant or agreement of
any kind not expressly set forth in this Agreement shall affect, or be used to
interpret, change or restrict, the express terms and provisions of this
Agreement.
(h) The headings and captions of the various subdivisions of this
Agreement are for convenience of reference only and shall in no way modify or
affect the meaning or construction of any of the terms or provisions hereof.
(i) Wherever this Agreement refers to the neuter gender such reference
shall include the masculine and feminine genders as the context may require.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GENOMETRIX INCORPORATED
By: /s/ Mitchell D. Eggers
-----------------------
Mitchell Eggers, President and
Chief Executive Officer
6
<PAGE> 7
INITIAL INVESTORS:
_________________________________
Howard Salasin
/s/ Solomon Kal Rudman
- ---------------------------------
Solomon Kal Rudman
_________________________________
Joseph A. Leonetti
Henry M. Rambo, DDS and
Joseph A. Leonetti, DMD
Money Purchase Pension Plan
By: /s/ Joseph A. Leonetti
------------------------------
Joseph A. Leonetti
Henry M. Rambo, DDS and
Joseph A. Leonetti, DMD
Money Purchase Pension Plan, FBO
Joseph A. Leonetti, DMD
By: /s/ Joseph A. Leonetti
------------------------------
Joseph A. Leonetti
Henry M. Rambo, DDS and
Joseph A. Leonetti, DMD
Profit Sharing Plan, FBO
Joseph A. Leonetti, DMD
By: /s/ Joseph A. Leonetti
------------------------------
Joseph A. Leonetti
/s/ Brent Bailey
- ---------------------------------
Brent Bailey
7
<PAGE> 8
/s/ Richard Toltzis
- ---------------------------------
Richard Toltzis
_________________________________
Lawrence Cherry
/s/ George Longo
- ---------------------------------
George Longo
/s/ Henry M. Rambo
- ---------------------------------
Henry M. Rambo
Palmetto Partners Ltd.
By: Palmetto Capital Corporation,
its General Partner
_________________________________
_________________________________
Donald R. Kendall, Jr., Joint Tenant
with Right of Survivorship with
Dianne S. Kendall
_________________________________
Dianne S. Kendall, Joint Tenant
with Right of Survivorship with
Donald R. Kendall, Jr.
Beckman Instruments, Inc.
By: [J.H.]
------------------------------
8
<PAGE> 9
SERIES B PURCHASERS
_________________________________
Brent Bailey
_________________________________
Scott A. Carr
/s/ Christopher J. Chambers
- ---------------------------------
Christopher J. Chambers
Jay R. Chiappa, D.D.S. P.S.T.
By: /s/ Jay R. Chiappa
------------------------------
/s/ Lawrence Chimerine
- ---------------------------------
Lawrence Chimerine
THE COOK ORGANIZATION, LTD.
By:______________________________
_________________________________
Katherine D. Crothall
/s/ John Dinapoli
- ---------------------------------
John Dinapoli
_________________________________
9
<PAGE> 10
Michael Glassner and
Lisa Glessner, JTWROS
Victor M. Goldberg, D.D.S.,
P.C. Veba Trust
By: /s/ Victor M. Goldberg
- -------------------------------------------
/s/ Thomas K. Henson
- -------------------------------------------
Thomas K. Henson
/s/ Peter Holland and Grace Holland
- -------------------------------------------
Peter Holland and
Grace Holland, JTWROS
/s/ Chris J. Hooven
- -------------------------------------------
Chris J. Hooven
___________________________________________
Jeffrey Jacobs and
Jaime Jacobs, JTWROS
/s/ Andrew S. Jacobson
- -------------------------------------------
Andrew S. Jacobson
/s/ Timothy Margraf
- -------------------------------------------
Timothy Margraf
/s/ Kurt E. Meyers and Linda Yedinak-Meyers
- -------------------------------------------
Kurt E. Meyers and Linda
Yedinak-Meyers, JTWROS
___________________________________________
Brett A. Richman and Laura
10
<PAGE> 11
Richman, JTWROS
Henry Rambo, D.D.S. and
Joseph A. Leonetti, DMD
Profit Sharing Plan FBO
Joseph A. Leonetti, DMD
By: /s/ Joseph A. Leonetti
----------------------------------------
Henry Rambo, D.D.S. and
Joseph A. Leonetti, DMD
Ltd. Profit Sharing Trust
By: /s/ Henry Rambo
----------------------------------------
___________________________________________
Marc S. Richman
/s/ David Rubenstein
- -------------------------------------------
David Rubenstein
___________________________________________
Ralph A. Saggiomo
/s/ James J. Sheehan
- -------------------------------------------
James J. Sheehan
/s/ Eugene Spinelli
- -------------------------------------------
Eugene Spinelli
11
<PAGE> 12
___________________________________________
Jon C. Wayland
/s/ Jospeh A. Leonetti
- -------------------------------------------
Joseph A. Leonetti
/s/ Howard Salasin
- -------------------------------------------
Howard Salasin
12
<PAGE> 13
SCHEDULE A
Howard Salasin
Solomon Kal Rudman
Joseph A. Leonetti
Henry M. Rambo, DDS and
Joseph A. Leonetti, DMD
Money Purchase Pension Plan
Henry M. Rambo, DDS and
Joseph A. Leonetti, DMD
Money Purchase Pension Plan
FBO Joseph A. Leonetti, DMD
Henry M. Rambo, DDS and
Joseph A. Leonetti, DMD
Profit Sharing Plan
FBO Joseph A. Leonetti, DMD
Brent Bailey
Richard Toltzis
Lawrence Cherry
Henry M. Rambo
George Longo
Palmetto Partners Ltd.
Donald R. Kendall, Jr. and Dianne S. Kendall,
as Joint Tenants with Right of Survivorship
Beckman Instruments, Inc.
13
<PAGE> 14
SCHEDULE B
Brent Bailey
Scott A. Carr
Christopher J. Chambers
Jay R. Chiappa, D.D.S. P.S.T.
Lawrence Chimerine
Katherine D. Crothall
John Dinapoli
Michael Glassner IRA
Michael Glassner and
Lisa Glessner, JTWROS
Victor M. Goldberg, D.D.S.,
P.C. Veba Trust
Thomas K. Henson
Peter Holland and
Grace Holland, JTWROS
Chris J. Hooven
Jeffrey Jacobs and
Jaime Jacobs, JTWROS
Andrew S. Jacobson
Timothy Margraf
Kurt E. Meyers and Linda
Yedinak-Meyers, JTWROS
Brett A. Richman and Laura
Richman, JTWROS
14
<PAGE> 15
Henry Rambo, D.D.S. and
Joseph A. Leonetti, DMD
Profit Sharing Plan FBO
Joseph A. Leonetti, DMD
Henry Rambo, D.D.S. and
Joseph A. Leonetti, DMD
Ltd. Profit Sharing Trust
Marc S. Richman
David Rubenstein
Ralph A. Saggiomo
James J. Sheehan
Eugene Spinelli
Jon C. Wayland
Joseph A. Leonetti
Howard Salasin
15
<PAGE> 16
SCHEDULE C
Howard and Myrna Asher, as Tenants by the Entirety
Advest Inc. Custodian FBO Jeffrey D Barnes IRA
B-ETC., L.L.C.
J. Beyer Bray
Jay R. Chiappa, D.D.S. Profit Sharing Account
Jay R. Chiappa, D.D.S. Profit Sharing Segregate Account
Jay R. Chiappa, D.D.S. Profit Sharing Voluntary Account
Barbara M. Coffey IRA
Thomas J. Coffey
Thomas J. Coffey IRA
Joseph and Kay Dusek, as Joint Tenants
Thomas Fuelling
Richard I. Goldstein
Fayez Sarofim
David E. Jorden
Thomas J. Kelly, Jr.
Philip Kendall
Jeffrey C. Lee
Thomas A. Leonard & Kathleen M. Leonard, as Joint
Tenants
John M. McNamara
Kurt E. Meyers, D.D.S. and Linda Yedinak-Meyers, as
Joint Tenants
16
<PAGE> 17
Henry Rambo and Sarah v. Rambo, as Joint Tenants
Brett A. Richman
Charles Sheedy
Larry C. Smedley, DDS
Eugene P. Spinelli
17
<PAGE> 18
List of Additional Signatories to this Agreement in connection with the sale and
issuance of the Company's Series F Convertible Preferred Stock
Raye G. White
William K. McGee, Jr.
Russell M. Frankel
Charles E. Sheedy
Ralph B. Thomas
FSI No.2 Corporation
Fayez Sarofim
James A. Reynolds
David E. Jorden
Elliott Braunstein
Evans Attwell
Preston Moore
John Kirk/Margarite Kirk
(TIC)
Margarite Kirk, TTEE, Ward
Conover
Galman/Slipakoff
William D. Jones
Michael Anton
William M. Knapp
Jeri H. Campbell
Chet B. Hawkins
18
<PAGE> 19
Brent Bailey
Jeff Jacobs
Christopher J. Chambers
Paul M. Chambers
Vince E. Spina
Marguerite B. Spina
Jon C. Wayland
Thomas Sheppard
Michael J. and Connie J.
Jones
Charles W. and Janet H.
Whitlock
Juanita Eggers
Alan Markowitz
Jim Sheehan
Kevin Mullen
Robert P. Brezina
SABA Holdings Limited
Adrian Kundanmal
Peter Holland
Andrew Jacobson
19
<PAGE> 1
EXHIBIT 10.12
GENOMETRIX INCORPORATED
NOTE AND WARRANT PURCHASE AGREEMENT
Dated as of January 24, 1996
Genometrix Incorporated
4800 Research Forest Drive
The Woodlands, TX 77381
Gentlemen:
1. SUBSCRIPTION. On the Closing Date (as defined herein), PALMETTO
PARTNERS, LTD. (the "Purchaser") hereby agrees to purchase from Genometrix
Incorporated (the "Company") a Convertible Note, in the form attached hereto as
EXHIBIT A (the "Convertible Note"), in the principal amount of $90,000, at a
purchase price equal to the principal amount thereof, to be issued in the name
of the Purchaser, and a warrant, in the form attached hereto as EXHIBIT B (the
"Warrant"), at a purchase price of $90.00 to be issued in the name of the
Purchaser. In addition, the Purchaser agrees to loan up to an additional
$180,000, pursuant to the terms and conditions set forth herein and the form of
Convertible Note attached hereto as EXHIBIT A, at any time and from time to time
during the period ending on the fifth anniversary of this Agreement, at the
option of the Company, in principal amounts of $45,000 or any multiple thereof,
upon five days prior written request from the Company to the Purchaser. Each
such additional loan shall occur on such date as the Company shall designate in
such request, subject to the provisions of Section 9. Upon each additional loan,
the Company shall deliver a Convertible Note in the principal amount hereof in
the form of Convertible Note attached hereto as EXHIBIT A and a Warrant in the
form of Warrant attached hereto as EXHIBIT B, upon payment therefor of an amount
equal to one one-thousandth (1/1000) of the principal amount of the Convertible
Note evidencing such additional loan. This Note and Warrant Agreement is being
entered into contemporaneously with a Note and Warrant Purchase Agreement with
Donald R. Kendall, Jr. and Dianne S. Kendall, as Joint Tenants with Right of
Survivorship in connection with their purchase of a convertible note on
substantially similar terms in the principal amount of $10,000 and a warrant on
substantially similar terms and their agreement to loan to the Company up to an
additional $20,000 (the "Kendall Agreement"). Any such request must be
contemporaneous with a request under the Kendall Agreement for $5,000 or a
corresponding multiple thereof.
2. CLOSING DATE AND PAYMENT. The date for the purchase and sale of the
Convertible Note and the Warrant by the Company and the Purchaser hereunder
shall be as of January 24, 1996 (the "Closing Date"), the date upon which the
first advances hereunder were made. Subject to the terms and conditions
contained in this Agreement, the Purchaser shall deliver to the Company by check
or by wire transfer $90,000 in exchange for the Convertible Note and $90 in
exchange for the Warrant.
<PAGE> 2
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants, as of the date hereof as follows:
(a) Neither the sale of the Convertible Notes or of the Warrants nor
the issuance of the shares of capital stock or other securities upon
conversion or exercise thereof or upon conversion, if applicable, of such
securities (collectively, such shares are referred to herein as the
"Conversion Securities") has been nor will be registered under the
Securities Act of 1933, as amended or any successor statute (the
"Securities Act"), or any state securities laws. The Purchaser understands
that the offering and sale of the Convertible Notes and Warrants is
intended to be exempt from registration under the Securities Act, by virtue
of Section 4(2) and/or Section 4(6) of the Securities Act and the
provisions of Regulation D promulgated thereunder;
(b) The Purchaser is acquiring the Convertible Notes and Warrants
solely for its own account for investment and not with a view to resale or
distribution and has no present intention of transferring the Convertible
Notes or Warrants to any other person or entity;
(c) The Purchaser is an "accredited investor" as that term is defined
in Rule 501 of Regulation D under the Securities Act;
(d) The Purchaser is a sophisticated investor and has such knowledge
and experience in financial, tax, business matters, securities and
investments including, without limitation, experience in investments by
actual participation, so as to enable it to utilize the information made
available to it in connection with the offering of the Convertible Notes
and Warrants, to evaluate the merits and risks of an investment in the
Convertible Notes and Warrants and to make an informed investment decision
with respect thereto;
(e) The Purchaser was not formed for the specific purpose of
acquiring the Convertible Notes and Warrants. The execution, delivery and
performance of this Agreement by the Purchaser have been duly authorized
and the Agreement is a valid and legally binding agreement of the
Purchaser;
(f) The Purchaser has received all documents requested by the
Purchaser and has reviewed them and believes it is well-informed about the
Company;
(g) The Purchaser acknowledges that neither the Securities and
Exchange Commission nor any state securities commission has approved the
Convertible Notes or the Warrants or any of the Conversion Securities or
passed upon or endorsed the merits of the offering;
(h) The Purchaser is aware that an investment in the Convertible
Notes
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<PAGE> 3
involves a number of very significant risks and has read and considered the
matters set forth under the caption "Risk Factors" attached hereto, and, in
particular, acknowledges that the Company is in the development stage, has
no products or services, and has not commenced significant operations other
than research;
(i) The Purchaser must bear the economic risk of the investment
indefinitely because none of the Convertible Notes, Warrants or Conversion
Securities have been registered under applicable securities laws and
therefore, none of the Convertible Notes, Warrants or Conversion Securities
may be sold, hypothecated or otherwise disposed of unless subsequently
registered under the Securities Act and applicable state securities laws or
an exemption from registration is available. The Purchaser will not sell
any of the Convertible Notes, Warrants or Conversion Securities without
registration under applicable securities laws or exemptions therefrom.
Legends shall be placed on the Convertible Notes, Warrants and Conversion
Securities to the effect that they have not been registered under the
Securities Act or applicable state securities laws and of the resulting
limitations on transfer and that appropriate notations thereof will be made
in the Company's books and stock transfer records;
(j) The aggregate purchase price of the Convertible Notes and
Warrants does not exceed twenty percent (20%) of the Purchaser's net worth;
(k) The Purchaser has taken no action which would give rise to any
claim by any person for brokerage commission, finders' fees or the like
relating to this Agreement or the transactions contemplated hereby;
(l) The Purchaser represents to the Company that the information
contained herein is accurate and may be relied upon by the Company in
determining the availability of an exemption from registration under
Federal and state securities laws in connection with the offering of the
Convertible Notes, Warrants and Conversion Securities; and
(m) The Purchaser acknowledges that any projections and estimates
provided to the Purchaser are based on assumptions about the conditions and
courses of action that the Company believes are reasonable, that
projections and estimates based on a set of different conditions and
courses of action could differ substantially from the accompanying
projections and estimates, that unanticipated events and circumstances may
occur subsequent to the date that the projections and estimates were
completed, and that therefore the actual results achieved during the
projection and estimation period will vary from the projections and
estimates and the variations may be material.
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<PAGE> 4
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents, warrants and agrees as follows:
(a) ORGANIZATION, STANDING AND QUALIFICATION OF THE COMPANY. The
Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The Company has all
requisite corporate power and authority to own and operate its properties
and to carry on its business as now being conducted and as proposed to be
conducted. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which failure
to so qualify would materially and adversely affect the business,
properties, operations or condition, financial or otherwise, of the
Company. Except as set forth on SCHEDULE A, the Company does not own and
has not ever owned (directly or indirectly) any equity or other similar
ownership interest in any corporation, partnership, joint venture,
association or other entity or organization. Copies of the Company's
Certificate of Incorporation, Bylaws and resolutions adopted by the
stockholders and directors of the Company authorizing the transactions
contemplated by this Agreement, as set forth in EXHIBIT C are true, correct
and complete copies thereof, have not been amended or modified in any way,
have not been rescinded and are in full force and effect on the date
hereof.
(b) CORPORATE AUTHORITY; ENFORCEABILITY. The Company has full right,
power and authority to issue and sell the Convertible Notes and Warrants as
herein contemplated and the Company has full power and authority to enter
into and perform its obligations under this Agreement, the Convertible
Notes and the Warrants. The execution and delivery of this Agreement, the
Convertible Notes and the Warrants by the Company and the consummation of
the transactions contemplated herein and therein have been duly authorized
and approved by all requisite corporate action. The execution, delivery and
performance of this Agreement, the Convertible Notes and the Warrants by
the Company have been duly authorized and each of the Agreement, the
Convertible Notes and Warrants is a valid and legally binding agreement of
the Company.
(c) CONFLICTS. Neither the authorization, execution and delivery of
this Agreement, the Convertible Notes or the Warrants nor the consummation
of the transactions herein and therein contemplated, will (i) conflict with
or result in a breach of any of the terms of the Company's charter or
Bylaws (ii) violate any judgment, order, injunction, decree or award of any
court or governmental body against or binding on the Company or to which
its property is subject, (iii) violate any law or regulation of any
jurisdiction which is applicable to the Company, or (iv) violate, conflict
with or result in the breach or termination of, or constitute a default
under, the terms of any material agreement to which the Company is a party.
(d) Capitalization. The total authorized capital stock of the Company
consists of 3,000 shares of Common Stock, $.01 par value per share (the
"Common Stock") of which 95 shares are issued and outstanding. All of the
outstanding shares of Common Stock
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<PAGE> 5
have been duly authorized, validly issued and are fully paid and
nonassessable. Except as set forth on SCHEDULE A and pursuant to the
Kendall Agreement, there are no options, warrants or rights to purchase
shares of Common Stock or other securities (as defined herein) of the
Company authorized, issued or outstanding, nor is the Company obligated in
any other manner to issue shares of its capital stock or other securities.
Except as set forth on SCHEDULE A, the Company is under no obligation
(contingent or otherwise) to purchase or otherwise acquire or retire any of
its outstanding securities. Unless the context otherwise requires, as used
herein, the term "securities" and "security" shall have the meaning given
such term in the Securities Act.
(e) LITIGATION. There are no actions, suits or proceedings at law or
in equity or by or before any governmental instrumentality or other agency
or regulatory authority now pending, or, to the best knowledge of the
Company, threatened against the Company which, if adversely determined,
could materially and adversely affect the business, assets, operations or
condition, financial or otherwise, of the Company.
(f) COMPLIANCE WITH LAWS. To the Company's knowledge, the Company is
not in violation of any statute, law, rule or regulation, or in default
with respect to any judgment, writ, injunction, decree, rule or regulation
of any court or governmental agency or instrumentality, except for such
violations or defaults which do not materially and adversely affect the
business, assets, operations or condition, financial or otherwise, of the
Company.
(g) GOVERNMENTAL CONSENTS. Subject to the accuracy of the
representations and warranties of the Purchaser set forth herein, no
registration or filing with, or consent or approval of or other action by,
any Federal, state or other government agency under laws and regulations
thereof as now in effect is or will be necessary for the valid execution,
delivery and performance by the Company of this Agreement, the Convertible
Notes or the Warrants and the issuance, sale and delivery of the
Convertible Notes and Warrants, other than the filing of a Form D with the
Securities and Exchange Commission and the filings required by state
securities law (all of which filings have been made by the Company or will
be made within the period of time required by such securities laws).
(h) CHARACTERISTICS OF SECURITIES. The stockholders of the Company
have no preemptive rights or other purchase rights with respect to the sale
of the Convertible Notes or Warrants or except as set forth on SCHEDULE A,
the issuance or sale of any other securities of the Company previously
issued or to be issued in the future.
(i) DIRECTORS AND OFFICERS; STOCKHOLDERS. A true and correct list of
the directors and officers of the Company, all of whom have been duly and
properly elected to the positions set forth opposite their respective
names, is attached hereto as SCHEDULE B. A true and correct list of the
record holders of all securities of the Company, setting forth their names,
addresses and number and kind of securities held by each, is attached
hereto
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<PAGE> 6
as SCHEDULE C. Except as set forth on SCHEDULE A, to the knowledge of the
Company, there exists no voting trust, voting agreement or other similar
arrangement among any of the beneficial holders of the Company's
securities.
(j) OBLIGATIONS BETWEEN CERTAIN PERSONS AND THE COMPANY. Except as
set forth in SCHEDULE A, the Company does not have any direct or indirect
obligation or liability to any person listed in SCHEDULE B or C or to any
affiliate (as defined herein) of any such person. As used herein, the term
"affiliate" shall have the meaning given such term under the Securities
Act.
(k) FINANCIAL POSITION.
(i) The Company has delivered to the Purchaser the financial
statements (the "Financial Statements") which are annexed hereto as
SCHEDULE D. The Financial Statements (A) present fairly the financial
condition of the Company as of their respective dates and results of
operations for the periods then ended, (B) are in accordance with the
books and records of the Company and (C) were prepared in accordance
with generally accepted accounting principles consistently applied
except that footnote disclosures contemplated by generally accepted
accounting principles are not provided.
(ii) At the date of the most recent balance sheet (the "Balance
Sheet") contained in the Financial Statements, (A) the Company had no
liabilities of any nature (matured or unmatured, fixed or contingent)
required by generally accepted accounting principles to be provided
for in the Balance Sheet or described in the notes thereto which were
not provided for in the Balance Sheet or described in the notes
thereto and (B) all reserves established by the Company and set forth
in the Balance Sheet were adequate for the purposes for which they
were established.
(iii) Except as set forth on SCHEDULE A and as contemplated by
the Kendall Agreement, since the date of the Balance Sheet:
(A) the Company has not entered into any transaction which
was not in the ordinary course of its business,
(B) there has been no material adverse change in the
condition (financial or otherwise) of the Company,
(C) the Company has not declared or paid any dividend or
made any distribution on its securities, redeemed, purchased or
otherwise acquired any of its securities, granted any options to
purchase any securities or issued any securities,
-6-
<PAGE> 7
(D) the Company has not increased the compensation of any
of its officers or the rate of pay of its employees as a group,
by more than five percent (5%) over the prior year's
compensation,
(E) there has been no borrowing by the Company or agreement
to borrow or change in the contingent obligations of the Company
by way of guaranty, endorsement, indemnity, warranty or otherwise
or grant of a mortgage or security interest in any properties of
the Company,
(F) there have been no loans made by the Company to its
shareholders, employees, officers, directors or any affiliate
thereof other than travel advances and office advances made in
the ordinary course of business,
(G) there has not been any payment of any obligation or
liability other than current liabilities paid in the ordinary
course of business,
(H) there has been no sale, assignment or transfer of any
tangible asset of the Company except in the ordinary course of
business and no sale, assignment or transfer of any patent,
trademark, trade secret or other intangible asset of the Company,
(I) there has been no damage to, destruction of or loss of
physical property (whether or not covered by insurance) which may
have a material adverse effect on the business or operations of
the Company,
(J) the Company has not received notice that there has been
a loss to, nor cancellation of a material order by, any customer
of the Company, and
(K) there has been no resignation or termination of
employment of any officer or employee of the Company.
(iv) The Company has good and marketable title to the properties
and assets purported to be owned by it and such properties and assets
are not subject to any liens, mortgages, pledges, encumbrances or
charges of any kind except liens for current taxes and assessments not
delinquent or those which are not material in scope or amount and do
not materially interfere with the conduct of the Company's business.
(l) MATERIAL CONTRACTS. SCHEDULE E contains a true and complete list
of all contracts, agreements, commitments or undertakings of any nature,
written or oral, of the
-7-
<PAGE> 8
Company each of which involves future payments, performance of services or
delivery of goods or materials to or by the Company of an aggregate amount
or value in excess of $10,000 or which otherwise is material to the
business or prospects of the Company (other than the Kendall Agreement)
(collectively, the "Material Contracts"). All of the Material Contracts of
the Company are in full force and effect and the Company has fully
performed all of its obligations thereunder. To the Company's knowledge, no
party to a Material Contract has made a claim to the effect that the
Company has failed to perform an obligation thereunder. There is no known
plan, intention or indication of any contracting party to a Material
Contract to cause the termination, cancellation or modification of such
Material Contract or to reduce or otherwise change its activity thereunder
so as to adversely affect the benefits derived or expected to be derived
therefrom by the Company. Except as more particularly described in Schedule
E, the Company does not now have in effect any bonus, profit sharing,
pension, deferred compensation or similar plan or agreement for the benefit
of any of its employees. The Company is neither a party to, nor bound by,
any contract, agreement, commitment or restriction which obligates the
Company to perform services or to produce products unprofitably, provided,
however, that no representation is made that the Company's performance of
its obligations under the License Agreement and the Collaboration Agreement
(each as defined on SCHEDULE E) will be profitable to the Company. All
nonmaterial contracts of the Company do not in the aggregate represent a
material portion of the liabilities of the Company.
(m) LICENSES, PATENTS, TRADEMARKS.
(i) SCHEDULE F contains a list of all licenses, patents,
copyrights, trade names and trademarks (including applications
therefor) owned by the Company. To the Company's knowledge, the
Company owns, free and clear of all liens and encumbrances, all the
licenses, patents, copyrights, trade names, trademarks, trade secrets
and processes necessary for the conduct of its business as presently
conducted and as presently proposed to be conducted and except as
described in SCHEDULE F, has the unrestricted right to use the
foregoing without the payment of any royalty. The Company has taken
reasonable security measures to protect the secrecy, confidentiality
and value of its trade secrets and other technical information. Each
current and former employee and consultant of the Company who is or
was involved in research, development or technological matters has
executed an agreement pursuant to which each such employee and
consultant has agreed that they have no ownership or other interest in
any patents, inventions or other proprietary processes created by them
in the course of their employment by or consultation to the Company.
(ii) To the Company's knowledge, no person has asserted a claim
that the Company has infringed any patent, trade secret, copyright,
trade name or trademark. To the Company's knowledge, the Company does
not, and will not
-8-
<PAGE> 9
under its proposed plan of business, operate to conflict with,
infringe, override or interfere with the rights of any other person in
any license, patent, trade name, trademark, trade secret or process or
rights pertaining thereto.
(iii) All rights to processes, systems, patents and techniques
used by the Company which were developed by any employee of or
consultant to the Company in the course of providing services to the
Company have been duly and validly assigned to the Company.
(n) EXISTENCE OF DEFAULTS. The Company is not in default of any of
its material obligations, and no event has occurred and is continuing under
the provisions of any instrument, document or agreement which, with the
lapse of time or the giving of notice or both, would constitute a default
thereunder.
(o) TAX RETURNS AND PAYMENTS. All tax returns and reports required to
be filed with respect to the Company have been duly filed and all taxes
shown to be due and payable on such returns and reports, and all tax
assessments, have been paid or provision has been made therefor. The
Company has paid all taxes which it is obligated to withhold from amounts
owing to any employee. The Company does not know of any proposed assessment
for additional taxes or of any basis therefor.
(p) FINDER OR BROKER. Neither the Company nor any person acting on
behalf of the Company has negotiated with any finder, broker, intermediary
or any similar person in connection with the transactions contemplated
herein. The Company will indemnify the Purchaser and hold it harmless from
any liability or expense arising from any claim for brokerage commissions,
finder's fees or other similar compensation based upon any agreement,
arrangement or understanding made by or on behalf of the Company.
(q) CONFLICTING INTEREST. Except as set forth on SCHEDULE A, no
officer, director or stockholder of the Company has any interest in any
corporation, partnership or other entity engaged in a business which is in
competition with that of the Company or which is a supplier of products to
the Company or has any contract with the Company.
(r) EMPLOYEES AND CONSULTANTS.
(i) To the knowledge of the Company, no employee or consultant
of the Company is in violation of any term of any employment or
consulting contract, patent disclosure agreement or any other contract
or agreement relating to the right of any such employee or consultant
to be employed or engaged by the Company because of the nature of the
business conducted or to be conducted by the Company or for any other
reason, and to the knowledge of the Company, the continued employment
or engagement by the Company of its present employees or consultants
will not result in any violations.
-9-
<PAGE> 10
(ii) The Company has nine (9) employees.
(iii) The Company is not aware that any officer, director,
executive or key employee of the Company or any group of employees of
the Company has any plan or intention of terminating employment or
association with the Company.
(s) TRUTH AND COMPLETENESS OF REPRESENTATIONS AND WARRANTIES. Neither
this Agreement nor any exhibit or schedule to this Agreement, or schedule
or document furnished by the Company or its officers in connection with the
transactions contemplated herein contains any untrue statement of any
material fact or omits to state a material fact necessary in order to make
the statements contained therein or herein, in light of the circumstances
under which they were made, not misleading; and there is no fact specific
to the Company which materially and adversely affects the business,
prospects, affairs, operations or condition, financial or otherwise, of the
Company which has not been disclosed to the Purchaser (other than
information about the healthcare, pharmaceutical, biotechnology, computer
or microelectronic industry in general or general economic conditions which
information is generally available to the public) by the Company. The
foregoing representation is not intended to include facts pertaining
generally to the industries the Company intends to operate within, general
economic, political or regulatory conditions or facts generally applicable
to start-up companies. The projections and estimates provided to the
Purchaser were prepared in good faith and with a good faith belief in the
reasonableness of the assumptions on which the projections and estimates
were based, but the Company makes no other representation or warranty with
respect to such projections or estimates in any manner. The representations
and warranties of the Company are complete and accurate in all material
respects.
As used in this Section 4, "knowledge," "know" or "known," when
referring to the Company, shall refer to the knowledge of officers and
directors of the Company, but shall not include inquiry of other persons or
entities.
5. AFFIRMATIVE COVENANTS OF THE COMPANY. From and after the Closing Date
and until the Conversion Date (as defined in the Convertible Notes), unless it
receives the prior written consent of the Purchaser to act to the contrary, the
Company shall comply with the covenants contained in this Section 5 so long as
there remains outstanding the Convertible Note. For purposes of this Section,
the term "Company" shall be deemed to include, in addition to the Company, all
Subsidiaries.
(a) FINANCIAL INFORMATION. The Company shall maintain a system of
accounting established and administered in accordance with generally
accepted accounting principles consistently applied, and shall set aside on
its books, and cause each of its operating subsidiaries to set aside on its
books, all such proper reserves as
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<PAGE> 11
shall be required by generally accepted accounting principles. The Company
shall retain independent certified public accounts of recognized national
standing who shall audit the Company's financial statements at the end of
each fiscal year. In the event the services of the independent public
accountants so selected, or any firm of independent public accounts
hereafter employed by the Company are terminated, the Company shall
promptly thereafter notify the Purchaser and shall request the firm of
independent certified public accountants whose services are terminated to
deliver to the Purchase a letter of such firm setting forth the reasons for
the termination of their services. In the event of such termination, the
Company shall promptly thereafter engage another such firm of independent
certified public accountants of recognized national standing. In its notice
to the Purchaser, the Company shall state whether the change of accountants
was recommended or approved by the Board of Directors of the Company or any
committee thereof. The Company will furnish the following reports to the
Purchaser:
(i) As soon as practicable after the end of each fiscal year,
and in any event within 120 days thereafter, a consolidated balance
sheet of the Company and its Subsidiaries (as defined below) (if any)
as of the end of such fiscal year, and a consolidated statement of
income and a consolidated statement of changes in financial position
of the Company for such year, prepared in accordance with generally
accepted accounting principles consistently applied and setting forth
in each case in comparative form the figures of the previous fiscal
year, all in reasonable detail including all supporting schedules and
comments. If the Company has retained an auditor, such financial
statements shall be accompanied by the opinion of such auditors with
respect to such financial statements.
(ii) As soon as practicable after the end of each month, and in
any event within 15 days thereafter, (A) a consolidated balance sheet
of the Company and its Subsidiaries (if any) as of the end of such
month, and a consolidated statement of income, shareholder's equity
and cash flow for each month and for the current fiscal year to date,
prepared in accordance with generally accepted accounting principles
consistently applied and (B) a letter from the chief executive officer
of the Company reporting on the Company's operations, describing
significant events or circumstances affecting operations and
containing such other matters as are reasonably requested by the
Purchaser.
(b) ADDITIONAL INFORMATION. The Company will furnish to the
Purchaser:
(i) Concurrently with the delivery of each of the financial
statements referred to in Section 5(a) above, a certificate executed
by the president or chief financial officer of the Company stating
that neither the Company nor any of its Subsidiaries is in default
under its certificate of incorporation, its by-laws, this Agreement,
the Convertible Notes, the Warrants or any other material agreements
to which it is a party or to which it or any of its properties is
subject;
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<PAGE> 12
(ii) Promptly following receipt thereof, any letters furnished to
the Company by its independent public accountants which comment on the
accounting practices of the Company;
(iii) Promptly (but in any event within five days) after the
discovery of any material adverse event or circumstance affecting the
Company including, but not limited to, the filing of any material
litigation against the Company or any Subsidiary and the discovery
that the Company is not, or with the passage of time will not be, in
compliance with any provision of this Agreement, the Convertible
Notes, the Warrants, its Certificate of Incorporation or any other
material agreement of the Company, a notice specifying the nature and
period of existence thereof, and the actions the Company has taken
and/or proposes to take with respect thereto. The Company shall
furnish the Purchaser with monthly reports updating and describing any
developments relating to matters described under this subparagraph
(iii) and will promptly notify the Purchaser of any material
developments or changes relating thereto. "Subsidiary" as used in this
Agreement shall mean as to the Company, any corporation of which more
than 50% of the outstanding stock having ordinary voting power to
elect a majority of the Board of Directors of such corporation is at
the time directly or indirectly owned by the Company, or by one or
more of its Subsidiaries, or by the Company and one or more of its
Subsidiaries;
(iv) Promptly following the preparation thereof, copies of the
minutes of proceedings (or consents) of the Company's Board of
Directors and stockholders together with all written materials given
to investors in connection with any meeting of the Board of Directors;
and
(v) With reasonable promptness, such other information and data
with respect to the Company and its Subsidiaries as the Purchaser may
from time to time reasonably request.
The provisions of this Section 5(b) shall not be in limitation of any
rights which the Purchaser may have with respect to the books of account and
records of the Company and its subsidiaries (if any) or to inspect their
properties and assets or discuss their affairs, finances and accounts, under the
laws of the respective jurisdictions in which the Company and its subsidiaries
(if any) are incorporated.
(c) INSPECTION. The Purchaser shall have the right, at its expense,
to visit and inspect any of the properties of the Company or any of its
Subsidiaries and to discuss its affairs, finances and accounts with its
officers, directors and independent public accountants, all at such
reasonable times and as often as may be reasonably requested.
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<PAGE> 13
(d) USE OF PROCEEDS. The Company shall use the net cash proceeds of
the sale of the Convertible Notes and Warrants for working capital.
(e) INSURANCE. The Company has in full force and effect the insurance
as described on Schedule G.
(f) COMPLIANCE WITH CERTIFICATE OF INCORPORATION, BYLAWS AND
AGREEMENTS. The Company shall perform and observe all of its obligations
pursuant to its Certificate of Incorporation, its Bylaws, this Agreement,
the Convertible Notes, the Warrants, and the Material Contracts.
(g) REGISTRATION OF TRANSFER. The Company shall keep at its principal
office (or such place as the Company reasonably designates) a register for
the registration of the outstanding securities of the Company. Upon
surrender of any promissory note (including without limitation the
Convertible Notes) properly endorsed for transfer, the Company shall, at
the request of the holder of such security, execute and deliver a new
promissory note, in exchange therefor, representing the aggregate principal
amount of the surrendered notes, and the Company forthwith shall cancel
such surrendered note. Each such new note shall be registered on the books
of the Company in such name and shall (subject to the immediately preceding
sentence) represent such principal amount of note as is requested by the
holder of the surrendered note and shall be substantially identical in form
to the surrendered note, subject to the restrictions stated in the legend
set forth on the Convertible Notes, which legend shall be placed on, and
which restrictions shall apply to, all notes issued in replacement
therefor. The issuance of new notes shall be made without charge to the
holders of the surrendered note or new note for any issuance tax in respect
thereof or other cost incurred by the Company in connection with such
issuance or transfer.
(h) REPLACEMENT. The Company shall issue a new note in place of any
previously issued note alleged to have been lost, stolen or destroyed, upon
such terms and conditions as the Board of Directors may prescribe,
including the presentation of reasonable evidence of such loss, theft or
destruction (provided that an affidavit of a holder will be satisfactory
for such purpose) and the giving of such indemnity as the Company's Board
of Directors may request for the protection of the Company or any transfer
agent or registrar (provided that if the holder is the Purchaser, its own
indemnification agreement in form reasonably satisfactory to the Company
shall under all circumstances be satisfactory, and no bond shall be
required). Upon surrender of any previously issued note that has been
mutilated, the Company shall issue a new note in place thereof.
(i) MAINTENANCE OF CORPORATE EXISTENCE AND BUSINESS. The Company
shall take such action as may from time to time be necessary to preserve
its corporate existence, rights and franchises, maintain its properties in
good repair and to comply with
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<PAGE> 14
the laws of the United States and all states and locations in which the
Company shall do business as shall be necessary to permit the Company to
conduct its business, and to preserve all of its rights, franchises and
privileges.
(j) TAXES AND OTHER OBLIGATIONS. The Company shall pay and discharge
all taxes, assessments, interest and installments on mortgages and
governmental charges against it or against any of its properties, upon the
respective dates when due, except to the extent that (a) such taxes,
assessments, interest, installments and governmental charges are contested
in good faith and by appropriate proceedings in such manner as not to cause
any materially adverse effect on its financial condition or loss of any
right of redemption from any sale and (b) the Company shall have set aside
on its books reserves (segregated to the extent required by generally
accepted accounting principles) adequate with respect to such liabilities.
(k) COMPLIANCE WITH LAWS. The Company shall comply with applicable
laws, rules and regulations of all governmental authorities, the violation
of which might have a material adverse effect upon its business or
financial condition.
(l) AGREEMENTS WITH EMPLOYEES AND CONSULTANTS. The Company shall
cause all employees and consultants of the Company who may become involved
in research, development or technological matters to execute an agreement
pursuant to which each such employee and consultant will agree that they
have no ownership or other interest in any patents, inventions or other
proprietary processes created by them during their employment by or in the
course of their consultation to the Company.
(m) BOARD OF DIRECTORS VISITATION RIGHTS. The Company shall give the
Purchaser prior notice of each meeting of the Board of Directors of the
Company in accordance with the notice requirements applicable to the Board
of Directors as set forth in the By-laws of the Company and a
representative of the Purchaser shall be invited to attend as a non-voting
observer all such meetings even if a representative of the Purchaser does
not at the time serve as a member of the Board of Directors. The Company
shall pay all normal and reasonable travel, food and lodging expenses
incurred or paid by one representative of the Purchaser (whether or not
such representative is on the Board of Directors) in connection with their
attendance at such meetings that are held in a city other than Houston,
Texas or The Woodlands, Texas. The Company shall promptly give the
Purchaser copies of all materials and documents furnished to the Board of
Directors in connection with such meetings.
(n) SUBORDINATION. All Junior Indebtedness (as defined herein)
incurred by the Company subsequent to the date hereof shall be subordinated
to the indebtedness evidenced by the Convertible Notes in a manner that is
reasonably satisfactory to the Purchaser. As used herein, the term "Junior
Indebtedness" shall mean any indebtedness of the Company that is evidenced
by a note or other similar instrument and that is not
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<PAGE> 15
owed to a commercial bank or other similar financial institution.
(o) FURTHER ASSURANCES. The Company shall execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, to the
Purchaser such further and additional instruments and documents and shall
use its best efforts to cause to be taken such other action as the
Purchaser reasonably may require to more effectively implement and carry
into effect the transactions contemplated by this Agreement.
(p) AVAILABILITY OF COMMON STOCK FOR CONVERSION. The Company shall,
from time to time, in accordance with the laws of the State of Delaware,
take such actions (within its control) as are necessary to increase the
authorized amount of Common Stock if at any time the number of shares of
Common Stock remaining unissued and available for issuance shall be
insufficient to permit conversion of all the then outstanding Convertible
Notes and Warrants of the Company.
6. NEGATIVE COVENANTS OF THE COMPANY. From and after the Closing Date and
until the Conversion Date, unless it receives the prior written consent of the
Purchaser to act to the contrary, the Company shall comply with the covenants
contained in this Section 6 so long as the Convertible Notes remain outstanding.
For purposes of this Article, the term "Company" shall be deemed to include, in
addition to the Company, all Subsidiaries. Subject to the foregoing, the Company
agrees as follows:
(a) INDEBTEDNESS. The Company shall not guarantee the obligation of
another person (except of wholly-owned Subsidiaries) and will not make any
loan or advance to any person or entity (except wholly-owned Subsidiaries)
except moving expenses, advances and similar expenditures in the ordinary
course of business.
(b) INVESTMENTS. The Company will not invest (as a shareholder,
partner, lender or otherwise) in any other corporation, except a wholly
owned Subsidiary; provided, however, the foregoing prohibition shall not
prevent the Company from purchasing short term money market instruments.
(c) MERGER, CONSOLIDATION, SALE OF ASSETS, ETC. The Company shall
not, and shall not permit its subsidiaries (if any), to, together or alone,
enter into any transaction of merger, consolidation or reorganization, or
dissolve, wind up or liquidated, or convey, sell, lease, exchange, transfer
or otherwise dispose of in a transaction or related series of transactions
any of its respective property, business or assets having in the aggregate
a fair market value of more than fifty percent (50%) of the book value of
the Company's assets on a consolidated basis or permit any subsidiary of
the Company whose property, business or assets satisfy the foregoing test
to enter into any transaction of merger, consolidation or reorganization;
provided, however, that any transaction of merger, consolidation or
reorganization; notwithstanding the foregoing, (i) any subsidiary of the
Company may be merged or consolidated with or into the Company or with or
into any
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<PAGE> 16
one or more wholly owned subsidiaries of the Company and (ii)( any
subsidiary of the Company may sell, lease, exchange, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or
otherwise) to the Company or a wholly owned subsidiary of the Company. The
provisions of this Section 6(c) are in addition to and are not limited by
any of the terms of any other covenant contained herein.
(d) PURCHASE OF CAPITAL STOCK. The Company will not directly or
indirectly purchase, acquire, redeem or retire any share of its outstanding
capital stock or any securities exercisable for, or convertible into, its
capital stock, except of shares held by a stockholder out of proceeds of
any life insurance policy on such stockholder's life.
(e) DIVIDENDS. The Company shall not pay or declare any dividends or
make other distributions upon its shares of capital stock.
(f) SUBSIDIARIES. The Company shall not create, own or otherwise
acquire or hold any Subsidiary, unless it is wholly owned by the Company.
(g) COMPENSATION. The Company shall not pay any compensation, direct
or indirect, to any person unless such compensation is reasonable in view
of his or her time and efforts. Such compensation may include the issuance
of stock options. No fees shall be paid any full-time employee for serving
as a director of the Company.
(h) INSIDER TRANSACTIONS. The Company shall not engage in any
transaction with any of the Company's directors, officers, employees or
stockholders except (i) reimbursements of reasonable moving expenses and
reasonable expenses incurred in the ordinary course of business, (ii)
except as disclosed in Schedule A, as provided in employment contracts
which are terminable by the Company without penalty upon not more than 30
days' notice or (iii) in accordance with Subsection (g) immediately above.
(i) NO CONFLICTING AGREEMENTS OR ACTIONS. The Company shall not enter
into any agreement or make any amendment to any agreement or take any other
action which would restrict or adversely affect the Company's performance
of its obligations to the Purchaser under its Certificate of Incorporation,
the Convertible Notes, the Warrants, its By-laws, this Agreement or any
agreement referred to herein.
(j) SUBSEQUENT OFFERINGS. The Company shall not hereafter sell, offer
for sale or solicit offers to buy any securities so as to cause the offer
of the Convertible Notes and Warrants to violate the Securities Act or
state securities laws or jeopardize compliance by the Company under the
Securities Act or state securities laws in respect of future offerings of
securities. In connection with future offerings of securities of the
Company, the Company will comply with all federal and state securities
laws. The Company will not (i) make a public offering of any of its
securities other than in a registered offering under the Securities Act, or
(ii) grant preemptive rights to its stockholders generally in
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<PAGE> 17
respect of future issuances of equity securities.
(k) CONFIDENTIALITY. The Company shall not disclose any proprietary
information to any person other than as shall be necessary to the conduct
of the ordinary business of the Company (e.g., patent applications or
research agreements with academic institutions which customarily refuse to
execute confidentiality agreements) unless the Company has the written
agreement of the party to whom the disclosure is made to retain the
confidentiality of the Company's proprietary information and not to
disclose it to others.
(l) NO CHANGE IN BUSINESS. The Company shall not make any changes in
the character of its business as presently conducted or as proposed to be
conducted, or conduct its business in a manner other than in the normal and
ordinary course.
7. REGISTRATION RIGHTS AND SUBSEQUENT AGREEMENTS. If at any time prior to
or on the Conversion Date, the Company grants one or more persons registration
rights with respect to the registration of securities under the Securities Act,
the Purchaser shall be entitled to registration rights in respect of all
securities of the Company now owned or hereafter acquired by the Purchaser as
comparable as possible to those rights granted by the Company to such other
person(s). If at any time prior to or on the Conversion Date, different
registration rights are granted by the Company to more than one person, the
Purchaser shall be entitled to those rights which have been granted which the
Purchaser, in its sole discretion, determines are the most favorable. The
Company agrees with the Purchaser that the Purchaser will be entitled to the
benefits of affirmative and negative covenants on the same terms and conditions
as and together with the purchaser or purchasers in the Financing (as defined in
the Convertible Notes).
8. STAND-STILL AGREEMENT. The Purchaser agrees it will not sell, transfer
or otherwise dispose of any securities of the Company during the period
commencing upon the date upon which the Company files a registration statement
with the Securities and Exchange Commission for the registration of any
securities for sale to the public and terminating on the 180th day following the
date on which the Company's registration statement with respect to its initial
public offering is declared effective.
9. CONDITIONS TO CLOSING.
(a) CONDITIONS TO THE PURCHASER'S OBLIGATIONS. The Purchaser's
obligation to purchase the Convertible Note and Warrant is subject to the
following conditions:
(i) The Company's representations and warranties contained in
Section 4 shall be true and correct on and as of the Closing Date
(subject to any updated schedules provided to the Purchaser) and the
Purchaser shall have received a certificate of the President of the
Company with respect thereto;
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<PAGE> 18
(ii) The Company shall deliver to the Purchaser an executed
Convertible Note in the form attached hereto as EXHIBIT A; and
(iii) The Company shall deliver to the Purchaser an executed
Warrant in the form attached hereto as EXHIBIT B.
(b) CONDITIONS TO THE COMPANY'S OBLIGATIONS. The Company's obligation
to issue any Convertible Note and Warrant is subject to the following
conditions:
(i) The Purchaser's representations and warranties contained in
Section 3 shall be true and correct on and as of the Closing Date and
with respect to any closing after the date hereof, the Company shall
have received a certificate of the Purchaser with respect thereto; and
(ii) The Purchaser shall have delivered to the Company the
purchase price for the Convertible Note, the principal amount thereof,
and $__ as the purchase price for the Warrant being purchased
hereunder.
10. PAYMENT OF LEGAL FEES. The Company shall pay the reasonable fees and
expenses of counsel to the Purchaser, incurred in connection with the
negotiation of this Agreement and the consummation of the transactions
contemplated thereby, not to exceed an aggregate of $4,000.
11. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors and permitted assigns
including, without limitation, transferees of the Convertible Notes, Warrants or
any of the Conversion Securities.
12. AMENDMENT. The terms of this Agreement shall not be amended or
modified except by a writing signed by the parties hereto.
13. NOTICES. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom it
is to be given (a) if to Company, to Genometrix Incorporated, 3608 Research
Forest Drive, Suite B7, The Woodlands, TX 77381, Attn: President, or (b) if to
the Purchaser, to Palmetto Partners, Ltd., 1600 Smith Street, 50th Floor,
Houston, TX 77002 (or, in either case, to such other address as the party shall
have furnished in writing in accordance with the provisions of this Section 13).
Any notice or other communication given by certified mail shall be deemed given
at the time of certification thereof, except for a notice changing a party's
address which shall be deemed given at the time of receipt thereof.
14. ASSIGNABILITY. This Agreement and the rights, interests and
obligations hereunder are not transferable or assignable by the Purchaser,
provided, however, that the rights contained
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<PAGE> 19
in Sections 5 (other than subsection (m)), 6 and 7 may be transferred and
assigned with any transfer or assignment of a Convertible Note, provided, (i)
the transferee or assignee (a) agrees to be bound by Sections 8 and 16 hereof
and (b) is not, in the Company's reasonable judgment, a competitor of the
Company; and (ii) such transfer or assignment is made (a) in connection with a
distribution to the Purchaser's beneficial owners, affiliates (as defined in the
Securities Act) or its employees, provided one person is designated as the agent
of the transferees or assignees for purposes of their rights hereunder and
compliance with the provisions of this Agreement with respect to such agent
shall be treated as compliance with respect to all such transferees or assignees
and the Company or (b) to a transferee or an assignee who shall acquire
Convertible Notes in their entire then outstanding aggregate principal and
accrued interest amount. The Purchaser further agrees that the transfer or
assignment of the Convertible Notes, the Warrants or the Conversion Securities
shall be made only in accordance with all applicable laws.
15. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the internal law of the State of Texas without regard to its
conflicts of laws principles.
16. CONFIDENTIALITY. The Purchaser acknowledges and agrees that any
information or data it has acquired from or about the Company, not otherwise
properly in the public domain, was received in confidence. The Purchaser agrees
not to divulge, communicate or disclose, except (i) as may be required by law or
for the performance or enforcement of this Agreement, (ii) as may be required by
court order or (iii) to the extent it is already publicly available, or acquired
without bread by Purchaser of the terms hereof, or use other than in connection
with its investment in the Company, any confidential information of the Company,
including any scientific, technical, trade or business secrets of the Company
and any scientific, technical, trade or business materials that are treated by
the Company as confidential or proprietary, including, but not limited to,
ideas, discoveries, inventions, developments and improvements belonging to the
Company and confidential information obtained by or given to the Company about
or belonging to third parties.
17. MISCELLANEOUS.
(a) This Agreement together with the Convertible Notes and the
Warrants constitute the entire agreement between the Purchaser and the
Company with respect to the subject matter hereof and supersedes all prior
oral or written agreements and understandings, if any, relating to the
subject matter hereof, provided, however, any agreement pertaining to
confidentiality is not superseded and shall remain in full force and effect
and provided, further, the Note and Warrant Purchase Agreement dated July
6, 1994 between the parties is not superseded. The terms and provisions of
this Agreement may be waived, or consent for the departure therefrom
granted, only by a written document executed by the party entitled to the
benefits of such terms or provisions.
(b) The representations, warranties, covenants and agreements of the
parties
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<PAGE> 20
made in this Agreement shall survive the execution and delivery hereof and
of the Convertible Notes and Warrants.
(c) This Agreement may be executed in one or more counterparts each
of which shall be deemed an original, but all of which shall together
constitute one and the same instrument.
(d) Each provision of this Agreement shall be considered separable
and if for any reason any provision or provisions hereof are determined to
be invalid or contrary to applicable law, such invalidity shall not impair
the operation of or affect the remaining portions of this Agreement.
(e) Paragraph titles are for descriptive purposes only and shall not
control or alter the meaning of this Agreement as set forth in the text.
(f) The Company acknowledges and agrees that the Purchaser has made
no representation, warranty or covenant regarding Purchaser's providing of,
and Purchaser has no obligation to provide, future financing of any kind,
nor has Purchaser made any commitment to make loans to or to purchase any
equity securities from the Company, except as expressly set forth herein.
(g) This Agreement sets forth, reduces to writing and supersedes in
all respects the statements of the parties first set forth in the term
sheet styled "Genometrix Incorporated Bridge Note Financing Palmetto
Partners January 24, 1996," as executed by Palmetto Partners, Ltd. and the
Company, and such term sheet shall hereafter by without force or effect,
having been superseded by this Agreement. This Agreement is executed as of
the date set forth below, but is intended to be effective for all purposes
as of _________ ___, _____.
[Remainder of Page Left Intentionally Blank]
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<PAGE> 21
IN WITNESS WHEREOF, the Purchaser has executed this Agreement this ,
but effective for all purposes as of January 24, 1996.
PALMETTO PARTNERS, LTD.
By: Palmetto Capital Corporation
Its General Partner
By: /s/ Robert Dussler
-----------------------------------
ACCEPTED AND AGREED:
GENOMETRIX INCORPORATED
By: Mitchell D. Eggers
------------------------------
Mitchell D. Eggers,
President
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<PAGE> 1
EXHIBIT 10.13
GENOMETRIX INCORPORATED
NOTE AND WARRANT PURCHASE AGREEMENT
Dated as of January 24, 1996
Genometrix Incorporated
4800 Research Forest Drive
The Woodlands, TX 77381
Gentlemen:
1. SUBSCRIPTION. On the Closing Date (as defined herein), DONALD R.
KENDALL, JR. ("DRK") and DIANNE S. KENDALL ("DSK") as Joint Tenants with Right
of Survivorship, (collectively, the "Purchaser") hereby agrees to purchase from
Genometrix Incorporated (the "Company") a Convertible Note, in the form attached
hereto as EXHIBIT A (the "Convertible Note"), in the principal amount of
$10,000, at a purchase price equal to the principal amount thereof, to be issued
in the name of the Purchaser, and a warrant, in the form attached hereto as
EXHIBIT B (the "Warrant"), at a purchase price of $10.00 to be issued in the
name of the Purchaser. In addition, the Purchaser agrees to loan up to an
additional $20,000, pursuant to the terms and conditions set forth herein and
the form of Convertible Note attached hereto as EXHIBIT A, at any time and from
time to time during the period ending on the fifth anniversary of this
Agreement, at the option of the Company, in principal amounts of $5,000 or any
multiple thereof, upon five days prior written request from the Company to the
Purchaser. Each such additional loan shall occur on such date as the Company
shall designate in such request, subject to the provisions of Section 9. Upon
each additional loan, the Company shall deliver a Convertible Note in the
principal amount hereof in the form of Convertible Note attached hereto as
EXHIBIT A and a Warrant in the form of Warrant attached hereto as EXHIBIT B,
upon payment therefor of an amount equal to one one-thousandth (1/1000) of the
principal amount of the Convertible Note evidencing such additional loan. This
Note and Warrant Purchase Agreement is being entered into contemporaneously with
a Note and Warrant Purchase Agreement with Palmetto Partners, Ltd. in connection
with its purchase of a convertible note on substantially similar terms in the
principal amount of $90,000, and a warrant on substantially similar terms, and
their agreement to loan to the Company up to an additional $180,000 (the
"Palmetto Agreement"). Any such request must be contemporaneous with a request
under the Palmetto Agreement for $45,000 or a corresponding multiple thereof.
2. CLOSING DATE AND PAYMENT. The date for the purchase and sale of the
initial Convertible Note and the initial Warrant by the Company and the
Purchaser hereunder shall be as of January 24, 1996 (the "Closing Date"), the
date upon which the first advances hereunder were made. Subject to the terms and
conditions contained in this Agreement, the Purchaser shall deliver to the
Company by check or by wire transfer $10,000 in exchange for the Convertible
<PAGE> 2
Note and $10 in exchange for the Warrant.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants, as of the date hereof as follows:
(a) Neither the sale of the Convertible Notes or of the Warrants nor
the issuance of the shares of capital stock or other securities upon
conversion or exercise thereof or upon conversion, if applicable, of such
securities (collectively, such shares are referred to herein as the
"Conversion Securities") has been nor will be registered under the
Securities Act of 1933, as amended or any successor statute (the
"Securities Act"), or any state securities laws. The Purchaser understands
that the offering and sale of the Convertible Notes and Warrants is
intended to be exempt from registration under the Securities Act, by virtue
of Section 4(2) and/or Section 4(6) of the Securities Act and the
provisions of Regulation D promulgated thereunder;
(b) DSK and DRK are acquiring the Convertible Notes and Warrants
solely for their own account for investment and not with a view to resale
or distribution and has no present intention of transferring the
Convertible Notes or Warrants to any other person or entity;
(c) Each of DRK and DSK is an "accredited investor" as that term is
defined in Rule 501 of Regulation D under the Securities Act;
(d) Each of DRK and DSK is a sophisticated investor and has such
knowledge and experience in financial, tax, business matters, securities
and investments including, without limitation, experience in investments by
actual participation, so as to enable it to utilize the information made
available to it in connection with the offering of the Convertible Notes
and Warrants, to evaluate the merits and risks of an investment in the
Convertible Notes and Warrants and to make an informed investment decision
with respect thereto;
(e) This Agreement is a valid and legally binding agreement of DRK
and DSK;
(f) Each of DRK and DSK has received all documents requested by him
or her, as the case may be, and has reviewed them and believes himself or
herself well-informed about the Company;
(g) Each of DRK and DSK acknowledges that neither the Securities and
Exchange Commission nor any state securities commission has approved the
Convertible Notes or the Warrants or any of the Conversion Securities or
passed upon or endorsed the merits of the offering;
(h) Each of DRK and DSK is aware that an investment in the
Convertible
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<PAGE> 3
Notes involves a number of very significant risks and has read and
considered the matters set forth under the caption "Risk Factors" attached
hereto, and, in particular, acknowledges that the Company is in the
development stage, has no products or services, and has not commenced
significant operations other than research;
(i) Each of DRK and DSK must bear the economic risk of the investment
indefinitely because none of the Convertible Notes, Warrants or Conversion
Securities have been registered under applicable securities laws and
therefore, none of the Convertible Notes, Warrants or Conversion Securities
may be sold, hypothecated or otherwise disposed of unless subsequently
registered under the Securities Act and applicable state securities laws or
an exemption from registration is available. The Purchaser will not sell
any of the Convertible Notes, Warrants or Conversion Securities without
registration under applicable securities laws or exemptions therefrom.
Legends shall be placed on the Convertible Notes, Warrants and Conversion
Securities to the effect that they have not been registered under the
Securities Act or applicable state securities laws and of the resulting
limitations on transfer and that appropriate notations thereof will be made
in the Company's books and stock transfer records;
(j) The aggregate purchase price of the Convertible Notes and
Warrants does not exceed twenty percent (20%) of DRK's and DSK's joint net
worth;
(k) Neither DSK nor DRK has taken any action which would give rise to
any claim by any person for brokerage commission, finders' fees or the like
relating to this Agreement or the transactions contemplated hereby;
(l) Each of DRK and DSK represents to the Company that the
information contained herein is accurate and may be relied upon by the
Company in determining the availability of an exemption from registration
under Federal and state securities laws in connection with the offering of
the Convertible Notes, Warrants and Conversion Securities; and
(m) Each of DRK and DSK acknowledges that any projections and
estimates provided to the Purchaser are based on assumptions about the
conditions and courses of action that the Company believes are reasonable,
that projections and estimates based on a set of different conditions and
courses of action could differ substantially from the accompanying
projections and estimates, that unanticipated events and circumstances may
occur subsequent to the date that the projections and estimates were
completed, and that therefore the actual results achieved during the
projection and estimation period will vary from the projections and
estimates and the variations may be material.
-3-
<PAGE> 4
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents, warrants and agrees as follows:
(a) ORGANIZATION, STANDING AND QUALIFICATION OF THE COMPANY. The
Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The Company has all
requisite corporate power and authority to own and operate its properties
and to carry on its business as now being conducted and as proposed to be
conducted. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which failure
to so qualify would materially and adversely affect the business,
properties, operations or condition, financial or otherwise, of the
Company. Except as set forth on SCHEDULE A, the Company does not own and
has not ever owned (directly or indirectly) any equity or other similar
ownership interest in any corporation, partnership, joint venture,
association or other entity or organization. Copies of the Company's
Certificate of Incorporation, Bylaws and resolutions adopted by the
directors of the Company authorizing the transactions contemplated by this
Agreement, as set forth in EXHIBIT C are true, correct and complete copies
thereof, have not been amended or modified in any way, have not been
rescinded and are in full force and effect on the date hereof.
(b) CORPORATE AUTHORITY; ENFORCEABILITY. The Company has full right,
power and authority to issue and sell the Convertible Notes and Warrants as
herein contemplated and the Company has full power and authority to enter
into and perform its obligations under this Agreement, the Convertible
Notes and the Warrants. The execution and delivery of this Agreement, the
Convertible Notes and the Warrants by the Company and the consummation of
the transactions contemplated herein and therein have been duly authorized
and approved by all requisite corporate action. The execution, delivery and
performance of this Agreement, the Convertible Notes and the Warrants by
the Company have been duly authorized and each of the Agreement, the
Convertible Notes and Warrants is a valid and legally binding agreement of
the Company.
(c) CONFLICTS. Neither the authorization, execution and delivery of
this Agreement, the Convertible Notes or the Warrants nor the consummation
of the transactions herein and therein contemplated, will (i) conflict with
or result in a breach of any of the terms of the Company's charter or
Bylaws (ii) violate any judgment, order, injunction, decree or award of any
court or governmental body against or binding on the Company or to which
its property is subject, (iii) violate any law or regulation of any
jurisdiction which is applicable to the Company, or (iv) violate, conflict
with or result in the breach or termination of, or constitute a default
under, the terms of any material agreement to which the Company is a party.
(d) CAPITALIZATION. The total authorized capital stock of the Company
consists of 3,000 shares of Common Stock, $.01 par value per share (the
"Common Stock") of which 95 shares are issued and outstanding. All of the
outstanding shares of Common Stock have been duly authorized, validly
issued and are fully paid and nonassessable. Except as
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<PAGE> 5
set forth on SCHEDULE A and pursuant to the Palmetto Agreement, there are
no options, warrants or rights to purchase shares of Common Stock or other
securities (as defined herein) of the Company authorized, issued or
outstanding, nor is the Company obligated in any other manner to issue
shares of its capital stock or other securities. Except as set forth on
SCHEDULE A, the Company is under no obligation (contingent or otherwise) to
purchase or otherwise acquire or retire any of its outstanding securities.
Unless the context otherwise requires, as used herein, the term
"securities" and "security" shall have the meaning given such term in the
Securities Act.
(e) LITIGATION. There are no actions, suits or proceedings at law or
in equity or by or before any governmental instrumentality or other agency
or regulatory authority now pending, or, to the best knowledge of the
Company, threatened against the Company which, if adversely determined,
could materially and adversely affect the business, assets, operations or
condition, financial or otherwise, of the Company.
(f) COMPLIANCE WITH LAWS. To the Company's knowledge, the Company is
not in violation of any statute, law, rule or regulation, or in default
with respect to any judgment, writ, injunction, decree, rule or regulation
of any court or governmental agency or instrumentality, except for such
violations or defaults which do not materially and adversely affect the
business, assets, operations or condition, financial or otherwise, of the
Company.
(g) GOVERNMENTAL CONSENTS. Subject to the accuracy of the
representations and warranties of the Purchaser set forth herein, no
registration or filing with, or consent or approval of or other action by,
any Federal, state or other government agency under laws and regulations
thereof as now in effect is or will be necessary for the valid execution,
delivery and performance by the Company of this Agreement, the Convertible
Notes or the Warrants and the issuance, sale and delivery of the
Convertible Notes and Warrants, other than the filing of a Form D with the
Securities and Exchange Commission and the filings required by state
securities law (all of which filings have been made by the Company or will
be made within the period of time required by such securities laws).
(h) CHARACTERISTICS OF SECURITIES. The stockholders of the Company
have no preemptive rights or other purchase rights with respect to the sale
of the Convertible Notes or Warrants or except as set forth on SCHEDULE A,
the issuance or sale of any other securities of the Company previously
issued or to be issued in the future.
(i) DIRECTORS AND OFFICERS; STOCKHOLDERS. A true and correct list of
the directors and officers of the Company, all of whom have been duly and
properly elected to the positions set forth opposite their respective
names, is attached hereto as SCHEDULE B. A true and correct list of the
record holders of all securities of the Company, setting forth their names,
addresses and number and kind of securities held by each, is attached
hereto as SCHEDULE C. Except as set forth on SCHEDULE A, to the knowledge
of the Company, there exists no voting trust, voting agreement or other
similar arrangement among any of
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<PAGE> 6
the beneficial holders of the Company's securities.
(j) OBLIGATIONS BETWEEN CERTAIN PERSONS AND THE COMPANY. Except as
set forth in SCHEDULE A, the Company does not have any direct or indirect
obligation or liability to any person listed in SCHEDULE B or C or to any
affiliate (as defined herein) of any such person. As used herein, the term
"affiliate" shall have the meaning given such term under the Securities
Act.
(k) FINANCIAL POSITION.
(i) The Company has delivered to the Purchaser the financial
statements (the "Financial Statements") which are annexed hereto as
SCHEDULE D. The Financial Statements (A) present fairly the financial
condition of the Company as of their respective dates and results of
operations for the periods then ended, (B) are in accordance with the
books and records of the Company and (C) were prepared in accordance
with generally accepted accounting principles consistently applied
except that footnote disclosures contemplated by generally accepted
accounting principles are not provided.
(ii) At the date of the most recent balance sheet (the "Balance
Sheet") contained in the Financial Statements, (A) the Company had no
liabilities of any nature (matured or unmatured, fixed or contingent)
required by generally accepted accounting principles to be provided
for in the Balance Sheet or described in the notes thereto which were
not provided for in the Balance Sheet or described in the notes
thereto and (B) all reserves established by the Company and set forth
in the Balance Sheet were adequate for the purposes for which they
were established.
(iii) Except as set forth on SCHEDULE A and as contemplated by
the Palmetto Agreement, since the date of the Balance Sheet:
(A) the Company has not entered into any transaction which
was not in the ordinary course of its business,
(B) there has been no material adverse change in the
condition (financial or otherwise) of the Company,
(C) the Company has not declared or paid any dividend or
made any distribution on its securities, redeemed, purchased or
otherwise acquired any of its securities, granted any options to
purchase any securities or issued any securities,
(D) the Company has not increased the compensation of any
of its officers or the rate of pay of its employees as a group,
by more than five percent (5%) over the prior year's
compensation,
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<PAGE> 7
(E) there has been no borrowing by the Company or agreement
to borrow or change in the contingent obligations of the Company
by way of guaranty, endorsement, indemnity, warranty or otherwise
or grant of a mortgage or security interest in any properties of
the Company,
(F) there have been no loans made by the Company to its
shareholders, employees, officers, directors or any affiliate
thereof other than travel advances and office advances made in
the ordinary course of business,
(G) there has not been any payment of any obligation or
liability other than current liabilities paid in the ordinary
course of business,
(H) there has been no sale, assignment or transfer of any
tangible asset of the Company except in the ordinary course of
business and no sale, assignment or transfer of any patent,
trademark, trade secret or other intangible asset of the Company,
(I) there has been no damage to, destruction of or loss of
physical property (whether or not covered by insurance) which may
have a material adverse effect on the business or operations of
the Company,
(J) the Company has not received notice that there has been
a loss to, nor cancellation of a material order by, any customer
of the Company, and
(K) there has been no resignation or termination of
employment of any officer or employee of the Company.
(iv) The Company has good and marketable title to the properties
and assets purported to be owned by it and such properties and assets
are not subject to any liens, mortgages, pledges, encumbrances or
charges of any kind except liens for current taxes and assessments not
delinquent or those which are not material in scope or amount and do
not materially interfere with the conduct of the Company's business.
(l) MATERIAL CONTRACTS. SCHEDULE E contains a true and complete list
of all contracts, agreements, commitments or undertakings of any nature,
written or oral, of the Company each of which involves future payments,
performance of services or delivery of goods or materials to or by the
Company of an aggregate amount or value in excess of $10,000 or which
otherwise is material to the business or prospects of the Company (other
than the Palmetto Agreement)
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<PAGE> 8
(collectively, the "Material Contracts"). All of the Material Contracts of
the Company are in full force and effect and the Company has fully
performed all of its obligations thereunder. To the Company's knowledge, no
party to a Material Contract has made a claim to the effect that the
Company has failed to perform an obligation thereunder. There is no known
plan, intention or indication of any contracting party to a Material
Contract to cause the termination, cancellation or modification of such
Material Contract or to reduce or otherwise change its activity thereunder
so as to adversely affect the benefits derived or expected to be derived
therefrom by the Company. Except as more particularly described in Schedule
E, the Company does not now have in effect any bonus, profit sharing,
pension, deferred compensation or similar plan or agreement for the benefit
of any of its employees. The Company is neither a party to, nor bound by,
any contract, agreement, commitment or restriction which obligates the
Company to perform services or to produce products unprofitably, provided,
however, that no representation is made that the Company's performance of
its obligations under the License Agreement and the Collaboration Agreement
(each as defined on SCHEDULE E) will be profitable to the Company. All
nonmaterial contracts of the Company do not in the aggregate represent a
material portion of the liabilities of the Company.
(m) LICENSES, PATENTS, TRADEMARKS.
(i) SCHEDULE F contains a list of all licenses, patents,
copyrights, trade names and trademarks (including applications
therefor) owned by the Company. To the Company's knowledge, the
Company owns, free and clear of all liens and encumbrances, all the
licenses, patents, copyrights, trade names, trademarks, trade secrets
and processes necessary for the conduct of its business as presently
conducted and as presently proposed to be conducted and except as
described in SCHEDULE F, has the unrestricted right to use the
foregoing without the payment of any royalty. The Company has taken
reasonable security measures to protect the secrecy, confidentiality
and value of its trade secrets and other technical information. Each
current and former employee and consultant of the Company who is or
was involved in research, development or technological matters has
executed an agreement pursuant to which each such employee and
consultant has agreed that they have no ownership or other interest in
any patents, inventions or other proprietary processes created by them
in the course of their employment by or consultation to the Company.
(ii) To the Company's knowledge, no person has asserted a claim
that the Company has infringed any patent, trade secret, copyright,
trade name or trademark. To the Company's knowledge, the Company does
not, and will not under its proposed plan of business, operate to
conflict with, infringe, override or interfere with the rights of any
other person in any license, patent, trade name, trademark, trade
secret or process or rights pertaining thereto.
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<PAGE> 9
(iii) All rights to processes, systems, patents and techniques
used by the Company which were developed by any employee of or
consultant to the Company in the course of providing services to the
Company have been duly and validly assigned to the Company.
(n) EXISTENCE OF DEFAULTS. The Company is not in default of any of
its material obligations, and no event has occurred and is continuing under
the provisions of any instrument, document or agreement which, with the
lapse of time or the giving of notice or both, would constitute a default
thereunder.
(o) TAX RETURNS AND PAYMENTS. All tax returns and reports required to
be filed with respect to the Company have been duly filed and all taxes
shown to be due and payable on such returns and reports, and all tax
assessments, have been paid or provision has been made therefor. The
Company has paid all taxes which it is obligated to withhold from amounts
owing to any employee. The Company does not know of any proposed assessment
for additional taxes or of any basis therefor.
(p) FINDER OR BROKER. Neither the Company nor any person acting on
behalf of the Company has negotiated with any finder, broker, intermediary
or any similar person in connection with the transactions contemplated
herein. The Company will indemnify the Purchaser and hold it harmless from
any liability or expense arising from any claim for brokerage commissions,
finder's fees or other similar compensation based upon any agreement,
arrangement or understanding made by or on behalf of the Company.
(q) CONFLICTING INTEREST. Except as set forth on SCHEDULE A, no
officer, director or stockholder of the Company has any interest in any
corporation, partnership or other entity engaged in a business which is in
competition with that of the Company or which is a supplier of products to
the Company or has any contract with the Company.
(r) EMPLOYEES AND CONSULTANTS.
(i) To the knowledge of the Company, no employee or consultant
of the Company is in violation of any term of any employment or
consulting contract, patent disclosure agreement or any other contract
or agreement relating to the right of any such employee or consultant
to be employed or engaged by the Company because of the nature of the
business conducted or to be conducted by the Company or for any other
reason, and to the knowledge of the Company, the continued employment
or engagement by the Company of its present employees or consultants
will not result in any violations.
(ii) The Company has eight (8) employees.
(iii) The Company is not aware that any officer, director,
executive
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<PAGE> 10
or key employee of the Company or any group of employees of the
Company has any plan or intention of terminating employment or
association with the Company.
(s) TRUTH AND COMPLETENESS OF REPRESENTATIONS AND WARRANTIES. Neither
this Agreement nor any exhibit or schedule to this Agreement, or schedule
or document furnished by the Company or its officers in connection with the
transactions contemplated herein contains any untrue statement of any
material fact or omits to state a material fact necessary in order to make
the statements contained therein or herein, in light of the circumstances
under which they were made, not misleading; and there is no fact specific
to the Company which materially and adversely affects the business,
prospects, affairs, operations or condition, financial or otherwise, of the
Company which has not been disclosed to the Purchaser (other than
information about the healthcare, pharmaceutical, biotechnology, computer
or microelectronic industry in general or general economic conditions which
information is generally available to the public) by the Company. The
foregoing representation is not intended to include facts pertaining
generally to the industries the Company intends to operate within, general
economic, political or regulatory conditions or facts generally applicable
to start-up companies. The projections and estimates provided to the
Purchaser were prepared in good faith and with a good faith belief in the
reasonableness of the assumptions on which the projections and estimates
were based, but the Company makes no other representation or warranty with
respect to such projections or estimates in any manner. The representations
and warranties of the Company are complete and accurate in all material
respects.
As used in this Section 4, "knowledge," "know" or "known," when
referring to the Company, shall refer to the knowledge of officers and
directors of the Company, but shall not include inquiry of other persons or
entities.
5. AFFIRMATIVE COVENANTS OF THE COMPANY. From and after the Closing Date
and until the Conversion Date (as defined in the Convertible Notes), unless it
receives the prior written consent of the Purchaser to act to the contrary, the
Company shall comply with the covenants contained in this Section 5 so long as
there remains outstanding the Convertible Note. For purposes of this Section,
the term "Company" shall be deemed to include, in addition to the Company, all
Subsidiaries
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<PAGE> 11
(a) FINANCIAL INFORMATION. The Company shall maintain a system of
accounting established and administered in accordance with generally
accepted accounting principles consistently applied, and shall set aside on
its books, and cause each of its operating subsidiaries to set aside on its
books, all such proper reserves as shall be required by generally accepted
accounting principles. The Company shall retain independent certified
public accounts of recognized national standing who shall audit the
Company's financial statements at the end of each fiscal year. In the event
the services of the independent public accountants so selected, or any firm
of independent public accounts hereafter employed by the Company are
terminated, the Company shall promptly thereafter notify the Purchaser and
shall request the firm of independent certified public accountants whose
services are terminated to deliver to the Purchase a letter of such firm
setting forth the reasons for the termination of their services. In the
event of such termination, the Company shall promptly thereafter engage
another such firm of independent certified public accountants of recognized
national standing. In its notice to the Purchaser, the Company shall state
whether the change of accountants was recommended or approved by the Board
of Directors of the Company or any committee thereof. The Company will
furnish the following reports to the Purchaser:
(i) As soon as practicable after the end of each fiscal year,
and in any event within 120 days thereafter, a consolidated balance
sheet of the Company and its Subsidiaries (as defined below) (if any)
as of the end of such fiscal year, and a consolidated statement of
income and a consolidated statement of changes in financial position
of the Company for such year, prepared in accordance with generally
accepted accounting principles consistently applied and setting forth
in each case in comparative form the figures of the previous fiscal
year, all in reasonable detail including all supporting schedules and
comments. If the Company has retained an auditor, such financial
statements shall be accompanied by the opinion of such auditors with
respect to such financial statements.
(ii) As soon as practicable after the end of each month, and in
any event within 15 days thereafter, (A) a consolidated balance sheet
of the Company and its Subsidiaries (if any) as of the end of such
month, and a consolidated statement of income, shareholder's equity
and cash flow for each month and for the current fiscal year to date,
prepared in accordance with generally accepted accounting principles
consistently applied and (B) a letter from the chief executive officer
of the Company reporting on the Company's operations, describing
significant events or circumstances affecting operations and
containing such other matters as are reasonably requested by the
Purchaser
(b) ADDITIONAL INFORMATION. The Company will furnish to the
Purchaser:
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<PAGE> 12
(i) Concurrently with the delivery of each of the financial
statements referred to in Section 5(a) above, a certificate executed
by the president or chief financial officer of the Company stating
that neither the Company nor any of its Subsidiaries is in default
under its certificate of incorporation, its by-laws, this Agreement,
the Convertible Notes, the Warrants or any other material agreements
to which it is a party or to which it or any of its properties is
subject;
(ii) Promptly following receipt thereof, any letters furnished to
the Company by its independent public accountants which comment on the
accounting practices of the Company;
(iii) Promptly (but in any event within five days) after the
discovery of any material adverse event or circumstance affecting the
Company including, but not limited to, the filing of any material
litigation against the Company or any Subsidiary and the discovery
that the Company is not, or with the passage of time will not be, in
compliance with any provision of this Agreement, the Convertible
Notes, the Warrants, its Certificate of Incorporation or any other
material agreement of the Company, a notice specifying the nature and
period of existence thereof, and the actions the Company has taken
and/or proposes to take with respect thereto. The Company shall
furnish the Purchaser with monthly reports updating and describing any
developments relating to matters described under this subparagraph
(iii) and will promptly notify the Purchaser of any material
developments or changes relating thereto. "Subsidiary" as used in this
Agreement shall mean as to the Company, any corporation of which more
than 50% of the outstanding stock having ordinary voting power to
elect a majority of the Board of Directors of such corporation is at
the time directly or indirectly owned by the Company, or by one or
more of its Subsidiaries, or by the Company and one or more of its
Subsidiaries;
(iv) Promptly following the preparation thereof, copies of the
minutes of proceedings (or consents) of the Company's Board of
Directors and stockholders together with all written materials given
to investors in connection with any meeting of the Board of Directors;
and
(v) With reasonable promptness, such other information and data
with respect to the Company and its Subsidiaries as the Purchaser may
from time to time reasonably request.
The provisions of this Section 5(b) shall not be in limitation of any
rights which the Purchaser may have with respect to the books of account and
records of the Company and its subsidiaries (if any) or to inspect their
properties and assets or discuss their affairs, finances and accounts, under the
laws of the respective jurisdictions in which the Company and its subsidiaries
(if any) are incorporated.
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<PAGE> 13
(c) INSPECTION. The Purchaser shall have the right, at its expense,
to visit and inspect any of the properties of the Company or any of its
Subsidiaries and to discuss its affairs, finances and accounts with its
officers, directors and independent public accountants, all at such
reasonable times and as often as may be reasonably requested.
(d) USE OF PROCEEDS. The Company shall use the net cash proceeds of
the sale of the Convertible Notes and Warrants for working capital.
(e) INSURANCE. The Company has in full force and effect the insurance
as described on Schedule G.
(f) COMPLIANCE WITH CERTIFICATE OF INCORPORATION, BYLAWS AND
AGREEMENTS. The Company shall perform and observe all of its obligations
pursuant to its Certificate of Incorporation, its Bylaws, this Agreement,
the Convertible Notes, the Warrants, and the Material Contracts.
(g) REGISTRATION OF TRANSFER. The Company shall keep at its principal
office (or such place as the Company reasonably designates) a register for
the registration of the outstanding securities of the Company. Upon
surrender of any promissory note (including without limitation the
Convertible Notes) properly endorsed for transfer, the Company shall, at
the request of the holder of such security, execute and deliver a new
promissory note, in exchange therefor, representing the aggregate principal
amount of the surrendered notes, and the Company forthwith shall cancel
such surrendered note. Each such new note shall be registered on the books
of the Company in such name and shall (subject to the immediately preceding
sentence) represent such principal amount of note as is requested by the
holder of the surrendered note and shall be substantially identical in form
to the surrendered note, subject to the restrictions stated in the legend
set forth on the Convertible Notes, which legend shall be placed on, and
which restrictions shall apply to, all notes issued in replacement
therefor. The issuance of new notes shall be made without charge to the
holders of the surrendered note or new note for any issuance tax in respect
thereof or other cost incurred by the Company in connection with such
issuance or transfer.
(h) REPLACEMENT. The Company shall issue a new note in place of any
previously issued note alleged to have been lost, stolen or destroyed, upon
such terms and conditions as the Board of Directors may prescribe,
including the presentation of reasonable evidence of such loss, theft or
destruction (provided that an affidavit of a holder will be satisfactory
for such purpose) and the giving of such indemnity as the Company's Board
of Directors may request for the protection of the Company or any transfer
agent or registrar (provided that if the holder is the Purchaser, its own
indemnification agreement in form reasonably satisfactory to the Company
shall under all circumstances be satisfactory, and no bond shall be
required). Upon surrender of any previously issued note that has been
mutilated, the Company shall issue a new note in
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<PAGE> 14
place thereof.
(i) MAINTENANCE OF CORPORATE EXISTENCE AND BUSINESS. The Company
shall take such action as may from time to time be necessary to preserve
its corporate existence, rights and franchises, maintain its properties in
good repair and to comply with the laws of the United States and all states
and locations in which the Company shall do business as shall be necessary
to permit the Company to conduct its business, and to preserve all of its
rights, franchises and privileges.
(j) TAXES AND OTHER OBLIGATIONS. The Company shall pay and discharge
all taxes, assessments, interest and installments on mortgages and
governmental charges against it or against any of its properties, upon the
respective dates when due, except to the extent that (a) such taxes,
assessments, interest, installments and governmental charges are contested
in good faith and by appropriate proceedings in such manner as not to cause
any materially adverse effect on its financial condition or loss of any
right of redemption from any sale and (b) the Company shall have set aside
on its books reserves (segregated to the extent required by generally
accepted accounting principles) adequate with respect to such liabilities.
(k) COMPLIANCE WITH LAWS. The Company shall comply with applicable
laws, rules and regulations of all governmental authorities, the violation
of which might have a material adverse effect upon its business or
financial condition.
(l) AGREEMENTS WITH EMPLOYEES AND CONSULTANTS. The Company shall
cause all employees and consultants of the Company who may become involved
in research, development or technological matters to execute an agreement
pursuant to which each such employee and consultant will agree that they
have no ownership or other interest in any patents, inventions or other
proprietary processes created by them during their employment by or in the
course of their consultation to the Company.
(m) BOARD OF DIRECTORS VISITATION RIGHTS. The Company shall give the
Purchaser prior notice of each meeting of the Board of Directors of the
Company in accordance with the notice requirements applicable to the Board
of Directors as set forth in the By-laws of the Company and a
representative of the Purchaser shall be invited to attend as a non-voting
observer all such meetings even if a representative of the Purchaser does
not at the time serve as a member of the Board of Directors. The Company
shall pay all normal and reasonable travel, food and lodging expenses
incurred or paid by one representative of the Purchaser (whether or not
such representative is on the Board of Directors) in connection with their
attendance at such meetings that are held in a city other than Houston,
Texas or The Woodlands, Texas. The Company shall promptly give the
Purchaser copies of all materials and documents furnished to the Board of
Directors in connection with such meetings.
(n) SUBORDINATION. All Junior Indebtedness (as defined herein)
incurred by the
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<PAGE> 15
Company subsequent to the date hereof shall be subordinated to the
indebtedness evidenced by the Convertible Notes in a manner that is
reasonably satisfactory to the Purchaser. As used herein, the term "Junior
Indebtedness" shall mean any indebtedness of the Company that is evidenced
by a note or other similar instrument and that is not owed to a commercial
bank or other similar financial institution.
(o) FURTHER ASSURANCES. The Company shall execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, to the
Purchaser such further and additional instruments and documents and shall
use its best efforts to cause to be taken such other action as the
Purchaser reasonably may require to more effectively implement and carry
into effect the transactions contemplated by this Agreement.
(p) AVAILABILITY OF COMMON STOCK FOR CONVERSION. The Company
shall, from time to time, in accordance with the laws of the State of
Delaware, take such actions (within its control) as are necessary to
increase the authorized amount of Common Stock if at any time the number of
shares of Common Stock remaining unissued and available for issuance shall
be insufficient to permit conversion of all the then outstanding
Convertible Notes and Warrants of the Company.
6. NEGATIVE COVENANTS OF THE COMPANY. From and after the Closing Date and
until the Conversion Date, unless it receives the prior written consent of the
Purchaser to act to the contrary, the Company shall comply with the covenants
contained in this Section 6 so long as the Convertible Notes remain outstanding.
For purposes of this Article, the term "Company" shall be deemed to include, in
addition to the Company, all Subsidiaries. Subject to the foregoing, the Company
agrees as follows:
(a) INDEBTEDNESS. The Company shall not guarantee the obligation of
another person (except of wholly-owned Subsidiaries) and will not make any
loan or advance to any person or entity (except wholly-owned Subsidiaries)
except moving expenses, advances and similar expenditures in the ordinary
course of business.
(b) INVESTMENTS. The Company will not invest (as a shareholder,
partner, lender or otherwise) in any other corporation, except a wholly
owned Subsidiary; provided, however, the foregoing prohibition shall not
prevent the Company from purchasing short term money market instruments.
(c) MERGER, CONSOLIDATION, SALE OF ASSETS, ETC. The Company shall
not, and shall not permit its subsidiaries (if any), to, together or alone,
enter into any transaction of merger, consolidation or reorganization, or
dissolve, wind up or liquidate, or convey, sell, lease, exchange, transfer
or otherwise dispose of in a transaction or related series of transactions
any of its respective property, business or assets having in the aggregate
a fair market value of more than fifty percent (50%) of the book value of
the Company's assets on a consolidated basis or permit any subsidiary of
the Company whose property, business or assets satisfy the foregoing test
to enter into any transaction of merger,
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<PAGE> 16
consolidation or reorganization; provided, however, that notwithstanding
the foregoing, (i) any subsidiary of the Company may be merged or
consolidated with or into the Company or with or into any one or more
wholly owned subsidiaries of the Company and (ii)( any subsidiary of the
Company may sell, lease, exchange, transfer or otherwise dispose of any or
all of its assets (upon voluntary liquidation or otherwise) to the Company
or a wholly owned subsidiary of the Company. The provisions of this Section
6(c) are in addition to and are not limited by any of the terms of any
other covenant contained herein.
(d) PURCHASE OF CAPITAL STOCK. The Company will not directly or
indirectly purchase, acquire, redeem or retire any share of its outstanding
capital stock or any securities exercisable for, or convertible into, its
capital stock, except of shares held by a stockholder out of proceeds of
any life insurance policy on such stockholder's life.
(e) DIVIDENDS. The Company shall not pay or declare any dividends or
make other distributions upon its shares of capital stock.
(f) SUBSIDIARIES. The Company shall not create, own or otherwise
acquire or hold any Subsidiary, unless it is wholly owned by the Company.
(g) COMPENSATION. The Company shall not pay any compensation, direct
or indirect, to any person unless such compensation is reasonable in view
of his or her time and efforts. Such compensation may include the issuance
of stock options. No fees shall be paid any full-time employee for serving
as a director of the Company.
(h) INSIDER TRANSACTIONS. The Company shall not engage in any
transaction with any of the Company's directors, officers, employees or
stockholders except (i) reimbursements of reasonable moving expenses and
reasonable expenses incurred in the ordinary course of business, (ii)
except as disclosed in SCHEDULE A, as provided in employment contracts
which are terminable by the Company without penalty upon not more than 30
days' notice or (iii) in accordance with Subsection (g) immediately above.
(i) NO CONFLICTING AGREEMENTS OR ACTIONS. The Company shall not enter
into any agreement or make any amendment to any agreement or take any other
action which would restrict or adversely affect the Company's performance
of its obligations to the Purchaser under its Certificate of Incorporation,
the Convertible Notes, the Warrants, its By-laws, this Agreement or any
agreement referred to herein.
(j) SUBSEQUENT OFFERINGS. The Company shall not hereafter sell, offer
for sale or solicit offers to buy any securities so as to cause the offer
of the Convertible Notes and Warrants to violate the Securities Act or
state securities laws or jeopardize compliance by the Company under the
Securities Act or state securities laws in respect of future offerings of
securities. In connection with future offerings of securities of the
Company, the Company will comply with all federal and state securities
laws. The Company will
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<PAGE> 17
not (i) make a public offering of any of its securities other than in a
registered offering under the Securities Act, or (ii) grant preemptive
rights to its stockholders generally in respect of future issuances of
equity securities.
(k) CONFIDENTIALITY. The Company shall not disclose any proprietary
information to any person other than as shall be necessary to the conduct
of the ordinary business of the Company (e.g., patent applications or
research agreements with academic institutions which customarily refuse to
execute confidentiality agreements) unless the Company has the written
agreement of the party to whom the disclosure is made to retain the
confidentiality of the Company's proprietary information and not to
disclose it to others.
(l) NO CHANGE IN BUSINESS. The Company shall not make any changes in
the character of its business as presently conducted or as proposed to be
conducted, or conduct its business in a manner other than in the normal and
ordinary course.
7. REGISTRATION RIGHTS AND SUBSEQUENT AGREEMENTS. If at any time prior to
or on the Conversion Date, the Company grants one or more persons registration
rights with respect to the registration of securities under the Securities Act,
the Purchaser shall be entitled to registration rights in respect of all
securities of the Company now owned or hereafter acquired by the Purchaser as
comparable as possible to those rights granted by the Company to such other
person(s). If at any time prior to or on the Conversion Date, different
registration rights are granted by the Company to more than one person, the
Purchaser shall be entitled to those rights which have been granted which the
Purchaser, in its sole discretion, determines are the most favorable. The
Company agrees with the Purchaser that the Purchaser will be entitled to the
benefits of affirmative and negative covenants on the same terms and conditions
as and together with the purchaser or purchasers in the Financing (as defined in
the Convertible Notes).
8. STAND-STILL AGREEMENT. The Purchaser agrees it will not sell, transfer
or otherwise dispose of any securities of the Company during the period
commencing upon the date upon which the Company files a registration statement
with the Securities and Exchange Commission for the registration of any
securities for sale to the public and terminating on the 180th day following the
date on which the Company's registration statement with respect to its initial
public offering is declared effective.
9. CONDITIONS TO CLOSING.
(a) CONDITIONS TO THE PURCHASER'S OBLIGATIONS. The Purchaser's
obligation to purchase the Convertible Note and Warrant is subject to the
following conditions:
(i) The Company's representations and warranties contained in
Section 4 shall be true and correct on and as of the Closing Date
(subject to any updated schedules provided to the Purchaser) and the
Purchaser shall have received a certificate of the President of the
Company with respect thereto;
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<PAGE> 18
(ii) The Company shall deliver to the Purchaser an executed
Convertible Note in the form attached hereto as EXHIBIT A; and
(iii) The Company shall deliver to the Purchaser an executed
Warrant in the form attached hereto as EXHIBIT B.
(b) CONDITIONS TO THE COMPANY'S OBLIGATIONS. The Company's obligation
to issue any Convertible Note and Warrant is subject to the following
conditions:
(i) The Purchaser's representations and warranties contained in
Section 3 shall be true and correct on and as of the Closing Date and
with respect to any closing after the date hereof, the Company shall
have received a certificate of the Purchaser with respect thereto; and
(ii) The Purchaser shall have delivered to the Company the
purchase price for the Convertible Note, the principal amount thereof,
and $90 as the purchase price for the Warrant being purchased
hereunder.
10. PAYMENT OF LEGAL FEES. The Company shall pay the reasonable fees and
expenses of counsel to the Purchaser, incurred in connection with the
negotiation of this Agreement and the consummation of the transactions
contemplated thereby, not to exceed an aggregate of $4,000.
11. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors and permitted assigns
including, without limitation, transferees of the Convertible Notes, Warrants or
any of the Conversion Securities.
12. AMENDMENT. The terms of this Agreement shall not be amended or
modified except by a writing signed by the parties hereto.
13. NOTICES. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom it
is to be given (a) if to Company, to Genometrix Incorporated, 3608 Research
Forest Drive, Suite B7, The Woodlands, TX 77381, Attn: President, or (b) if to
the Purchaser, to Palmetto Partners, Ltd., 1600 Smith Street, 50th Floor,
Houston, Texas 77002 (or, in either case, to such other address as the party
shall have furnished in writing in accordance with the provisions of this
Section 13). Any notice or other communication given by certified mail shall be
deemed given at the time of certification thereof, except for a notice changing
a party's address which shall be deemed given at the time of receipt thereof.
14. ASSIGNABILITY. This Agreement and the rights, interests and
obligations hereunder are not transferable or assignable by the Purchaser,
provided, however, that the rights contained
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<PAGE> 19
in Sections 5 (other than subsection (m)), 6 and 7 may be transferred and
assigned with any transfer or assignment of a Convertible Note, provided, (i)
the transferee or assignee (a) agrees to be bound by Sections 8 and 16 hereof
and (b) is not, in the Company's reasonable judgment, a competitor of the
Company; and (ii) such transfer or assignment is made (a) in connection with a
distribution to the Purchaser's beneficial owners, affiliates (as defined in the
Securities Act) or its employees, provided one person is designated as the agent
of the transferees or assignees for purposes of their rights hereunder and
compliance with the provisions of this Agreement with respect to such agent
shall be treated as compliance with respect to all such transferees or assignees
and the Company or (b) to a transferee or an assignee who shall acquire
Convertible Notes in their entire then outstanding aggregate principal and
accrued interest amount. The Purchaser further agrees that the transfer or
assignment of the Convertible Notes, the Warrants or the Conversion Securities
shall be made only in accordance with all applicable laws.
15. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the internal law of the State of Texas without regard to its
conflicts of laws principles.
16. CONFIDENTIALITY. Each of DRK and DSK acknowledges and agrees that any
information or data it has acquired from or about the Company, not otherwise
properly in the public domain, was received in confidence. Each of DRK and DSK
agrees not to divulge, communicate or disclose, except (i) as may be required by
law or for the performance or enforcement of this Agreement, (ii) as may be
required by court order or (iii) to the extent it is already publicly available,
or acquired without breach by DRK or DSK of the terms hereof, or use other than
in connection with its investment in the Company, any confidential information
of the Company, including any scientific, technical, trade or business secrets
of the Company and any scientific, technical, trade or business materials that
are treated by the Company as confidential or proprietary, including, but not
limited to, ideas, discoveries, inventions, developments and improvements
belonging to the Company and confidential information obtained by or given to
the Company about or belonging to third parties.
17. MISCELLANEOUS.
(a) This Agreement together with the Convertible Notes and the
Warrants constitute the entire agreement between the Purchaser and the
Company with respect to the subject matter hereof and supersedes all prior
oral or written agreements and understandings, if any, relating to the
subject matter hereof, provided, however, any agreement pertaining to
confidentiality is not superseded and shall remain in full force and effect
and provided, further, the Note and Warrant Purchase Agreement dated July
6, 1994 between the parties is not superseded. The terms and provisions of
this Agreement may be waived, or consent for the departure therefrom
granted, only by a written document executed by the party entitled to the
benefits of such terms or provisions.
(b) The representations, warranties, covenants and agreements of the
parties made in this Agreement shall survive the execution and delivery
hereof and of the
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<PAGE> 20
Convertible Notes and Warrants.
(c) This Agreement may be executed in one or more counterparts each
of which shall be deemed an original, but all of which shall together
constitute one and the same instrument.
(d) Each provision of this Agreement shall be considered separable
and if for any reason any provision or provisions hereof are determined to
be invalid or contrary to applicable law, such invalidity shall not impair
the operation of or affect the remaining portions of this Agreement.
(e) Paragraph titles are for descriptive purposes only and shall not
control or alter the meaning of this Agreement as set forth in the text.
(f) The Company acknowledges and agrees that the Purchaser has made
no representation, warranty or covenant regarding Purchaser's providing of,
and Purchaser has no obligation to provide, future financing of any kind,
nor has Purchaser made any commitment to make loans to or to purchase any
equity securities from the Company, except as expressly set forth herein.
(g) This Agreement sets forth, reduces to writing and supersedes in
all respects the statements of the parties first set forth in the term
sheet styled "Genometrix Incorporated Bridge Note Financing Palmetto
Partners January 24, 1996," as executed by Palmetto Partners, Ltd. and the
Company, and such term sheet shall hereafter by without force or effect,
having been superseded by this Agreement. This Agreement is executed as of
the date set forth below, but is intended to be effective for all purposes
as of January 24, 1996.
[Remainder of Page Left Intentionally Blank]
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<PAGE> 21
IN WITNESS WHEREOF, the Purchaser has executed this Agreement this 21st day
of January, 1997, but effective for all purposes as of January 24, 1996.
/s/ Donald R. Kendall
----------------------------------
Donald R. Kendall, Jr.
Joint Tenant with Right of
Survivorship
/s/ Dianne S. Kendall
----------------------------------
Dianne S. Kendall
Joint Tenant with Right of
Survivorship
ACCEPTED AND AGREED:
GENOMETRIX INCORPORATED
By: /s/ Mitchell D. Eggers
--------------------------------
Mitchell D. Eggers,
President
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<PAGE> 1
EXHIBIT 10.14
LEASE AGREEMENT
VENTURE TECHNOLOGY CENTER I BUILDING
2700 RESEARCH FOREST DRIVE
THE WOODLANDS, MONTGOMERY COUNTY, TEXAS
THIS LEASE AGREEMENT ("Lease"), effective September 17, 1999 ("Effective
Date"), is between WOODLANDS LAND DEVELOPMENT COMPANY, L.P., a Texas limited
partnership ("Lessor"), and GENOMETRIX INCORPORATED, a Delaware corporation
("Lessee").
1. PREMISES. Upon the terms and conditions hereinafter set forth, Lessor
does hereby lease, demise and let to Lessee, and Lessee does hereby lease and
take from Lessor, approximately 71,868 net rentable square feet of floor space
("Premises"), subject to Section 48, together with all appurtenances thereto, in
a building to be known as Venture Technology Center XI Building ("Building"), to
be located at 2700 Research Forest Drive, The Woodlands, Montgomeiy County,
Texas. The Building will be located on that certain approximately 8.0 16 acre
tract of land located in the John Taylor Survey, A-547 in Montgomery County,
Texas, more particularly described in EXHIBIT "A" ("Land"). The Premises is
shown on the floor plan attached hereto as EXHIBIT "A-1". The address of the
Premises will be 2700 Research Forest Drive, The Woodlands, Texas 77380. Lessor
reserves the right to change the name of the Building whenever it desires
without any liability or consent of Lessee.
2. LOADING DOCK AND PARKING. In addition to the Premises, Lessee and its
invitees are hereby granted the nonexclusive right to use the loading dock to be
affixed to the Premises. Lessee shall also have the nonexclusive right to park
up to 153 automobiles in the parking areas provided by Lessor on the Land.
Lessor shall keep in good condition throughout the Term described below the
parking areas for and vehicular access ways to the Premises. The use of such
parking and access areas shall at all times be subject to such reasonable rules
and regulations as Lessor may promulgate.
3. TERM. The term of this Lease ("Term") shall commence on the date
("Commencement Date") which is the earlier of(a) December 15, 1999 or (b) the
day upon which Lessee takes occupancy of the Premises, and shall expire on the
last day of the ninety-sixth (96) fill calendar month following the Commencement
Date. Notwithstanding any provision to the contrary contained herein, if Lessor
has not tendered to Lessee possession of the Premises with all work to be
performed by Lessor pursuant to the tenant improvement letter ("Tenant
Improvement Letter") attached hereto as Exhibit "B", substantially completed,
which allows for reasonable furniture, equipment, and personnel move in, by the
date set forth in (a) above, the Commencement Date shall be the date Lessor has
tendered possession of the substantially completed Premises performed by Lessor
pursuant to the Tenant Improvement
<PAGE> 2
Letter. Lessor is, as of the Effective Date, constructing the Building. Lessor
anticipates that the Building shell will be substantially complete on November
1, 1999. Lessor shall not, however, be liable or responsible for any claims,
damages or liabilities of any nature whatsoever in connection with or by reason
of any delayed occupancy. Within 15 days following Lessee's receipt from Lessor
of a memorandum of this Lease specifying the Commencement Date and date of
expiration of the Term, Lessee agrees to execute the memorandum.
4. USE. Lessee shall use the entire Premises solely for laboratory, light
manufacturing, and office use, sample archiving, information database
construction, and for no other use.
5. ACCEPTANCE OF THE PREMISES. Upon taking possession of all or any
portion of the Premises, Lessee shall be deemed to have accepted the Premises,
to have acknowledged that the same are in the condition called for hereunder and
to have agreed that the obligations of the Lessor imposed by Exhibit "B"
attached hereto have been filly performed. Lessee hereby waives any implied
warranty of Lesser that the Premises are suitable for their intended commercial
purpose and acknowledges and agrees that all of Lessee's obligations hereunder
(including without limitation, the obligation to pay rent) are independent of
any such implied warranty and agrees to perform all such obligations and pay
rent notwithstanding any breach or allegation of breach by Lessor of any such
implied warranty (which implied warranty as aforesaid is hereby waived by
Lessee).
6. SECURITY DEPOSIT. Lessee contemporaneously with the execution of this
Lease has deposited with Lessor the sum of $69,921.69 receipt of which is hereby
acknowledged by Lessor, said security deposit being given to secure the faithful
performance by Lessee of all of the terms, covenants and conditions of this
Lease to be kept and performed by Lessee. If Lessee shall fail to pay the rent
herein reserved promptly when due or if Lessee violates any of the other terms,
covenants or conditions of this Lease, said security deposit may, at the option
of Lessor, be applied to any rent due and unpaid or to any damages suffered by
Lessor as a result of Lessee's default. Nothing contained in this Section shall
in any way diminish or be construed as waiving any of Lessor's other remedies as
provided elsewhere in this Lease or at law or in equity. Should the entire
security deposit or any portion thereof be applied by Lessor for the payment of
sums due and payable to Lessor hereunder, Lessee shall, on the written demand of
Lessor, remit to Lessor a sufficient amount in cash to restore said security
deposit to its original amount. Should Lessee comply with all of the terms,
covenants and conditions of this Lease and promptly pay all of the rental herein
provided for as it falls due, (including any Additional Rent due at the end of
the Fiscal Year, which term is defined in Section 8 below, during which the Term
expires or terminates), and all other sums payable by Lessee to Lessor
hereunder, said security deposit shall be returned in fill to Lessee. Lessor
shall have the right to commingle the security deposit with other finds of
Lessor, and any interest earned shall be the property of Lessor. Lessor may
deliver the security deposit to any purchaser of Lessor's interest in the
Premises, and thereupon be discharged from further liability with respect to
such deposit.
2
<PAGE> 3
7. BASE RENT. The Base Rent, which Lessee hereby agrees to pay to Lessor
monthly, in advance, at Lessor's address stated above, shall be the equal to the
product of (a) the "Annual RSF Factor, multiplied by the "Adjusted Base Rent
Square Footage" set forth below, plus (b) the total net rentable square feet in
the Premises from time to time subleased by Lessee multiplied by the annual base
rent rate to be paid by the sublessee, multiplied by (c) 0.083333.
<TABLE>
<CAPTION>
MONTHS ANNUAL RSF FACTOR
------ -----------------
<S> <C>
1-12 $14.75
13-36 $15.75
37-72 $16.75
73-96 $17.75
</TABLE>
The "Adjusted Base Rent Square Footage" means the sum of(i) 47,271 net rentable
square feet, plus (ii) the excess of the number of net rentable square feet of
the Premises from time to time actually occupied or used by Lessee over 47,271
net rentable square feet. The Adjusted Base Rent Square Footage may never be
less than 47,271 net rentable square feet. For example, if during the first 12
months of the Term Lessee is using or occupying 50,000 rentable square feet of
the Premises and subleasing an additional 20,000 rentable square feet of the
Premises at abase rent rate of $15.00 per rentable square foot, then the Base
Rent shall be $86,458.33 ($14.75 X [47,271 + 2,729] + $15.00 X [20,000] X 1/12).
The Base Rent shall be due and payable on the first day of each calendar month
during the Term hereof, without offset or deduction, with a pro rata portion
being due and payable in advance for any partial month occurring at the
beginning of the Term.
MONTHLY
8. ADDITIONAL RENT. Lessor agrees to pay all Operating Expenses (as
defined in Section 10 below) (which includes the Management Fee described in
Section 10) up to a maximum amount of $2.02 per year for each square foot of
rentable floor area in the Building ("Operating Cost Allowance"). In the event
the Operating Expenses shall, in any Fiscal Year exceed the Operating Cost
Allowance (prorated for any partial Fiscal Year at the beginning or end of the
Term), Lessee agrees to pay to Lessor, as Additional Rent, Lessee's pro rata
share of any such excess ("Excess Operating Expenses"). The term "Fiscal Year",
as used herein, shall mean Lessor's fiscal year for accounting purposes which
currently is the 12-month period beginning January 1 and ending December 31.
Lessor shall have the right to change the Fiscal Year, from time to time, and,
in such event, Lessor shall notify Lessee in writing of such change. Lessee's
pro rata share shall be determined by multiplying the Excess Operating Expenses
by a fraction, the numerator of which shall be the number of net rentable square
feet in the Premises, and the denominator of which shall be the net rentable
square footage in the Building, which may change from time to time utilizing
BOMA (Building Owners and Managers Association) standards. Within 90 days
following the completion of each Fiscal Year, Lessor will provide to Lessee a
statement showing in reasonable detail the Operating Expenses for the preceding
Fiscal Year, the Additional Rent due with regard to Lessee's share of the Excess
Operating Expenses, and Lessor's reasonable estimate of Excess Operating
Expenses for the then current Fiscal Year. Lessee shall, on or before 30 days
following receipt of said statement, pay to Lessor the amount
3
<PAGE> 4
of Additional Rent due as provided herein, less the amount of Additional Rent
paid in advance (if any) during the preceding Fiscal Year. Any overpayment will
be credited by Lessor to Lessee's pro rata share of the estimated Excess
Operating Expenses for the then current Fiscal Year. Lessee agrees to pay
Additional Rent each month thereafter, in addition to Base Rent, in an amount
necessary to amortize the estimated Excess Operating Expenses for the then
current Fiscal Year (or the pro rata portion thereof, if applicable) over a
period equal to the lesser of (i) the number of months remaining in the Term or
(u) the number of months remaining in the current Fiscal Year. Notwithstanding
that the Term has expired or been terminated, Lessee shall remain liable for and
agrees to pay to Lessor within 30 days following receipt of an invoice therefor,
its pro rata portion of Excess Operating Expenses for the Fiscal Year (or
portion thereof) during which the Term expired or was terminated. Lessee shall
have the right, at its expense and at a reasonable time, to audit Lessor's books
relevant to the Additional Rent due under this Section.
9. PAYMENT OF RENTALS. Lessee covenants to promptly pay all rentals when
due and payable. A late charge of ten percent (10%) shall be added to any
payment of Base Rent or Additional Rent which is more than 10 days past due in
order to compensate Lessor for the extra administrative expenses incurred,
provided that the first 3 times during the Term that Lessee is delinquent in any
payment of Base Rent or additional Rent, the 10% late charge will be waived so
long as Lessee cures the default within 3 days of written notice from Lessor. If
Lessor shall pay any monies or incur any expenses in correction of violations of
the covenants herein set forth, the amounts so paid or incurred shall, on notice
to Lessee, be considered additional rent payable by Lessee with the first
installment of Base Rent thereafter to become due and payable, and may be
collected or enforced as by law provided in respect of rentals.
10. OPERATING EXPENSES. The term "Operating Expenses" means all of
Lessor's costs, expenses and disbursements (but not acquisition of capital
investment items, except as hereinafter expressly provided or specific costs
billed to specific lessees) to operate and maintain the Land, the Building, and
all improvements on the Land from time to time (to the extent and only to the
extent same are Lessor's obligation to pay or furnish under the other provisions
of this Lease), including, but not limited to, Lessor's costs of providing
utilities, including, but not limited to lighting; porter services and supplies;
refuse removal (if Lessor elects to furnish this service); landscaping,
including irrigation; and general maintenance and repairs, including, but not
limited to, repairs to roof surface and preventive maintenance, parking area
restriping, exterior painting and other activities. Operating Expenses shall
also include a reasonable amortization charge on account of any capital
expenditure incurred to effect a reduction of Operating Expenses and a
reasonable charge for amortization of all capital items Lessor installs (a) to
reduce Operating Expenses, or (b) to promote safety, or (c) which Lessor is
required to install on or for the benefit of the Building by any governmental
law, code or - regulation passed or enacted on or after the Commencement Date,
or (d) which is a replacement (as opposed to additions or new improvements) of
items located in the common areas adjacent to the Building, the parking area and
other facilities used in connection with the Building, or involving the exterior
of the Building, including, but not limited to, the roof and structural
elements. Additionally, Operating Expenses shall include all ad valorem taxes or
assessments, and Annual Assessments of The Woodlands Community Association, Inc.
and The Woodlands Commercial Owners Association, whichever is applicable, which
accrue against the Building or the Land
4
<PAGE> 5
during the Term, together with all insurance premiums which Lessor is required
to pay or deems necessary to pay with respect to the Building or the Land,
including, but not limited to, casualty insurance and liability insurance, and a
management fee ("Management Fee") of 5% of Lessee's annual Base Rent.
Notwithstanding anything contained herein to the contrary, it is agreed that in
the event not more than 95% of the rentable area in the Building is occupied
during any Fiscal Year or in the event not more than 95% of the rentable area in
the Building is provided with building standard services during any Fiscal Year,
an adjustment shall be made in computing the Operating Expenses for such year so
that the Operating Expenses shall be computed for such year as though the
Building had been 95% occupied during such year and as though 95% of the
Building had been provided with building standard services during such year.
Notwithstanding anything contained herein to the contrary, if at the end of
the Fiscal Year, the Land with the Building thereon, has not yet been placed on
the tax rolls, the Fiscal Year ad valorem taxes and assessment shall be adapted
and increased as if it had been.
11. UTILITIES. Lessor shall make available to the Building gas,
electricity, water and sewer facilities. Lessee agrees to assume all costs and
expenses for water and sewer, except as herein provided, gas, electricity,
telephone, and any other service needed for its use at the Premises, including
any license or deposit required to establish or maintain such services, and the
costs of installation, hook-up and metering. Lessor agrees to pay all costs and
expenses for water and sewer service. The cost. of these services shall be
included with Operating Expenses as defined in Section 10 hereof. Lessor,
however, reserves the right to submeter, at Lessee's cost and expense, Lessee's
water and sewer usage, charging Lessee at cost plus 15% overhead. Lessee shall
promptly pay for all utility services furnished to the Premises during the term
of this Lease. Lessor shall under no circumstances be liable to Lessee in damage
or otherwise for any interruption in service of water, electricity, heating, air
conditioning or other utilities or services caused by governmental regulation,
emergencies, Acts of God, by the making of any necessary repairs or
improvements, or by any cause beyond Lessor's reasonable control. Lessor shall
endeavor in good faith to give at least 24 hours notice to Lessee when any
necessary interruption in service will be made by Lessor.
12. PEACEFUL ENJOYMENT. Lessee shall and may peacefully have, hold and
enjoy the Premises for the Term, subject to the terms and conditions of this
Lease, provided that Lessee pays the rentals and other sums herein recited and
performs all of its covenants and agreements herein contained. It is understood
and agreed that this covenant and any and all other covenants of Lessor
contained in this Lease shall be binding upon Lessor and its successors and
assigns, but only with respect to breaches occurring during its and their
respective ownership of Lessor's interest hereunder.
13. ALTERATIONS, ADDITIONS AND IMPROVEMENTS. Lessee shall not make or
allow to be made any alterations or physical additions in or to the Premises
without first obtaining the written - consent of Lessor. Lessor shall not be
liable as a result of any such consent for completeness, design sufficiency, or
compliance with any law, ordinance, order, rule, or regulation and Lessee shall
indemnify, defend and hold Lessor harmless from all claims, demands, damages,
causes of action or litigation, arising out of or resulting from such consent.
Any and all alterations, additions or improvements, other than that portion of
the initial Tenant
5
<PAGE> 6
improvements which are to be provided by Lessor pursuant to the terms of Exhibit
"B" hereto, shall be made at Lessee's sole expense. All such alterations,
additions or improvements upon the earlier to occur of (i) the termination date
of the Lease or (ii) Lessor's termination of Lessee's right of possession of the
Premises pursuant to Section 29 of the Lease, shall become the property of
Lessor and shall be surrendered to Lessor upon the termination of this Lease by
lapse of time or otherwise; provided, however this clause shall not apply to
removable equipment or furniture owned by Lessee and which can be removed
without damage to the Building or the Premises, provided there is no default by
Lessee in any of the terms and conditions of the Lease. Notwithstanding any
provision in this Lease to the contrary, Lessee shall be solely responsible for,
and shall release, indemnify, defend, and hold Lessor harmless from all damages
for any bodily injury or property damage arising out of, the construction,
installation, use, operation, maintenance, repair, replacement, or removal of
all laboratories and "clean rooms" and all equipment, piping, and other
secondary infrastructure related to such laboratories and "clean rooms" located
in the Premises.
14. EXTERIOR REPAIRS. Lessor will keep the exterior of the Building,
including any doors, windows, or glass, in repair, provided Lessee shall give
Lessor written notice of the necessity for such repairs, and provided that the
damage thereto shall not have been caused by the negligence of Lessee, its
agents, employees, licensees or invitees, in which event Lessee shall be
responsible therefor for the cost. Lessor shall be under no liability for
repair, maintenance, alteration or any other action with reference to any
plumbing, electrical or other mechanical installation within or serving the
Premises or any part thereof, except for the service lines leading to the
Premises.
15. OPERATION BY LESSEE. Lessee agrees to (a) keep the inside of all glass
in the doors and windows of the Premises clean; (b) keep all interior surfaces
of the Premises clean; (c) replace promptly, at its expense, any cracked or
broken window glass inside the Premises with glass of like kind and quality; (d)
maintain the Premises in a clean, orderly and sanitary condition and free of
insects, rodents, vermin and other pests; (e) keep any garbage, trash, rubbish
or refuse in rat-proof containers within the interior of the Premises until
removed from the area; (f) have such garbage, trash, rubbish and refuse removed
at its expense on a regular basis from location points and at such times as
designated by Lessor, if said service is not provided by Lessor; (g) keep all
mechanical apparatus free of vibration, noise or pollution which may be
transmitted beyond the Premises; (h) comply with all laws, ordinances, rules and
regulations of the Fire Underwriters Rating Bureau now or hereafter in affect;
and (i) conduct its business in all respects in a dignified manner in accordance
with high standards of business operation.
In addition, Lessee shall not (a) place or maintain any merchandise or
other articles in any vestibule or entry of the Premises, on the footwalks
adjacent thereto or elsewhere on the exterior of the Premises or Building
without the written consent of Lessor; (b) permit undue accumulation of garbage,
trash, rubbish or other refuse within or without the Premises; (c) cause or
permit objectionable odors to emanate or be dispelled from the Premises; (d)
cause or permit the parking of vehicles so as to interfere with the use of any
driveway, walk, parking area, dock or other common facility in the area; (e)
occupy, use or permit the use or occupancy of any portion of the Premises for
any business or purpose which is immoral, disreputable or in violation of any
legal direction of any public officer; or (f) occupy, use or permit the use or
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occupancy of any portion of the Premises for any business or purpose which, in
the opinion of Lessor, reasonably formed, constitutes a public or private
nuisance or unduly disturbs the business of other tenants in the Building.
Lessor shall have the right, upon written notice to Lessee, to provide for
rubbish and refuse removal services as required of Lessee above, and Lessee
agrees to reimburse Lessor for the cost incurred in providing such service
within 30 days after receipt of a statement setting forth the cost of such
service.
Lessee agrees to discharge all waste materials from the Premises in
compliance with the rules and regulations as set forth in The Woodlands Metro
Center Municipal Utility District Policy Manual - Industrial Waste Discharges -
Permits and Charges - No. R&S-50, issued July 12, 1979, with an effective date
of July 12, 1979, as it may be amended from time to time. Lessee shall haul away
for disposal at its own expense, any waste material not meeting the standards
for discharge set forth in the above-referenced manual.
Lessee shall comply, at Lessee's cost and expense, with all private
restrictions encumbering the Land and all present and future laws, ordinances,
orders, rules, regulations and requirements of all federal, state, and municipal
governments, including all municipal and road utility districts and municipal
utility districts, and all departments, commissions, boards and officers
thereof, and any other body exercising similar functions, which now or hereafter
may be applicable to the Premises, the improvements in the Premises, or to the
use or manner of use of the Premises or the improvements, including but not
limited to, all environmental laws and the Americans With Disabilities Act. In
the event of a violation of any environmental law by Lessee and cleanup of
contamination is required, in addition to all other remedies of Lessor under
this Lease or at law or in equity, Lessee shall conduct a Standard 1 cleanup so
that there is a total and complete removal of all contaminates from the
Premises. Lessee agrees that no such cleanup shall be subject to a risk
reduction standard and no deed recordation notice shall be recorded against the
Premises.
Lessee also agrees to comply with the Rules and Regulations of the
Building, a copy of which is attached as EXHIBIT "C". Lessor may amend said
Rules and Regulations, from time to time, if reasonably necessary for the
safety, care, or cleanliness of the Building, provided that no amendment shall
alter any covenant or provision contained in this Lease. Lessee agrees to comply
with any amendment which is made to said rules and Regulations in compliance
with the terms of this subsection.
Lessee shall promptly pay directly to the taxing authority all sales and/or
ad valorem taxes now or hereafter levied by separate bill on Lessee's personal
property and leasehold improvements. Lessee waives all rights under applicable
law to protest appraised values or receive notice of reappraisal regarding the
Land and Building (including Lessor's personalty), irrespective of whether
Lessor contests same. To the extent such waiver is prohibited, Lessee appoints
Lessor as Lessee's attorney-in-fact, coupled with an interest, to appear and
take all actions which Lessee would otherwise be entitled to take under
applicable law.
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16. INTERIOR REPAIRS AND MAINTENANCE. Lessee will, at Lessee's cost and
expense, keep the interior of the Premises, together with all electrical,
plumbing and other mechanical installations therein, all heating and air
conditioning equipment, and all interior windows or doors serving the Premises,
in good order and repair, and will make all replacements thereto as its expense.
Lessee will surrender the Premises at the expiration or earlier termination of
this Lease, in as good condition as when received, excepting depreciation caused
by ordinary wear and tear. Lessee will not overload the electrical wiring
serving the Premises or within the Premises, and will install at its expense,
but only after obtaining Lessor's written approval, any additional electrical
service which may be required in connection with Lessee's use or occupancy.
Notwithstanding anything herein to the contrary,Lessor, and not Lessee, shall be
liable for any and all interior repairs which may result from any structural
failure of the Building, unless caused by Lessee, its agents, employees or
invitees. Lessee will repair promptly, at its expense, any damage to the
Premises caused by bringing into the Premises any property for Lessee's use, or
by the installation or removal of such property, regardless of fault or by whom
such damage was caused, unless caused by Lessor, its agents, employees or
contracts. Upon execution of this Lease, Lessee, at its own cost and expense,
shall enter into a regularly scheduled preventative maintenance/service contract
with Lessor, or a maintenance contractor approved by Lessor, for servicing all
hot water, heating, and air-conditioning systems and equipment within the
Premises. If Lessee falls to make such repairs and/or to perform the maintenance
and repairs to the Premises which are Lessee's obligation under this Lease,
Lessor may make same, and Lessee agrees to pay, as additional rent, the cost
thereof, plus 15% overhead, to Lessor promptly upon Lessor's demand therefor.
17. ROOF AND WALLS. Lessor or its designee shall have the exclusive right
(a) to use all or any part of the roof of the Building for any purpose including
to erect additional stories or other structures over all or any part of the
Premises, and to erect in connection with the construction thereof temporary
scaffolds and other aids to construction on the exterior of the Premises,
provided that access to the Premises shall not be denied; and (b) to install,
maintain, use, repair and replace within the Premises, pipes, ducts, conduits,
wires and all other mechanical equipment serving other parts of the Building,
the same to be in locations within the Premises as will not materially interfere
with Lessee's use thereof Lessee shall have no right to penetrate or erect
improvements on the roof without the prior written consent of Lessor. Lessee
shall be liable in damages to Lessor for any breach of this provision, including
damages for loss of any and all warranties.
18. SIGNS AND ADVERTISING. Lessee will not place or suffer to be placed or
maintained on or displaced to the exterior of the Premises, any sign,
advertising matter or other thing of any kind, and will not place or maintain
any decoration, lettering or advertising matter on the glass of any window or
door of the Premises without first obtaining the written approval of Lessor.
Lessee will maintain any approved sign, decoration, lettering, advertising
matter or other thing in good condition and repair at all times.
19. ENTRY BY LESSOR. Lessee shall permit Lessor or Lessor's agents,
representatives, or employees to enter upon the Premises at reasonable times,
and upon having given Lessee reasonable advance notice, (a) to inspect the
Premises, to determine whether Lessee is in compliance with the terms of this
Lease; (b)to show the Premises to prospective purchasers,
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lessees, mortgagees, beneficiaries under trust deeds, or insurers (but as to
prospective lessees only during the last 7 months of the Term), and (c) to make
repairs, improvements, additions and alterations thereto, as Lessor is permitted
to make according to the terms of the Lease. Any inspections of the Premises
pursuant to this subsection shall be at Lessor's cost and expense; provided,
however, in the event it is determined by Lessor that an environmental study
should be conducted on the Premises and said environmental study determines that
Lessee has not complied with all then existing environmental laws, Lessee shall
reimburse Lessor for the cost of the study within 15 days after receipt of an
invoice setting forth the cost, and Lessee shall promptly take all action
necessary, at Lessee's sole expense, to remedy any noncompliance by Lessee
discovered by such study in accordance with Section 15 above.
20. LIENS. In the event that any mechanic's, materialman's, or other lien
shall at any time be filed against the Premises, the Building or the Land
purporting to be for work, labor, services or materials performed for or
furnished to Lessee or anyone holding the Premises through or under Lessee, or
arising out of any alleged act or omission of Lessee, Lessee shall forthwith
cause the same to be properly bonded or released. If Lessee shall fail to cause
such lien to be bonded or released within 15 days after being notified of the
filing thereof, then, in addition to any other right or remedy of Lessor, Lessor
may, but shall not be obligated to, discharge the same by posting a bond or
paying the amount claimed to be due, and the amount so paid by Lessor, and all
costs and expenses incurred by Lessor in procuring the discharge of such lien,
including reasonable attorney's fees, shall be due and payable by Lessee to
Lessor as additional rent on the first day of the next succeeding month. Lessor
shall not be liable for any labor or materials furnished to Lessee upon credit,
and that no mechanics', materialman's or other liens for any such labor or
materials shall attach to or affect the estate or interest of Lessor in and to
the Land or Building.
21. SUBORDINATION. Lessee agrees that this Lease is and shall be
subordinate to any mortgage or deed of trust which may now or hereafter encumber
the Building or the Land, and to all renewals, modifications, consolidations,
replacements and extensions thereof, provided, however, that the holder of any
such mortgage or deed of trust shall agree that Lessee shall not be disturbed in
its possession of the Premises or its rights hereunder terminated or amended by
the mortgagee, any purchaser at or in lieu of foreclosure or other party so long
as Lessee is not in default under this Lease. In confirmation of such
subordination, Lessee shall at Lessor's request execute promptly any appropriate
certificate or instrument that Lessor may reasonably request. In the event of
the enforcement by the trustee or the beneficiary under a mortgage or deed of
trust of the remedies provided for by law or by such mortgage or deed of trust,
Lessee will, upon request of any person or party succeeding to the interest of
Lessor as a result of such enforcement, automatically become the lessee of such
successor in interest without change in the tenns or other provisions of this
Lease; provided, however, that such successor in interest shall not be bound by
(i) any payment of Base Rent or Additional Rent for more than one month in
advance except prepayments in the nature of security for the performance by
Lessee of its obligations under this Lease; (ii) any amendment or modifications
under this Lease made without the written consent of such trustee, beneficiary,
or successor in interest; (iii) any default by the prior owner or Landlord in
the observance or performance of any of its covenants or obligations hereunder,
or (iv) any right of offset which Lessee may have had against the prior owner or
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Landlord. Upon request by any successor in interest, Lessee shall execute and
deliver an instrument or instruments confirming the attornment herein provided
for.
Within 15 days after Lessor's request, Lessee agrees to execute an estoppel
certificate or other agreement certifying to Lessor and/or any mortgagee of the
Building such facts and agreeing to such reasonable notice provisions as such
mortgagee may request in connection with Lessor's financing, subject, however,
to the non-disturbance rights of Lessee above-described. If Lessee fails or
refuses to give a certificate hereunder within the time period herein specified,
then the information contained in such certificate as submitted by Lessor shall
be deemed correct for all purposes, and all notice provisions and other matters
in the certificate shall be deemed agreed to, but Lessor shall have the right to
treat such failure or refusal as a default by Lessee.
This Lease and all rights of Lessee hereunder are further subject and
subordinate to the extent that the same relate to the Premises to all ground or
underlying leases covering the. Land/or any part thereof which may now or
hereinafter affect the Land or the Building, and any renewals or modifications
thereof; provided, however that the holder of any ground lease or underlying
leases covering the Land or the Building shall agree that Lessee shall not be
disturbed in its possession of the Premises or its rights hereunder terminated
or amended by such holder as long as Lessee is not in default under this Lease.
22. CONDEMNATION. If the whole or any part of the Premises shall be taken
under the power of eminent domain, this Lease shall terminate as to the part so
taken on the date Lessee is required to yield possession thereof to the
condemning authority. Lessor shall, with reasonable diligence, make such repairs
and alterations as may be necessary in order to restore the part not taken to a
useful condition, and the Base Rent shall be reduced proportionately to the
portion of the Premises so taken. If the amount of the Premises so taken
substantially impairs the usefulness of the Premises for the purposes set forth
in Section 4, either party may terminate this Lease within 30 days after Lessee
is dispossessed, effective as of the date when Lessee is required to yield
possession. All compensation awarded for any taking shall belong to and be the
property of Lessor.
23. FIRE AND CASUALTY. In the event of a fire or other casualty in the
Premises, Lessee shall immediately give notice thereof to Lessor. If the
Premises, through no fault or neglect of Lessee, its agents, employees,
invitees, licensees or visitors, shall be destroyed by fire or other casualty so
as to render the Premises untenantable, the rental herein shall be reduced
proportionally to the portion of the Premises rendered untenantable until such
time as the Premises are made tenantable by Lessor. If from such cause the same
shall be so damaged that Lessor shall decide not to rebuild, then all rent and
other sums owed hereunder up to the time of such destruction or casualty shall
be paid by Lessee, and thenceforth this Lease shall cease and come to an end.
24. CASUALTY INSURANCE. Lessor shall, at all times during the Term,
maintain a policy or policies of insurance with the premiums thereon fully paid
in advance, issued by and binding upon some solvent insurance company, licensed
to do business in the State of Texas, insuring Lessor's interest in the Building
against loss or damage by fire and other hazards within the coverage of a Texas
standard special form extended coverage policy, for the full replacement
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value thereof, with payments for losses thereunder payable solely to Lessor or
its designee. Lessee shall maintain in force a like policy insuring Lessee's
interest in any furniture, equipment, machinery, goods or supplies which Lessee
may bring or obtain upon the Premises, or any improvements which Lessee may
construct thereon.
25. LIABILITY INSURANCE. Lessee shall maintain, at its expense, at all
times during the Term, a policy or policies of commercial general liability
insurance, with the premiums thereon fully paid in advance, issued by (i) an
insurance company or companies rated "A-" or higher under the most current
edition of A.M. Best's Key Rating Guide, (ii) a Lloyds of London underwriter, or
(iii) an insurance company agreed to by Lessor. All insurers must be licensed to
do business in the State of Texas. The insurance shall afford protection of not
less than $500,000 combined single limit bodily injury and property damage per
occurrence. The policy or policies shall name Lessor as an additional insured.
As to any injury or damage occurring in or on the Premises, Lessee's insurance
shall be primary. Lessee's policy shall contain an agreement by the insurer that
such policy, or policies may not be canceled or materially modified without 30
days' prior notice to Lessor. Lessee shall provide Lessor a copy of the required
policy or policies, or a certificate evidencing the required coverage, before
beginning any work in the Premises or taking occupancy of same. Additionally,
Lessee shall provide Lessor evidence of the renewal of each policy at least 30
days before the expiration of the policy.
26. RELEASE OF CLAIMS; WAIVER OF SUBROGATION. Anything in this Lease to
the contrary notwithstanding, Lessor and Lessee each waive any and all right of
recovery, claim, action or cause of action against the other and its partners
(if any), and the agents, officers, and employees of the other party or its
partners, for any loss or damage:
(i) to the Premises, the Building, or any improvements thereto, or
any personal property of such party therein, by reason of fire,
the elements or any other cause which could have been insured
against under a Texas standard special form extended coverage
insurance policy, or
(ii) arising out of any business interruption, including but not
limited to loss of profits, by reason of fire, the elements or
any other cause,
regardless of cause or origin, including the sole or concurrent negligence of
the other party or its partners, or the agents, officers, or employees of the
other party or its partners. Lessor and Lessee covenant that no insurer shall
hold any right of subrogation against the other party for losses which must be
insured against by the terms of this Lease. This Section shall survive the
termination of this Lease.
27. RELEASE AND INDEMNIFICATION BY LESSEE. Subject to Section 26 above,
Lessee releases and agrees to defend, indemnify and hold Lessor and its
partners, and the agents, officers and employees of Lessor or its partners,
harmless from and against all claims or causes of action for damage or injury or
death to persons or property occurring on or in the Premises, including, but not
limited to, any claims or causes of action caused by or resulting from (i) the
sole or concurrent negligence, but not the gross negligence or willful
misconduct of Lessor or its
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partners, or the agents, officers, or employees of Lessor or its partners, or
(ii) strict liability or product liability. This Section shall survive the
termination of this Lease.
28. HOLDING OVER. In the event of holding over by Lessee after the
expiration or termination of the Term and without the written consent of Lessor,
Lessee shall be a Tenant at will - and shall pay monthly rent equal to double
the amount of all Base Rent, and Additional Rent payable during the last month
of the Term. Further, Lessee shall indemnify Lessor against all claims for
damages by any other lessee to whom Lessor may have leased all or any part of
the Premises. Lessor may terminate the tenancy by giving written notice to
Lessee. No holding over by Lessee, either with or without the consent and
acquiescence of Lessor, shall operate to extend the Lease for a longer period
than 1 month. Any holding over with the consent of Lessor in writing shall
thereafter constitute this Lease a lease from month to month.
29. DEFAULT BY LESSEE. If (a) Lessee fails to timely pay any sum to be
paid by Lessee under this Lease; (b) Lessee falls to perform any of its other
duties or obligations under this Lease and such default continues for 20 days
after Lessor delivers written notice to Lessee or deposits written notice in the
U. S. Mall addressed to Lessee's address above; (c) any of the following actions
occur and Lessee fails to contest same using Lessee's best reasonable efforts,
and cause same to be removed, dismissed, or vacated within 30 days from the date
of entry or filing: (i) Lessee's interest under this Lease is levied on under
execution or other legal process, or (ii) any petition is filed by or against
Lessee to declare Lessee a bankrupt or to delay, reduce or modify Lessee's debts
or obligations, or (iii) any petition under the Bankruptcy Code is filed or
other action taken to reorganize or modify Lessee's capital structure, or (iv)
Lessee is declared insolvent according to law, or (v) any general assignment of
Lessee's property is made for the benefit of creditors, or (vi) a receiver or
trustee is appointed for Lessee or its property; (d) Lessee vacates or abandons
the Premises; (e) if Lessee is a corporation, Lessee ceases to exist as a
corporation in good standing in the State of Texas; or (1) if Lessee is a
partnership or other entity, Lessee is dissolved or otherwise liquidated, then
Lessor may treat the occurrence of any one or more of the foregoing events as a
breach of this Lease. Upon the occurrence of any of the foregoing events, at
Lessor's option, Lessor shall have any one or more of the following described
remedies, in addition to all other rights and remedies provided at law or in
equity:
A. Lessor may terminate this Lease and forthwith repossess the
Premises and recover damages in a sum of money equal to the total of (i) the
cost of recovering the Premises, including the cost of the removal and storage
of any of Lessee's possessions left within the Premises, (ii) the unpaid Base
Rent and Additional Rent earned at the time of termination, plus interest
thereon at the lesser of 18% or the then maximum interest rate permitted to be
charged by applicable law ("Interest") from the due date until paid, (iii)
thebalance of the Base Rent and Additional Rent for the remainder of the Term,
discounted to its present value at the rate of 6% per annum, less the fair
market rental value (allowing a reasonable period for reletting) of the Premises
for said period (provided said sum shall not be less than zero), and (iv) any
other sum of money and damages owed by Lessee to Lessor.
B. Without terminating this Lease, Lessor may terminate Lessee's
right of possession and repossess the Premises by forcible detainer suit or
otherwise, without demand or
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notice of any kind to Lessee. If Lessor pursues this remedy, Lessor shall use
reasonable efforts to relet the Premises for Lessee's account, for such rent and
upon such terms and conditions as Lessor deems satisfactory. Lessor shall be
deemed to have used "reasonable efforts" to relet the Premises if Lessor offers
the Premises as "for lease" and entertains in good faith, bona fide offers to
lease submitted to Lessor. In no event shall Lessor be obligated to lease the
Premises in priority of other space in the Building or adjacent buildings owned
by Lessor or any affiliate thereof. For the purpose of such reletting, Lessor is
authorized to decorate or to make any repairs, changes, alterations or
modifications in or to the Premises as it deems necessary to prepare the
Premises to relet at Lessee's expense. If Lessor fails to relet the Premises,
then Lessee shall pay to Lessor as damages a sum equal to the amount of the Base
Rent and Additional Rent provided for in this Lease for such period or periods.
If Lessor relets the Premises and fails to realize a sufficient sum from such
reletting after deducting (a) the due and unpaid Base Rent and Additional Rent,
(b)the accrued Interest thereon, (c) the cost of recovering possession, (d) the
costs and expenses of all decorations, repairs, changes, alteration and
modifications, and (e) the expense of such reletting and the collection of the
rent accruing therefrom, then Lessee shall pay to Lessor any such deficiency
upon demand from time to time. Lessor may file one or more suits to recover any
sums falling due under this Section from time to time. Any reletting shall not
be an election by Lessor to terminate this Lease unless Lessor gives a
writteiThotice of such intention to Lessee. Notwithstanding any such reletting
without termination, Lessor may at any time thereafter elect to terminate this
Lease for such previous default.
C. Lessor may change the locks on the Premises. The Lessor will not
have to give the Lessee a new key unless the Lessee cures the default(s); the
new key will be provided only during Lessor's regular business hours.
30. WAIVER. Failure of Lessor to declare any default immediately upon
occurrence thereof, or delay in taking any action in connection therewith, shall
not waive such default, but Lessor shall have the right to declare any such
default at any time and take such action as might be lawful or authorized
hereunder, either in law or at equity.
31. LIEN FOR RENT. INTENTIONALLY DELETED.
32. ASSIGNMENT BY LESSOR. Lessor shall have the right to sell, transfer or
assign, in whole or in part, all of its rights and obligations hereunder and in
the Building and the Land. In such event and upon the assumption by such
transferee of Lessor's obligations hereunder, no further liability or obligation
shall thereafter accrue against Lessor hereunder.
33. ASSIGNMENT BY LESSEE. Lessee shall not assign this Lease or any
interest therein, nor sublet the Premises or any part thereof or any right or
privilege appurtenant thereto, nor permit any other person, firm or entity to
occupy or use the Premises or any portion thereof without first obtaining the
written consent of Lessor. Lessor shall have the right, at its option, to
terminate this Lease as to any portion of the Premises covered by a proposed
assignment or sublease, or to approve any such assignment or sublease only upon
the condition that (a) all rentals paid by the assignee or sublessee in excess
of the rentals due from Lessee hereunder, shall be paid directly to Lessor,
(b) the proposed assignee or sublessee is financially capable of
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assuming Lessee's obligations hereunder, in the sole judgment of Lessor, (c) the
rental to be paid by the proposed assignee or sublessee is equivalent to the
then market rental for similar space in The Woodlands, and (d) the proposed
assignee or sublessee agrees to use the Premises only for the uses permitted by
Lessee under this Lease, and to comply with all of the other terms and
conditions of this Lease. Otherwise,.Lessor's consent to any proposed sublease
or assignment shall not be unreasonably withheld. Consent by Lessor to one
assignment, subletting, occupation or use by another person shall not be deemed
to be a consent to any subsequent assignment, subletting, occupation or use by
the same or another person. Consent to an assignment or sublease shall not
release Lessee from liability for the continued performance of the terms and
provisions to be kept and performed by Lessee hereunder, unless Lessor
specifically and in writing releases Lessee from said liability. In addition, an
amendment, modification, or extension of the Lease after the assignment or
sublease shall not release Lessee from liability for the continued performance
of the terms and provisions to be performed by Lessee hereunder. Any assignment
or subletting by operation of law or otherwise, (including without limitation, a
transfer of controlling interest in Lessee to any other person, firm or entity)
without the prior written consent of Lessor, shall be void and shall, at the
option of Lessor, terminate this Lease. Lessee covenants and agrees that when
the prior written consent of Lessor is obtained, and in the event the subletting
or assignment is to be arranged through public advertisement or listing of any
kind, Lessee will treat all applications for sublease or assignment in a uniform
manner and will award leases according to objective standards.
Notwithstanding anything contained herein to the contrary, Lessor shall not
be obligated to entertain or consider any request by Lessee to consent to any
proposed assignment of this Lease or sublease of all or any part of the Premises
unless each request by Lessee is accompanied by a nonrefundable fee payable to
Lessor in the amount of $ 500.00 to cover Lessor's administrative, legal, and
other costs and expenses incurred in processing each of Lessee's requests.
Neither Lessee's payment nor Lessor's acceptance of the foregoing fee shall be
construed to impose any obligation whatsoever upon Lessor to consent to Lessee's
request.
34. TRANSFER OF CONTROL. INTENTIONALLY DELETED.
35. NOTICES. Any notice required or permitted to be given pursuant to the
terms of this Lease shall be sent by certified or registered U.S. mail to Lessor
at 2201 Timberloch Place, The Woodlands, Texas 77380, Attn: Property Management,
with a copy to Crescent Real Estate Equities Limited Partnership, 777 Main
Street, Suite 2100, Fort Worth, Texas 76102, Attn: Legal Department, and to
Lessee at 3608 Research Forest, Suite B7, The Woodlands, Texas 77381, Attn:
Chief Executive Officer. The place to which such notices shall be sent may be
changed by either party giving notice of such change to the other party in the
manner hereinabove provided. A notice shall be deemed given and received on the
3rd business day following deposit in the U. S. Mall as provided above.
36. SEVERABILITY. If any of the provisions of this Lease shall contravene
or be invalid under the laws of the particular state, county, or jurisdiction
where applied, such contravention or invalidity shall not invalidate the Lease
or any other portions thereof and the remainder of this Lease or the application
thereof to other persons or circumstances shall not be affected thereby.
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37. CORPORATE AUTHORITY. If Lessee signs as a corporation, each of the
persons executing this Lease on behalf of Lessee represents and warrants that
Lessee is a duly organized and existing corporation, that Lessee has and is
qualified to do business in Texas, that the corporation has full right and
authority to enter into this Lease, and that all persons signing on behalf of
the corporation were authorized to do so by appropriate corporate actions.
38. TITLE. This Lease is subject to all matters of record in the Real
Property Records of Montgomery County, Texas. By execution of this Lease, Lessee
consents to all plats and replats of the Land, if any, in compliance with all
applicable laws.
39. NOT AN OFFER. The submission of this Lease to Lessee shall not be
construed as an offer, nor shall Lessee have any rights with respect thereto
unless Lessor executes a copy of this Lease and delivers the same to Lessee.
40. EXHIBITS. Riders and Addenda. This Lease also includes and
incorporates herein for all purposes all attached Exhibits, Riders, and Addenda,
if any.
41. JOINT AND SEVERAL TENANCY. If more than one person executes this Lease
as Lessee, their obligations hereunder are joint and several, and any act or
notice of or to, or refund to, or the signature of, any one or more of them, in
relation to the renewal or termination of this Lease, or under or with respect
to any of the terms hereof shall be fully binding on each and all of the persons
executing this Lease as a Lessee.
42. BINDING EFFECT. This Lease shall be binding upon and inure to the
benefit of the heirs, successors or assigns of Lessor and Lessee, subject to the
limitation on subleasing and assignment herein contained.
43. ENTIRE AGREEMENT. This Lease shall constitute the sole and only
agreement of Lessor and Lessee with regard to the Lease of the Premises, and
shall supercede any prior or contemporaneous oral or written agreements. This
Lease may not be altered, changed or amended, except by an instrument in
writing, signed by both parties hereto.
44. PRONOUNS. Pronouns which refer to either Lessor or Lessee shall be
construed to mean the appropriate number and gender intended.
45. FORCE MAJEURE. If either party shall be delayed or prevented from the
performance of any act required hereunder by reason of acts of God, strikes,
lockouts, labor troubles, inability to procure materials, restrictive
governmental laws or regulations or other cause without fault and beyond the
control of the party obligated (Lessee's financial inability, such as inability
to obtain financing or lack of capital, excepted), performance of such act shall
be excused for the period of the delay, and the period for the performance of
any such act shall be extended by a period equal to the period of such delay;
provided, however, nothing in this Section shall excuse Lessee from the prompt
payment of any rental or other charge required of Lessee hereunder, except as
may be expressly provided elsewhere in this Lease.
15
<PAGE> 16
46. NO PERSONAL LIABILITY OF LESSOR. ANY JUDGMENT RECOVERED BY ANY LESSEE
PARTY AGAINST ANY LESSOR PARTY SHALL BE SATISFIED SOLELY OUT OF PROCEEDS
RECEIVED AT JUDICIAL SALE UPON EXECUTION ANY LEVY MADE AGAINST LESSOR'S RIGHT,
TITLE AND INTEREST IN THE BUILDING AND IN THE RENTS THEREFROM RECEIVABLE BY
LESSOR THE LESSEE PARTIES ARE LESSEE, ITS SHAREHOLDERS, MEMBERS, PARTNERS,
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, CONTRACTORS, SUBLESSEES, LICENSEES AND
INVITEES. THE LESSOR PARTIES ARE LESSOR, THE MANAGER OF THE BUILDING, LESSOR'S
MORTGAGEE(S) AND ANY AFFILIATES OR SUBSIDIARIES OF THE FOREGOING, AND ALL OF
THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, SHAREHOLDERS, MEMBERS,
PARTNERS, AGENTS AND CONTRACTORS. THE LESSOR'S MORTGAGEES ARE ANY MORTGAGEE,
GROUND LESSOR, TRUSTEE UNDER A DEED OF TRUST, OR BUYER AT A FORECLOSURE OR
TRUSTEE'S SALE. NEITHER LESSOR NOR ANY LESSOR PARTY SHALL OTHERWISE HAVE ANY
PERSONAL, CORPORATE OR OTHER LIABILITY UNDER THIS LEASE. FOLLOWING ANY TRANSFER
BY LESSOR OF ANY INTEREST IN THE PREMISES, LESSOR SHALL BE RELEASED FROM ALL
OBLIGATIONS OF LESSORS THEREAFTER ARISING UNDER THIS LEASE, AND LESSEE SHALL
ATTORN AND LOOK SOLELY TO LESSOR'S SUCCESSOR-IN-INTEREST FOR PERFORMANCE OF SUCH
OBLIGATIONS.
47. GENERAL. Time is of the essence of this Lease. All rights and remedies
of Lessor and Lessee under this Lease shall be cumulative and none shall exclude
any other rights or remedies allowed by law. This Lease shall be declared to be
a Texas lease, and all of the terms hereof shall be construed according to the
laws of the State of Texas. Said Lease shall be performable only in Montgomery
County, Texas, and venue for any action hereunder shall lie exclusively in
Montgomery County, Texas or in the Southern District of Texas, Houston Division,
as appropriate.
48. SUBLEASE OF THE PREMISES AND RIGHT TO TERMINATE. The parties do not
contemplate that Lessee will initially use or occupy 71,868 net rentable square
feet of space in the Premises. During the first two (2) years of the Term,
Lessor shall reasonably assist Lessee in Lessee's attempts to market portions of
the Premises as shown on Exhibit "A" attached hereto for sublease, but any such
sublease shall be subject to the terms and conditions in Section 33. Any such
sublease shall be at the prevailing market base rental rate and lease term for
similar buildings in The Woodlands at the time of the sublease. In the event a
portion of the Premises is sublet, the Base Rent shall be adjusted as described
in Section 7 of the Lease. So long as a sublease remains in effect, it is
understood and agreed that Lessor will not look to Lessee for the performance of
any of the duties of the sublessor or sublessee under the sublease, agrees to
indemnify and hold Lessee harmless for claims or causes of action arising out of
Lessor's failure to perform the obligations of the sublessor under the sublease,
releases and agrees to hold Lessee harmless from and against claims or causes of
action arising out of the subtenant's occupancy of the Premises, and if the
sublessee fails to pay the rental required thereunder, the Base Rent payable by
the Lessee will be adjusted for the period of any rental default by the
subtenant and the rental from the subtenant will not be used in the calculation
of the Base Rent.
16
<PAGE> 17
At the end of the second (2) year of the Term, Lessor may, but is not
obligated to, terminate this Lease as to any net rentable square feet of the
Premises ("Unoccupied Portion") that Lessee, or a subtenant of Lessee (pursuant
to Section 33), is not actually occupying, using, or subleasing, by written
notice to Lessee delivered within 90 days after the end of such first year;
notwithstanding the foregoing, however, the Premises shall not contain less than
47,271 net rentable square feet of space. If Lessor delivers such notice within
the 90-day period, then the Lease shall terminate with respect to the Unoccupied
Portion only 30 days after the date of Lessor's notice to Lessee. With regard to
Lessee expanding its use or occupancy into any portion of the Premises that is
not occupied or used on the day that Lessee initially takes occupancy of the
Premises, Lessee must obtain Lessor's prior, written approval, which approval
may not be unreasonably withheld, delayed or conditioned, of Lessee's space
utilization plan before such use or occupancy to insure that (a) the expansion
portion is contiguous to the portion of the Premises that Lessee is then
currently using or occupying, and (b) the remaining unused or unoccupied portion
of the Premises has reasonable (i) access to exits, restrooms, and other
facilities, and (ii) availability of HVAC, heating, water, and wastewater
services.
[INTENTIONALLY LEFT BLANK]
17
<PAGE> 18
IN TESTIMONY WHEREOF, the parties hereto have executed this Lease in
multiple counterparts, each of which shall constitute an original but
collectively shall constitute only one document.
LESSOR:
THE WOODLANDS LAND DEVELOPMENT COMPANY,
L.P., a Texas limited partnership
By: The Woodlands Operating Company,
L.P.
a Texas limited partnership
Its Authorized Agenet
By: /s/ Michael H. Richmond
------------------------
Title: Michael H. Richmond
Title: President and CEO
LESSEE:
GENOMETRIX INCORPORATED
a Delaware corporation
By: /s/ Mitchell D. Eggers
-----------------------------------
Name: Mitchell D. Eggers
Title: Chief Executive Officer
18
<PAGE> 19
EXHIBIT A
THE WOODLANDS RESEARCH FOREST
8.016 ACRES
Being a 8.016 acre tract of land situated in Montgomery County, Texas in the
John Taylor Survey, A-547, out of land owned by The Woodlands Land Development
Company, L.P., a Texas limited partnership, by virtue of Memorandum of Merger
and Ownership dated July 31, 1997 recorded in File No. 9747722 of the Montgomery
County Real Property Records and being more particularly described by metes and
bounds as follows with all control referred to the 1927 Texas State Plane
Coordinate System, Lambert Projection, South Central Zone:
BEGINNING at a 5/8" iron rod set for the intersection of the northeast
right-of-way line of Research Forest Drive as recorded in Cabinet "E", Sht 39-A
of the Montgomery County Map Records with the southeast right-of-way line of New
Trails Drive as recorded with The Woodlands Medical Research Park Section 3 as
recorded in Cabinet "F", Sht. 110-B of the Montgomery County Map Records;
THENCE along the southeast right-of-way line of said New Trails Drive N
01o27'36" W. 35.36 feet to a 5/8" iron rod with aluminum cap set for corner,
THENCE continuing along said southeast right-of-way line N 43o32'24" E, 125.00
feet to a 5/8" iron rod with aluminum cap set for corner;
THENCE continuing along said southeast right-of-way line N 38o57'58" E, 213.95
feet to a 5/8" iron rod with aluminum cap set for corner,
THENCE leaving said right-of-way line S 63o49'24" B, 580.78 feet to a 5/8" iron
rod with aluminum cap set for corner in the west line of that certain 50 foot
wide Texas Intrastate Pipeline Company easement as recorded in Volume 603, Page
171 and Volume 594, Page 446 of the Montgomery County Deed Records;
THENCE along the west line of said pipeline easement S 02o48'57" E, 557.39 feet
to a 5/8" iron rod with aluminum cap set for corner in the northeast
right-of-way line of said Research Forest Drive;
THENCE with said northeast right-of-way line along a curve to the right an arc
distance of 713.94 feet based on a radius of 1,651.9 1 feet, a central angle of
24o45'46" and having a chord which bears N 58a50'29" W a chord distance of
708.40 feet to a 5/8" iron rod with aluminum cap set for a point of tangency;
THENCE continuing along said northeast right-of-way line N 46o27'36" W, 223.68
feet to the POINT OF BEGINNING and containing 8.016 acres of land.
A-1
<PAGE> 20
EXHIBIT B
Re: Leasehold improvements for 47,271 rentable square feet (47,271 usable
square feet) of space in a building known as Venture Technology Center XI
in The Woodlands, Texas.
Gentlemen:
Lessor is pleased to quote for your approval the cost of work necessary to
construct the proposed leasehold improvements in the above referenced space.
The cost of work is based upon the attached drawings dated TO BE DETERMINED
("TED"):
<TABLE>
<CAPTION>
<S> <C>
Total Cost of Work (Not to Exceed) $ 1,890,840
Lessor Allowance $ 1,418,130
Total Amount Due from Lessee $ 472,710
</TABLE>
It is understood and agreed that the Total Cost of Work will include a 3%
administrative fee for construction management, including, but not limited to,
review of the plans, drawings, and specifications for the leasehold
improvements, including, the mechanical systems and construction inspections. If
the Total Cost of Work exceeds the Lessor Allowance and there is a Total Amount
Due from Lessee, Lessee agrees either (a) to pay to Lessor the overage amount
prior to moving into the space, or (b) to reduce the scope of work.
If Lessor further agrees to perform, at your request, any additional or
non-standard work over and above that specified on the attached plans, such work
shall be performed by Lessor, at your sole expense, as a tenant extra. Prior to
commencing any such work requested by you, Lessor will submit to you written
estimates of the cost of any such work within one (1) week from the date of
submission thereof by Lessor, you Shall either provide written approval of the
estimate for construction, submit to Lessor revisions in the plans and
specifications, or notify Lessor that the work is no longer requested. You agree
to pay Lessor promptly upon being billed therefore, the cost of all such work
You agree that in the event of default in payment thereof, Lessor shall (in
addition to all other remedies) have the same rights as in the event of default
of payment of rent under the Lease.
It is agreed that, notwithstanding the date provided in the Lease for the
commencement of the lease Term, your obligation for the payment of rental
thereunder shall not commence until Lessor has substantially completed all work
to be performed by Lessor pursuant to this Exhibit "B", provided, however that
if Lessor shall be delayed in substantially completing the work as required
hereunder as a result of:
(a) Your failure to timely furnish the information and approval as and
when required;
B-1
<PAGE> 21
(b) Your request for materials, finishes or installations other than
specified on pians attached;
(c) Your changes in approved plans or specifications; or
(d) The performance by a person, firm or corporation employed by you and
the completion of said work by said person, firm or corporation.
then the commencement of the term of the Lease and the payment of rent
thereunder shall be accelerated by the number of days of such delay.
Upon your approval as indicated below, Lessor will begin construction of
your leasehold improvements and estimate construction completion within 14 weeks
of commencement of construction.
Sincerely,
________________ ________ By:_______________________________
Tenant Acceptance Date Sales Director
_______________________________
Director of Tenant Improvements
B-2
<PAGE> 22
EXHIBIT C
TO LEASE AGREEMENT
RULES AND REGULATIONS
PASSAGE WAY OBSTRUCTION
The sidewalks, entries, passages, courts, corridors and stairways shall not be
obstructed by any Lessee, its employees, contractors or agents, or used by them
for other purposes than for ingress and egress to and from their respective
suites.
UPKEEP OF PREMISES
All glass, locks and trimmings in or about the doors and windows, and all
electric globes and shades belonging to the Building shall be kept whole, and
whenever broken by the Lessee or its agents or invitees, shall be immediately
replaced or repaired and put in order by Lessee under the direction and to the
satisfaction of Lessor, and on removal shall be left whole and in good repair.
SKYLIGHTS AND WINDOWS
No floors, skylights or windows that reflect or admit light into the corridors
or passage-ways, or to any other place in the Building, shall be covered or
obstructed by any lessee. If Lessee desires blinds or window coverings, they
must be of such shade, color, material and make as shall be prescribed by Lessor
(and any awning proposed may be prohibited by Lessor).
SIGNAGE
No sign, advertisement, display, notice, or other lettering shall be exhibited,
inscribed, painted or affixed on any part of the outside of the Premises, or
inside, if visible from the outside of the Building, unless Lessor has approved
in writing the color, size, style, and location thereof in the Building. There
shall be no duty on Lessor to allow any sign, advertisement or notice to be
inscribed, painted or affixed on any part of the inside or outside of the
Building unless provided for in the Lease. In addition, no symbol, design, mark,
or insignia adopted by Lessor for The Woodlands, or any part thereof, shall be
used in connection with the conduct of Lessee's business in the Premises or
elsewhere, without the prior written consent of Lessor. Signs on doors will be
placed for Lessee by a tradesman appointed by Lessor, the cost to be paid by
Lessee. A directory in a conspicuous place, with names of the lessees, will be
provided by Lessor, any necessary revision in this will be made by Lessor within
a reasonable time after notice from Lessee of the error or change making the
revision necessary. No furniture shall be placed in front of the Building or in
any lobby or corridor without written consent of Lessor. Lessor shall have the
right to remove all such signs and furniture without notice to Lessee, at the
expense of Lessee.
C-1
<PAGE> 23
NOISE
No person shall disturb the occupants of the Building by the use of any musical
instruments, the making of unseemly noises, by the emission of odors or in any
other way. No dogs or other animals shall be allowed in the Building, except for
guide animals of disabled persons. Guide animals, however, must not bother,
threaten, or harm persons unless provoked.
USE OF PREMISES
No portion of the Building shall be used for living, sleeping, residential or
lodging purposes, or for any immoral or unlawful purposes.
FIRE PROTECTION
Lessee shall not do or permit anything to be done in the Premises or the common
areas of the Building, or bring or keep anything therein, which might invalidate
or increase the rate of or make. inoperative fire insurance on the Building or
property kept therein, or any other insurance policy carried by Lessor on the
Building or any part thereof, or obstruct or interfere with the rights of other
lessees, or in any way injure or annoy them, or conflict with the laws relating
to fire, or with any regulations of the fire department, or conflict with any of
the rules or ordinances of any city, county, state or federal authority. Lessee
shall not be permitted to use or keep in the Premises or any portion of the
Building any kerosene, camphene or other burning or flammable fluids or
explosives without the prior approval of Lessor.
PARKING
All vehicles will be parked within striped lanes. Parking across the stripes or
in unmarked areas, blocking of walkways, loading areas, entrances or driveways
will not be permitted. Unauthorized cars will not be allowed in the reserved
parking areas. Should such a situation exist, Lessor, at its option, shall have
the right to tow such vehicle away at the owner's expense.
JANITORIAL SERVICE
No Lessee shall employ any person or persons other than the janitor of the
Lessor for the purpose of cleaning or taking care of the premises leased,
without the written consent of Lessor. Lessor shall be in no way responsible to
any Lessee for any loss of property from the leased premises, however occurring,
or for any damage done to the furniture by the janitor or any of its employees,
or by any other person or persons whomsoever. Any person or persons employed by
Lessee, with the written consent of Lessor, must be subject to and under the
control and direction of the janitor of the Building at all times while working
in the Building. The janitor of the Building may at all times keep a pass key.
The janitor and other agents of Lessor shall at all times be allowed admittance
to said leased premises.
NON-STANDARD CLEANING AND MAINTENANCE
C-2
<PAGE> 24
If Lessee requires cleaning or maintenance of specialty equipment or
non-standard tenant improvement furnishings (i.e., glass panels, special art
decor, non-standard floor coverings, nonstandard lighting and specialized
equipment) as determined by Lessor, Lessee shall pay any additional cost
attributable thereto, plus 15% overhead.
EXCESS TRASH DISPOSAL
In the event Lessee must dispose of crates, boxes, etc., which will not fit into
office waste paper baskets, it will be the responsibility of Lessee to dispose
of same. In no event will Lessee set such items in the public areas of the
Building.
DEBRIS AND WASTE MATERIAL
Nothing shall be thrown out of the windows of the Building, or down the
stairways or other passages. Lessee will dispose of only Waste Materials in its
waste paper baskets. Waste material is all solid waste (including recyclable
materials) generated by Lessee, specifically excluding any radioactive,
volatile, corrosive, highly flammable explosive, biomedical, infectious
biohazardous, toxic or hazardous material defined by applicable federal, state
or local regulations.
CARPET DAMAGE
Lessee will be responsible for any damage to carpeting and flooring as a result
of rust or corrosion of file cabinets, water staining from planters, excessive
wearing by roller chairs and metal objects.
MOVES
Movement in or out of the Building of furniture, equipment or materials which
requires use of elevators or stairways, or movement through the Building
entrances or lobby, shall be under the supervision of; and shall be restricted
to hours designated by Lessor. such movement shall be carried out in the manner
agreed upon between Lessee and Lessor by prearrangement before performance. At
the time of such prearrangement, Lessor will set time, method and routing of
movement as well as limitations imposed by safety or other concerns which may
prohibit any item from being brought into the Building. Lessee assumes, and
shall indemnify Lessor against, all risks and claims of damage to persons and/or
properties arising in connection with any said movement.
Moves are to be scheduled, unless otherwise provided, for after 5:00 pm Monday
through Friday, and from 8:00 am to 6:00 pm on Saturdays and Sundays, legal
holidays excepted.
HEAVY EQUIPMENT
All safes or other heavy articles shall be carried up or into the premises only
at such times and in such manner as shall be prescribed by Lessor, and Lessor
shall in all cases have the right to specify the proper weight and position of
any such safe or other heavy article. Any damage done
C-3
<PAGE> 25
to the Building by taking in or removing any safe or from overloading any floor
in any way shall be paid by Lessee. Defacing or injuring in any way any part of
the Building by Lessee, its agents or servants, shall be paid for by Lessee.
BUILDING HOURS -- INTENTIONALLY DELETED
PROTECTION OF PREMISES
Lessee shall have the responsibility for protecting the Premises from theft,
robbery and pilferage.
AFTER HOURS AIR CONDITIONING AND HEATING - INTENTIONALLY DELETED
NON-STANDARD USAGE OF UTILITIES AND SUPPLIES
Lessor reserves the right to sub-meter and charge at cost plus 15% overhead any
non-standard use of electricity, natural gas, water and other supplies of the
Building as determined by Lessor.
WATER USAGE
The water closets and other water fixtures shall not be used for any purpose
other than those for which they were intended, and any damage resulting to them
from misuse, or the defacing or injury of any part of the Building shall be
borne by the person who shall occasion it. No person shall waste water by
interfering with the faucets or otherwise.
LOCKS AND KEYS
Lessor agrees to furnish Lessee two keys for the doors entering the Building,
Lessee's suite and each entry door therein. Any additional keys will be
furnished at a charge by Lessor equal to its cost plus 15% overhead. No
additional locks shall be placed upon any doors without the written consent of
Lessor, nor shall any duplicate keys be made. All necessary keys shall be
furnished by Lessor, and the same shall be surrendered upon the termination of
this lease, and Lessee shall then give to Lessor or its agents explanation of
the combination of all locks upon the doors of vaults.
ELECTRICAL AND TELEPHONE SERVICE
If Lessee desires telegraphic, telephonic or other electric connections, Lessor
or its agents will direct the electricians as to where and how the wires may be
introduced, and without such direction no boring or cutting for wires will be
permitted. Access to any mechanical, electrical or telephone rooms must be
approved by Lessor.
ALTERATIONS AND CONTRACTOR APPROVAL
All contractors and/or technicians performing any alterations for Lessee within
the Building must be referred to Lessor for approval and shall, prior to
commencement, execute proper lien waivers.
C-4
<PAGE> 26
ANTENNAE AND AERIALS
No aerial or antenna, including but not limited to, a satellite dish, shall be
erected on the roof or exterior walls of the Premises or Building in which the
Premises is a part without, in each instance, the prior written consent of
Lessor. Any aerial or antenna so installed without such written consent shall be
subject to removal by Lessor without notice at any time.
ADDITIONAL RULES AND REGULATIONS
Lessor reserves the right to make such other and further reasonable rules and
regulations as in its judgment may from time to time be necessary for the
safety, care and cleanliness of the Building and its occupants and for the
preservation of good order therein.
/s/ Mitchell D. Eggers
__________________________________
LESSEE
/s/ F. Earl Higgins
__________________________________
F. Earl Higgins,
Vice President, Property Management
C-5
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated November 19, 1999 relating to the financial statements of
Genometrix Incorporated as of September 30, 1998 and 1999, and for each of the
three years in the period ended September 30, 1999, and for the period from May
28, 1993 (inception) to September 30, 1999, which appear in such Registration
Statement. We also consent to the reference to us under the heading "Experts"
in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
March 15, 2000
<PAGE> 1
EXHIBIT 23.3
CONSENT OF FISH & RICHARDSON P.C. TO BEING NAMED IN THE REGISTRATION
STATEMENT
The undersigned hereby consents to being named under the heading "Experts"
in the Registration Statement on Form S-1 of Genometrix Incorporated (the
"Company").
FISH & RICHARDSON P.C.
By: /s/ John Wetherell
---------------------
name: John Wetherell
title: Principal
San Diego, California
Dated: March 15, 2000
<PAGE> 1
EXHIBIT 23.4
CONSENT OF ROBERT H. ELLIS TO BEING NAMED IN THE REGISTRATION
STATEMENT
The undersigned hereby consents to being named in the Registration
Statement on Form S-1 of Genometrix Incorporated (the "Company") as a person who
has consented to become a director of the Company following the consummation of
the public offering of shares registered under the Registration Statement.
/s/ Robert H. Ellis
-------------------------------
Robert H. Ellis
Dated March 13, 2000
<PAGE> 1
EXHIBIT 23.5
CONSENT OF MICHAEL HOGAN TO BEING NAMED IN THE REGISTRATION
STATEMENT
The undersigned hereby consents to being named in the Registration
Statement on Form S-1 of Genometrix Incorporated (the "Company") as a person who
has consented to become a director of the Company following the consummation of
the public offering of shares registered under the Registration Statement.
/s/ Michael Hogan
--------------------------------
Michael Hogan
Dated March 13, 2000
<PAGE> 1
EXHIBIT 23.6
CONSENT OF J. EVANS ATTWELL TO BEING NAMED IN THE REGISTRATION
STATEMENT
The undersigned hereby consents to being named in the Registration
Statement on Form S-1 of Genometrix Incorporated (the "Company") as a person who
has consented to become a director of the Company following the consummation of
the public offering of shares registered under the Registration Statement.
/s/ J. Evans Attwell
-------------------------------
J. Evans Attwell
Dated March 14, 2000
